National shipping policies across the world were designed to serve a pre-globalised market economy. But is shipping policy still relevant and if it is then in what form is it relevant? This is a crucial question bt as Sletmo (2001) said we need to look at the evolution of shipping policies across the world.
Maritime exploration has served economic, military, educational and other varied interests of countries across centuries. It has led to trade being developed, continents being discovered and militaries setting a foot on potential colonies initially as merchants. But in the last century the two world wars and the prolonged cold war has led to the expansion of naval fleets. Shipping facilities and vessels have traditionally been used for aiding the naval in times of national emergencies and wars. The role of the shipping industry as a support for military objectives has declined with the growth of naval fleets.
Developed and underdeveloped countries alike have traditionally given shipping industry a special status in their industrial policies. The reasons ranged from emotive calls of shipping being a national priority, to military concerns, economic concerns to manage the imports and exports and to earn foreign exchange. Many countries kept shipping a closely managed and controlled industry. Some countries have evolved their shipping policies to encourage private investment in shipping fleets, cargo handling and port development. The governments still do maintain a tight control over the administrative and legal aspects of the industry.
According to Dr. Chrzanowski, the author of Introduction to Shipping Economics (1985), shipping policy is defined as “a totality of economic, legal and administrative measures by means of which the State influences the position of its national fleet in the national economy and in the international freight market”. In the present day scenario there is need for a debate on whether the country needs to have a shipping policy and what should be the guiding principles of such a policy.
To assess the need and role of shipping industry we need to look back at some historic events that shaped the formulation of policies in the last century.
Maritime trade in a globalised environment
Countries have various resource surpluses that have been used for its advantage. Countries of the Middle East have surplus oil reserves that are traded. Similarly, United Kingdom (UK) ranks sixth in the world in terms of export of commodities and services. The country also imports a large proportion of its food from other countries. This is due to the fact that the country does not have suitable conditions to grow certain food and also the fact that cheaper alternatives exist in other European countries. The UK Economy ranks fourth in the world in terms of volume of imports. Most of the exports of any country happen through ships. Hence, the shipping industry becomes an integral part of the economy in the globalised environment. In the case of our country it helps to maintain the trade deficit by facilitating both imports and exports.
Apart from the Organisation of the Petroleum Exporting Countries (OPEC) and a few other countries, all countries are dependent on petroleum products to sustain their economies. For most developing countries crude oil import constitutes a large percent of their trade deficit. It also in cases of some companies is the biggest item of import. The OPEC countries might not be importing it but they use the same transport to export it out to their customers. Unlike gas reserves, crude oil trade primarily happens through large containers. Maritime crude oil trade is just one of the examples of how import role the shipping industry plays in the globalised economy.
During the 90’s the shipping industry gained further preeminence. With the discovery of outsourcing and the related rise of China ships are carrying diverse cargo material and quantities of goods previously unheard of. China has been the growth story of the last two decades. Its rise has been facilitated by its being a low cost manufacturing hub. The United States of America (U.S.) managed to save itself from a recession in early 2000 by importing heavily from China. The cost of imports reduced, the consumer spending in the U.S. domestic market boomed and it resulted in further growth. The Chinese and American economies have become interdependent. So much so that the recession in U.S. is hitting the Chinese factory workers the most.Such sort of interdependence is facilitated by the shipping industry through which a majority of such trade happens.
No longer are companies operating in silos. Manufacturing outsourcing that started in the 80’s also contributed to the shipping trade growth. The shift of manufacturing and production bases from developed markets to emerging markets is a phenomenon occurring in all markets.
Traditional government approach towards shipping
Florence (1957, p.11) has viewed the traditional shipping policy as a three step process. The first step is that countries have is to project shipping as an ethical purpose which may for example be in the national interest. The second step relates to gain some tangible benefit out of shipping and the third step relates to having controls to regulate and achieving shipping goals. By following the pattern of the three steps process governments over the years have successfully managed to deflect any criticism of shipping being a State controlled industry. The industry also has managed to have an emotive connection with the electorate. Maritime trade and shipping also finds a predominant place in the objectives of any industrial policy. The industry policies related to maritime transport have also heavily weighed in the security aspect of patrolling the maritime borders.
The high interest of governments in maritime policies has also led many governments to incentives and promotes maritime trade. The incentives of certain governments have come at the cost of loss in trade experienced by other governments or economies. The policies might not have been purely formed keeping in view the global trade demand.
