April 27, 2013

Balancing the act

Intercargo Chairman John Platsidakis is quoted grumbling in The Economist. “We (shipping) carry 90% of world trade and we emit only 2.7% of the CO2 but still we are treated as if we are acting with indifference to the environment.” 

Mr Platsidakis, I am afraid that a) perception is everything in today’s world, and b) things are going to get worse. And they are going to get worse partly because, if a joint Lloyds Register, Qinetiq and University of Strathclyde report is to be believed, global seaborne trade will more than double by 2030. I believe that things will get worse simply because a major shipping weakness- inability to effectively lobby before one sided and unworkable regulations are passed- will be exposed on a larger scale if trade really takes off.

I have a few issues with that report, by the way, that cites mainly Chinese- but also Indian and other BRIC expanding economies with their huge populations- driving demand for commodities, finished goods and everything else under the sun. To me, these economies, their populations and their GDP numbers are not sustainable- they never have been. Also, in a part of the world mired in poverty, and where social security and State support is absolutely absent, there is only so much disparity that will be tolerated by the effectively disenfranchised before something gives. And so chances of upheaval in countries like India and China, and consequent major global economic turmoil are high. After all, the Arab Spring kick- started over a small episode, when Tunisian Mohamed Bouazizi set himself on fire after a dispute with a government official over where he could sell his fruit and vegetables. Optimists may think that was a black swan event. Realists will disagree.

But coming back to Mr Platsidakis- and our- problem, which is not just one of perception, by the way. The IMO, which should know better, being industry specific and all, has long made regulations that pander to the perception that shipping is some unique monster that is destroying the environment. The problem is that shipping today cannot really afford the huge financial cost of dealing with over stringent emission and ballast water regulations that the IMO has passed. I doubt very much that it will be able to pass on these costs to the consumer- the Chairman of the ICS reckons these will to be to the tune of ‘hundreds of billions of dollars.’ Just the ballast water regulations may cost the industry upwards of 50 billion.

Shipping has no choice but to lobby; it will be squeezed out of its last breath if it does not. And it needs to allocate resources –money and people- to lobby. This is where shipping- one of the oldest businesses in the world- fails. Don’t tell me this is because we are an international industry, fragmented and incoherent. Look at the airlines, which are clearly focused; they have, not so long ago, effectively got the EU to back off regulations that threatened their profitability. It is not that shipping is incapable of getting its act together and soliciting cooperation; after all, it started the marine insurance business, amongst others, over informal meetings at a coffee house in London. But that was long ago.

It seems to me that modern shipping suffers from a singular combination of hubris, stinginess, short sightedness and lethargy. And of course, the old failing that every seaman will confirm: owners and managers are often penny wise and pound foolish. Nobody wants to spend a dime before the horse bolts. We will spend millions afterwards searching for the horse.

Let us assume that global trade will actually double by 2030, as the Lloyd’s et al report would have you believe. I bet that the costs of complying with environmental regulations will go up at least five times from now until then. Common sense says that shipping should try to influence regulations before they are passed instead of cribbing about them afterwards, or asking the IMO to rethink its rules, which is what the industry is doing at present with the ballast water and clean fuel debate. 

If things are bad now, imagine the scene a decade or two down the road. We will be drowning in a deluge of regulations; it is clear that the IMO is far from done yet. Equally clearly, the industry bodies we have are incapable of doing what is required. Also, the new shipowners of 2030 will be based in the East, particularly in China; existing industry bodies are largely Western. This mismatch will fragment us further.

Shipping must find an effective way to lobby. It needs to set up an international body to do so, and it must go in to battle with a war chest. Scrimpy shipowners should be made to realise that the cost of complying with bad, expensive and almost unworkable regulation is much, much higher than the cost of lobbying. It is critical that shipping persuade, cajole and influence politicians, think tanks and regulators, like all other industries do.  It should find a creative way to get funds for that war chest- perhaps some association of shipowners can start by levying a small one-time cess on all shipowners. Say a small fraction of a cent per Gross Tonne registered. That amount is not crippling for any shipowner, and it should add up; there is supposed to be a billion Gross tonnes or so out there. That should give us the beginning of that war chest.

John Platsidakis has got it right when he complains about how unfairly shipping is treated, but being right does not matter so much. Being able to influence regulations to make them more balanced does.


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