(Article originally published in Sept/Oct 2023 edition.)
How did I do on predicting future events?
I’ve made a lot of predictions since 2020, which is when I wrote my last “year-end roundup” column. And as Yogi Berra is thought to have said, “Making predictions is difficult – especially about the future.”
But it’s rewarding and fun and a kind of quality assurance for you, valued reader, to glance back with me at the many topics that have framed the previous two years of discourse and what I had to say about them – before moving on to the next big thing. It’s my personal report card.
So here goes.
In January 2021, many seafarers were stranded on board their ships due to COVID-19 lockdowns. Their time at sea, extended again and again, was never coming to an end.
Though essential to the economy, shipowners and consumers showed limited appreciation for seafarers. They were left to languish on board, some for over a year, most without psychological care or relief. Many ports around the world, while gladly taking the goods they brought, banned seafarers from going on land.
The good news is that, by August 2022, the situation had improved for some 150,000 cruise ship workers. They’d been repatriated thanks to a joint effort by the International Transport Workers’ Federation and the cruise industry. Another 100,000 cruise industry sailors were scheduled to go home in due course.
As far as ocean freight is concerned, some 300,000 sailors remained marooned on board their ships as of August 2022, some in month 16 of their contracts, with no prospect of being released.
This topic has largely dissipated. Hopefully, that’s because all of the seafarers just mentioned have been released from their involuntary condition by now. With COVID-19 restrictions by and large a thing of the past in most of the world, the reasons for stranding these seafarers seem no longer relevant.
But seafarers remain stranded for other reasons. In Ukraine, which has been invaded by Russia and kept under a blockade, 331 seafarers remain stranded aboard 61 vessels berthed in Ukrainian ports on the Black Sea and Sea of Azov. The International Chamber of Shipping (ICS) and U.N. are on the case, advocating for a solution.
Originally, some 2,000 seafarers were trapped in Ukraine, so progress has been made.
China’s Belt and Road
In mid-2021, the Belt and Road Initiative (BRI) was China’s effort to spread debt-fueled infrastructure largesse around the world, and specifically in Europe. I reported on China’s significant stake in 16 European ports and warned about the communist nation’s effort to expand its influence.
Later, in 2022, I wrote about China’s purchase of a 24.9 percent interest in the Port of Hamburg, Germany, which was to become the 96th foreign port in which Chinese state-directed enterprises had bought a major stake.
While 2021 and 2022 were characterized by nonchalance about China’s moves, 2023 felt different. The backlash that I suggested might occur seems to have at least begun to gain some traction. Perhaps China’s embrace of Russia even after its illegal and brutal invasion of Ukraine played a role.
Italy, which is the only signatory to China’s BRI among the G7 nations, began expressing doubts. Italian Foreign Minister Antonio Tajani publicly floated the idea of withdrawal from BRI, and Italian Prime Minister Georgia Meloni has voiced skepticism about overly deep involvement in it: “There are European nations which in recent years haven’t been part of the Belt and Road but have been able to forge more favorable relations than we have sometimes managed.”
Whether Italy is merely playing coy in order to better its bargaining position remains to be seen.
A Deeper Risk Pool
Protection & Indemnity (P&I) Clubs, of which there are 12, and the insurance they offer are an essential component of global commerce. I reported in late 2021 about how they were paying out $1.22 for every $1 they collected in premiums. That is not a great foundation for a going concern.
But, of course, P&I Clubs are mutual insurers, which means their members pay for their own losses – and that means higher premiums for shipowners, not bankruptcy. How has that been going?
In fact, the situation has improved. Just this September, the International Union of Marine Insurance noted 8.3 percent growth in the premium base. This means that more policies are being issued, improving revenue. Despite regulatory costs and war and inflation boosting goods’ prices and therefore the cost of insured losses, offshore and marine cargo claims were low.
The one sore spot was hull and machinery insurance. Individual repair bills were higher, largely due to electric vehicle fires.
German Offshore Wind
While 2020-2022 was a dead end for German offshore wind with barely a single new installation going online, the German government has dedicated another 3,500 square kilometers in the North and Baltic Seas for offshore wind. This is supposedly enough to generate 35.6 gigawatts of power.
The Wind at Sea Act, which entered into force on January 1, 2023, certainly has lofty goals. But does it have funding? Industry groups are not happy. The Federal Association of Wind Park Operators declared that the sector needs “simple investment and financing conditions and subsidies for new production capacity that provide enough liquidity in the manufacturing sector, along with rules that ensure fair international competitive terms.”
