2020 Hit Parade

Kick off your shoes, put up your feet and enjoy a quick take on this stressful year’s greatest hits! As if the pandemic weren’t enough, let’s visit Brexit, cruising, Nordstream 2 and other surprises. Where do we stand, and where are we going? Is there no end in sight to the zaniness?

Brexit

“This is the song that never ends; yes, it goes on and on, my friend.” They’ve been singing the Brexit song since late 2016, and the chorus is not tired yet. While the E.U. sought to wrap up trade negotiations by November, that timeline has now been iced.

Meanwhile, the E.U.-U.K. “transition phase” ends December 31. Confused businesses are worried about tariffs. With British Prime Minister Boris Johnson’s advisor Dominic Cummings, one of the key architects of the 2016 Brexit vote, now out, the prospect of a “reset” in negotiations may be the excuse Johnson needs to try to further prolong the “transition phase” into 2021.

Neither side has the appetite for a “No Deal” Brexit. This at least makes the “transition phase” appealing as a mid-term fix.

Cruise Industry

Summer cruising came and went. TUI, MSC, Hapag-Lloyd, Costa and AIDA were sailing, but governments ordered a new lockdown. Germany declared the order on November 2, 2020. TUI held out for three days before giving up – despite good legal arguments and a comprehensive on-board hygiene system.

Trying to skirt restrictions, TUI argued that going to and from the cruise ship is “permissible transit” (akin to going through an airport) and, since the voyages take place largely in international waters outside of Germany, they’re not under the jurisdiction of the lockdown, which only targeted German domestic tourism. “Staying on one of our ships,” TUI argued in a press statement, “does not count as domestic tourism.” On November 5, 2020, TUI gave up selling tickets.

“German ports are not allowing any cruising,” the defeated company said in a press release. “In light of this, with a heavy heart, we must cancel all ‘Blue Voyages’ which had been scheduled to take place on Mein Schiff 1.” It cited a reversal of and/or difference of opinion relating to the permit issued to it by the Schleswig-Holstein state government.

Cruise lines have worked hard to meet governments’ requirements. Alternatives to buffets, passenger and crew testing for COVID-19, requiring negative results prior to boarding,  temperature checks and disinfecting and sanitizing were not enough to stave off the lockdown.

Election of Joe Biden

Tensions between Europe and the U.S. remain, e.g., the failure of Europeans to live up to their spending obligations to NATO. Nonetheless, with the election of Joe Biden, Europeans are hoping the U.S. will once again be a “reliable partner.” That’s code for the U.S. helping Europe and doing what Europeans regard as useful.

Incidentally, as recently as June, 89 percent of Germans did not regard the U.S. as a “reliable partner” with only eight percent saying it was. Individually, however, top German politicians are keen to highlight that more unites us. Even on the day before the election, Annegret Kramp-Karrenbauer, Germany’s Defense Minister, stated in a Politico article that, “…for people of my generation, the United States is, more than anything else, still the country of hope and horizons, of liberty and like-mindedness.”

Biden may have the U.S. rejoin the Paris Agreement on climate change, link up with the E.U.’s more legalistic approach to Iran sanctions and remain a member of the World Health Organization, so a lot of major ruptures may end up being healed soon. But as the Süddeutsche Zeitung notes, “Americans did not elect Biden in order to bring joy to the world. They want him to solve the economic and social problems in their own country.”

Europeans are facing the multilateral 21st century in much the way kids eventually learn that their parents are not superheroes but complex individuals with their own goals and weaknesses. 

Nordstream 2

Squarely in the category of stressors that will still exist between Europe and America post-Trump, Nordstream 2 is a pipeline that’s supposed to move 55 billion cubic liters of Russian gas to European markets every year, bypassing Poland, Ukraine and other traditional transit countries. By cutting these countries out, so goes the theory, they would lose leverage against Russia and be more vulnerable. They also benefit from expensive U.S. defense guarantees and strategic assistance.

Europeans think of Nordstream 2 as a great way to get cheaper gas during the winter while Americans look at it and wonder why their ally would sell out Eastern Europe to Russia. And Americans also wonder why they should spend their money on European security if Europeans recklessly incur more risk.

