2023 was a challenging year for the maritime industry, as the outbreak of the war on Ukraine and conflicts in the Middle East echoed throughout the shipping supply chain, disrupting established shipping routes and altering trade networks around the world.
Meanwhile, climate-related issues, such as severe weather conditions and rising sea levels posed serious threats to maritime safety and efficiency across Ports in the US, Africa and Asia for both charterers, and shipowners.
These disruptions to global trade, particularly in commodities, directly affect commodity prices and shipping activity, resulting in smaller margins and unprofitable negotiations across the value chain. Reality is the forecast for the coming years is not that much better, and it is important to be aware and prepared for what’s ahead.
And while some of the issues we outline here are not directly impacting charterers, the bullwhip effect in maritime supply chains can eventually roll out to them. In this context, after extensive research, we spotlighted a few significant trends that are going to influence the industry in the coming year that charterers should be prepared for:
Digitalisation as a Must-Have
Digitalization in shipping has been talked about for a while, but the Covid pandemic and the forced transition to remote work showed shipping and logistics that this is a reality already underway for many players.
There’s already a big movement happening amongst big shipping players such as Maersk, MSC, Hapag-Lloyd and others to digitize, as smaller shipping companies are also following the trend by implementing third party software systems that can automate and improve manual operational procedures.
The maritime tech scenario was really busy during 2023, with several big startup acquisitions taking place and a solid movement of shipowners and operators investing in startups or partnering with venture capital funds to improve their own operations, like Wilson Sons, Wah Kong Maritime, And Others.
In fact, digital tools are key to maximize charterers ability to respond to crises and empower better decision-making. According to Accenture research, 76% of freight and logistics companies felt that not focusing on building digital capabilities would ‘seriously endanger their business’.
What’s happening is that this shift is no longer a trend but a transformative force that reduces costs and significantly increases efficiency, since automation serves as a relentless, error-free team member. This has been covered by Evangelos Efstathiou from Skysail Advisors:
“It’s not that companies are spending more on maritime tech – they identified they could be saving money by spending intelligently, adopting maritime tech across what they already have. They are already spending that money, they are just doing it in different ways: people, inefficient processes, or the money lost when mistakes happen.”
Evangelos Efstathiou, CEO @ Skysail Advisors
The Environmental Agenda Implications on Freight Costs
We’ve covered before how the impact of financial and environmental regulations on maritime commercial decisions is huge, and regulatory changes with a focus on decarbonization are already underway in the industry.
Essentially, shipowners are the ones who are responsible for handling carbon emissions credits in charter party contracts. However, the effects can cascade down to charterers due to economic and operational factors.
Emissions are often categorized into three groups or ‘Scopes’ by the most widely-used international accounting tool, the Greenhouse Gas (GHG) Protocol:
Scope 1 covers direct emissions from owned or controlled sources (i.e., vessel fleet); and Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company;
Scope 3, however, includes all other indirect emissions that occur in a company’s value chain. These are emissions associated with the activities of a business, but not directly generated by that business or the energy it uses. This will eventually impact charterers as companies up and downstream will be analyzed under these criteria.
Riviera Maritime highlights that only about 5% of shipowners currently have an account to interact with the ETS market, presenting potential issues for when the deadline that incorporates shipping is finally due. This could mean a consolidation increase among smaller shipping companies, as they try to increase their influence by trading higher volumes.
And while the EEXI and other carbon reduction measures don’t require technical modifications to ships, for many ships, technical modifications may be the only realistic way to attain the required certifications and to be under the emissions limit, impacting the commercial operation of the vessel.
This scenario, together with the shortage of large tanker tonnage already predicted by UNCTAD during their latest Review of Maritime Transport, indicates freight rates for bulk shipping vessels could achieve remarkable levels in 2024. And although alternative fuels show promise, their adoption remains in the early stages, with 98.8% of the fleet still sailing on fossil fuels.
Meanwhile, research shows that natural disasters like droughts, hurricanes, and wildfires are becoming more frequent. We’ve seen how last year’s low water levels affected traffic through the Panama Canal, the Yangtze River in China, and the Rhine in inland Europe.
According to the Economist’s Global Maritime Trends, rising global temperatures will continue to contribute to stronger and more unpredictable winds, higher waves, and the occurrence of severe storms and hurricanes.
These conditions pose significant risks to vessels, crews, and cargo, leading to safety concerns, greater fuel consumption, and longer and less predictable routes.
Disruptive Forces and Changing Global Centres of Power
Seatrade Maritime states that a challenge that has arisen towards the end of 2023 and will continue into 2024 will be the resurgence of piracy: While the recent deployment of the international security coalition in the region led to some carriers beginning to restore services in the route, others have completely halted services in the Red Sea.
Besides, political tensions, such as those between North America, Europe and Asia, are directly impacting shipping tradelanes, forcing rerouting and adjustments in logistics.
These shifts in trade routes are often vectors for how economic factors can influence centers of power, leading to an increasing impact of emerging markets in maritime logistics as they become integral to global supply chains – The Economist predicts that African countries such as Morocco, Namibia and South Africa will rise as energy exporters by 2050, as the continent holds 60% of the world’s solar resources and 40% of its minerals.
Reality is these measures are already putting upward pressure on the cost of transporting raw materials like oil, gas, petrochemicals, and grains around the world, as charterers of these vessels and their operators have only a few options up their sleeves depending on their financial objectives and risk tolerance.
Steering the Path Forward
The maritime industry is navigating through a period of significant change: The push for digitalization stands as a critical trend, with large players leading the way showing that integrating technology into operations isn’t just a trend but a necessity for efficiency and cost-saving. This is a vital movement for charterers, as digital tools directly impact their decision-making abilities, especially during crises.
In the meantime, environmental concerns are reshaping the industry: as regulations focusing on decarbonization continue to pressure shipowners and, by extension, charterers to adapt. Emerging climate issues and geopolitical pressures are forcing rerouting and adjustments in global shipping logistics, affecting trade routes and market dynamics.
For charterers, these changes mean a landscape where transporting raw materials like oil, gas, and grains is becoming increasingly costly and complex. To remain competitive and efficient, charterers must stay informed and flexible, adapting their strategies to these evolving circumstances. By doing so, they can turn these challenges into opportunities for sustained success in a rapidly changing maritime world.