Also, they would like a scoop of ice cream for every German.
In late 2021, I argued that offshore wind in Europe is driven by a political boom-and-bust cycle. There’s nothing in the current framework that changes this analysis. All companies involved in every step of the workflow remain reliant on government to make or break their business model.
How About Assets?
Higher inflation as the new normal – how did that prediction play out?
Zeroing in on “temporary” inflation, I wrote: “Anything ‘temporary’ is relatively easy to rationalize. But when it becomes apparent that a situation is not ‘temporary' but rather reflective of a new status quo, of a new normal, this can trigger a shift in thinking and perspective, and that may often lead to different behavior.”
That shift has happened. In August 2023, the Wall Street Journal asked whether the era of low interest rates was ending, positing that permanently higher interest rates would be necessary because of the inflationary pressure from high government deficits. President Tom Barkin of the Richmond Federal Reserve has argued that “if the economy is running above potential at 5.25% interest rates, then that suggests to me that the neutral rate might be higher than we’ve thought.”
While inflation in Europe and the U.S. has moderated from its double-digit run in 2022, it’s still high. Even in the sluggish Eurozone, inflation is 4.3 percent – and that’s for an economy expected by S&P to grow only 0.6 percent this year. So, adjusted for inflation, the European economy is rapidly shrinking.
Meanwhile, Wan Hai Lines in Taiwan recently offered several small (ca. 1,700 TEUs), old (built 2001) vessels for sale, and the prices paid did not disappoint. They sold for millions of dollars over their anticipated scrap value. Linerlytica, a container shipping intelligence firm, noted: “The strong buying interest for older tonnage has kept scrapping rates very low, with just 59 ships, for 112,670 TEUs, scrapped so far this year.”
The relative value of money continues to shrink. Even old, small vessels sell for much more than we all thought they would. I’ll repeat my greeting from March 2022: “Welcome to Asset World.”
Roman Emperor Justinian I’s most exceptional general, Belisarius, the “Last of the Romans,” is said to have been found on the streets of Constantinople begging for alms shortly before his death. Though he reconquered Africa, Italy and Spain under the imperial banner, the jealous emperor had Belisarius’ eyes poked out, fearing treachery. Thus ended a storied and glorious military career.
Rather than consolidate the shipyards of Europe under one Airbus-like organization, as I urged in mid-2022, Bremerhaven’s famed BREDO Dock V floating drydock met an end as sad as Belisarius’s. A storm prevented it from leaving Bremerhaven on schedule. Once the storm passed, the tugboat hauling it, named Titan, experienced a technical defect and had to turn around. The third attempt succeeded.
BREDO Dock V, which is capable of handling vessels over 700 feet long and up to 20,000 tons, will be left in Kingston, Jamaica and belong to an entity named German Ship Repair Jamaica Shipyard. Kloska Group and Harren & Partner, two major names in German shipping, are behind the venture.
Meanwhile, just this September, 150-year-old Flensburger Schiffsbaugesellschaft (FSG) failed to pay its 600 workers. An FSG spokesperson opined, “Of course, the wages and salaries will be paid.” MV Shipyards, which went bankrupt in 2022, made the same empty promise. Both were recipients of government bailouts that did nothing to address structural problems.
Too Many Ships, Not Enough Boxes
German shipyards aren’t in trouble because no new ships are being built. “Overcapacity keeps worsening, due to an uninterrupted injection of newbuilding capacities of all sizes,” wrote Alphaliner.
Sadly, expectations about freight rates mean that those newbuilds will be entering into service at a loss. Jochen Gutschmidt, a former executive of A.P. Moller-Maersk A/S, said in 2021 that he did “not expect rates to return to the low levels we’ve seen prior to the crisis, at least not anytime soon.” Also in 2021, Johan Sigsgaard, Maersk’s Executive Vice President & Chief Product Officer for ocean products, publicized his assumption that “rates will normalize at a level above historical.”
Elsewhere, the first of the six new Ultra-Large Container Vessels (ULCVs) ordered by Hapag-Lloyd in 2021, each of which has 23,500+ TEUs of capacity, entered service in May 2023. “We want to meet the persistently high demand and reduce our slot costs,” fantasized CEO Rolf Habben Janssen.
But sadly, the Global Freight Rate Index returned to its average level earlier this year and has stubbornly flatlined since. “Mr. Container’s Wild Ride,” as I put it in May 2021, would appear to be at an end.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.