German support for Nordstream 2 hit a speed bump with the Kremlin’s purported poisoning of activist Alexei Nawalny. Germans were less shocked by the assassination attempt as such, but they were troubled that Russia would brazenly turn the situation around, deny any involvement and accuse Germany of conducting the assassination at Berlin’s renowned Charité Hospital.

In September, German Foreign Minister Heiko Maas asked Russia to come clean. Following a brief burst of media activity, the spotlight on Nordstream 2 conspicuously went dark. But on October 17, Maas declared he “assumes” Nordstream 2 will be completed and that it’s just a “question of when.”

Nordstream 2 has been a lifeline for offshore work and is supposed to become a pillar of the country’s gas supply. Germany may be compelled to tolerate worse Russian behavior in the future.

Offshore Wind

The 27 countries of the E.U. already represent 42 percent of the world’s offshore wind capacity, but the E.U. Commission’s new draft strategy for offshore, released in November, seeks a five-fold increase in capacity by 2030 to 60 GW and a 25-fold increase by 2050 to 300 GW. This will require a robust and well-financed maritime sector including engineering services, workboats, heavylift, crew transfer, security and service/supply vessels.

But the sector is still struggling with overcapacity and low charterparty rates even as, like the proverbial starving man, it eyes a five-course meal being prepared behind glass. The buildout is certainly laudable, but the draft is sparse on details as to how it would be paid for. It notes that power purchase agreements and guarantees could be used, but these have been scaled back in recent years, notably in Germany, which was an aggressive subsidizer in the 2000s and 2010s.

This year, Germany reworked the Renewable Energies Law, capping the renewable energy tax on consumers per kilowatt hour (kwh) at 6.5 cents. Prior to the cap, it was 9.6 cents per kwh. Ratepayers were rebelling against runaway electricity prices. The federal government now funds this cap with 10.8 billion euros out of the general fund.

The end-user cost per kwh plateaued at 30.9 cents versus 34 cents per kwh before the cap, among the highest in Europe and, indeed, the world. According to the U.S. Bureau of Labor Statistics, in the Los Angeles area the average household pays 18.6 cents per kwh.

Towage Services

After acquiring fabled Bremerhaven-based tugboat company Unterweser Reederei GmbH (commonly: URAG) and Dutch Kotug-Smit in 2019, Boluda had major ambitions in the Northern European market. It wanted to grow in Bremerhaven and Hamburg and control Rotterdam.

Instead, it continues to bleed money and was downgraded by Fitch to “negative,” citing Boluda’s “high leverage profile” and “single bullet debt structure.” Fitch further noted that Boluda generates “stable cash flow” from markets where it’s the “sole operator.” In other words, Boluda charges a high price where it has a monopoly on towage services and no competition.

As Henry Ford famously said: “Competition whose motive is merely to compete, to drive some other fellow out, never carries very far. The competitor to be feared is one who never bothers about you at all but goes on making his own business better all the time.”

Robot Ships

Soon you’ll be able to manage your fleet of robot ships with a modified version of BIMCO-SHIPMAN 2009, the industry standard template for ship management contracts – namely, AUTOSHIPMAN. It’s projected that SHIPMAN 2009’s clauses regarding crewing, at a minimum, will be removed while clauses governing services specific to autonomous ships and remote-control centers will be added.
 
Carbon Tax

There is some good news. CO2 output is declining thanks largely to an economy battered by COVID-19. Nonetheless, Germany is going ahead with carbon tax plans based on the Swedish model. The new German tax, which passed Parliament in October 2020, starts at 25 euros per ton of CO2 in 2021, then goes up yearly to 30 euros, 35 euros, 45 euros and 55 euros by 2025. The tax will also be levied against shipping but not, apparently, against trucking.

Eastern European countries like Poland don’t have a carbon tax, and German truckers are concerned they won’t be competitive if their fuel is more expensive. Since ships also move around internationally and could bunker in other countries, one wonders why this same rationale doesn’t apply to exempting shipping from the German carbon tax as well. Environmentalist Jens Hilgenberg of BUND lamented that the new tax was being “watered down even before its introduction.”

And so it goes. Stay tuned for more of the same zaniness in the New Year! – MarEx