Global Maritime Issues Monitor -2020

A survey carried out by the Global Maritime Forum in association with the IUMI and Marsh has brought out certain interesting findings. The survey aims to identify the major issues which the maritime industry faces/will face in the next 10 years. This post is for those who have not had access to the survey report with the addition of my two cents.

The maritime industry is too vast in its spread — it includes shipowners, charterers,ports, freight forwarders, container freight stations, other allied infrastructure operators,etc. Not to forget the cargo owners who provide the bread and butter to this industry, there are also others like insurers ( cargo, Hull, P &I, marine liabilities), maritime lawyers, environmentalists, oil-producers,Regulators and Governments who can impact/and also be impacted by the fortunes of the maritime industry.

The Global Maritime Issues Monitor – 2020 identified issues as — 1) Those having a major impact in the next 10 years 2) Those whose possibility or likelihood of occurrence in the next 10 years is high. A third category lists out the impact and likelihood of issues following Covid-19 pandemic.

In terms of issues impacting the maritime industry in the next 10 years, the following 5 top the list:

1) Global economic crisis

2) De-carbonisation of shipping

3) Pandemics

4) New environmental regulations

5) Geo-political tension

Looking at the economic situation even before the Covid-19 pandemic spread its tentacles across the world, it was clear that the global economy was slipping. The pandemic has only aggravated the slowdown or slippage into recession. As the time- frame is 10 years, the survey suggests that this global economic crisis itself may last some more time and in the decade to come, there could be others as well. De-carbonisation of shipping ( IMO’s GHG reduction strategy) coupled with tougher environmental regulations on reducing carbon emissions and general pollution of the seas could create high impact on the businesses of shipowners, charterers, ship-building yards, oil-refineries and of course on the cargo owners themselves. Pandemics are also cited as creating major impact on the industry and this does not limit itself to Covid-19. Being a 10-year outlook, there could be newer and graver pandemics too. As economic crisis grips the world, one of the outcomes would be geo-political tensions since most geo-political issues have a hardcore economic reason. This is already seen in the Middle-East, Baltic region, South Asia,etc, & over 10 years, situation could worsen.

While that was the list of Top 5 issues which can have a major impact on the maritime industry, the survey also looked at the Top 5 issues which have a very high probability or likelihood of occurring in the next 10 years and these are:

1) New environmental regulations

2) Global economic crisis

3) Big Data & AI

4) Geo-political tension

5) Cyber attacks and date thefts

The survey reveals that three of the high-impact issues also show a high-likelihood of occurrence in the coming decade viz. new environmental regulations,, global economic crisis & geo-political tension. That’s not good news! Big Data & AI will also be major factors in the coming decade. Though huge costs will be involved, Big Data & AI will help improve efficiency and safety. Cyber-attacks are expected to increase as also date-thefts but in terms of impact, the survey does not rate them very high ( 9th in the Impact list).

A further drill-down of the survey was in terms of the impact & likelihood of issues emerging/getting aggravated because of the Covid-19 pandemic and here the top 5 issues identified were:

1) Global economic crisis

2) Geo-political tension

3) Changing trading patterns

4) Governance failure

5) Insufficient access to finance & societal demands for sustainability.

It is clear that global economic crisis and geo-political tensions get accentuated because of Covid-19, both in terms of probability and serious impact over the next 10 years. Interesting, yet logical offshoots of Covid-19 would be change in trading patterns with localisation or regionalisation becoming more dominant than globalisation. Yes, finance may not be easy, what with the economic crisis coupled with Covid-19 outcomes. Another interesting aspect identified is governance failure which means many governments, regulators may fail in their duties causing serious harm to the maritime industry.

In terms of ‘preparedness’ of the industry to the issues facing it, the survey revealed that preparedness was least for the following:

1) Pandemics

2) Global economic crisis

3) Auronomy technology

4) Climate change mitigation & adaptation

5) De-carbonisation of shipping

Understandable that most of the issues are of a nature confronting almost all industries and involve a good deal of political will and clear intent to overcome them. However, it is surprising that the maritime industry stills cites de-carbonisation of shipping, an issue specific to this industry, as something for which it is still not well-prepared.

What are the takeaways from this survey for the marine insurer?

With global economic crisis being a top issue, business may be slow to pick up. Funds being scarce everywhere and cargo owners looking to cut costs, they may seek lower cargo premiums. However, going by the sad state of the cargo insurers, this will not be possible and rates have started hardening/will harden further. Underwriters should also be keeping a close watch on the trading patterns, geo-political tension areas and price the risks accordingly and add suitable terms and conditions. Changing trade patterns could also mean trade embargoes/sanctions which would add to the worry of underwriters. De-carbonisation of shipping and stricter environmental regulations may bring to the fore complicated liabilities and problematic claims. The need will be to pre-empt them and structure covers suitably.