Problems related to the traditional approach
Promotional shipping policies have not been purely based on global demand forecasts. Where shipping has been identified as an industrial objective for growth, controlled and biased shipping policies have been adopted.
The shipping policies of developed nations may have moved away from being biased towards promotion of domestic business but in the developing world such policies still exist. In Sri Lanka for example, offshore companies earning profit from use of Sri Lankan registered ships in international operations are exempt from income tax subject to certain conditions. In Maldives an industrial promotion zone with land for lease at U.S.10 cents per square foot per year is under development in Laamu Atoll, bordering an international sea route channel and ideally suited for transshipping products by sea.
The governments earlier formulated shipping policies that promoted shipping industry growth in their country rather than solely depend on international shipping partners. They promoted domestic industry by either financial or regulatory practices. Cheaper loans or loans for higher than normal tenures, exclusive port access or handling rights, prioritisation in cargo clearance, etc. are some of the tools that governments have used to promote domestic shipping industry.
The government has a two pronged role while formulating a shipping policy. The first role is to deal with the economic respect relating to the activities of the national and international vessels. The second role is to have a legal and supervisory authority to facilitate and aid the growth of the shipping industry. The shipping policy has to cater to the domestic and the international audience. There can be a bias or conflict that can exist between the government’s policies towards its domestic shipping constituents vs. the international shipping constituents. This conflict of interests can lead to political rivalries between two governments when one of the governments may take unilateral action against international shipping constituents. Hence, the role of the government at times does not get restricted to either promoting or safeguarding its shipping industry.
The need for a shipping policy
To understand the need for a shipping policy the following should be considered
- The role of the government in administrative and legal areas
- National security
Administrative and legal areas
The role of shipping in the economy as we have seen has changed from being an industry of national importance or military support to being a driver of economic growth and a medium to balance the trade deficit. Shipping industry has also been used as a political and economic instrument to establish trade relations with certain countries or a specific region. Not only do such trade relations help countries leverage each others low price products and establish political relations. But as shipping has become more commercialised corporate interest in its operations has grown. The governments have also realised the need to improve infrastructure.
In May 2008, the World Shipping Council released a statement about rising costs of bunker fuel for freighters:
“Shipping lines worldwide are struggling as crude oil prices topped an unprecedented U.S.$119 per barrel this week, in turn pushing marine bunker fuel prices up past $552 per ton – a $26 per ton increase since the end of March alone. Bunker prices have risen 87% since the beginning of 2007.
Fuel costs represent as much as 50-60% of total ship operating costs, depending on the type of ship and service. Ocean carriers are required to recover these costs to maintain levels of service, meaning the price of shipping goods will continue to face upward pressures.”
In such a situation the government’s intervention becomes highly important. The governments can try and convince OPEC to increase supply thereby reducing the cost of crude oil in the futures market. This would allow shipping companies to hedge their position for future. Governments also levy their own import and export duties along with the tax on fuel for ships. Relaxation in these fields or temporary measures such as abolishment of taxes would also help the industry. It is only the government that can take such a call. As it is in the position to look at the shipping industry from a holistic perception of national interest rather than a problem concerned with a specific industry. Hence, the role of the government becomes important from an administrative purpose.
Most economies especially in the developing world have been closed economies. Domestic private ownership has been limited in the shipping industry and international investment has been negligible. With the opening up of the economies the government also needs to develop policies and legal frameworks by which the role of domestic and international players in the shipping industry can be defined, facilitated and monitored. All these are tasks that can be undertaken by the government only. These tasks should fall under the national shipping policy.
But, the role of the government in such matters becomes important as highlighted by the 2006 crisis that followed the Dubai ports authorities’ ability to control up to 6 ports in the United States. There was an attempt in 2006 to approve the sale of one of the largest U.S. companies in the shipping industry. The Committee on Foreign Investment in the United States (CFIUS) approved a deal that would allow a company owned by the government of United Arab Emirates (UAE) to purchase the Peninsular & Oriental Steam Navigation Company (P&O). The deal raised a lot of controversy in the American political circles and media.
The deal would mean that terminal operations at six U.S. ports would have been controlled by the new company. This would give the company the strategic control of the facilities at the ports. The deal bought forth objections on two fronts. The role of the foreign investment in strategic shipping infrastructure and the security threat to the integrity of the U.S. were the two divisive factors amongst those supporting and against the deals. Memories of 26/11 hijackings were bought forth with the fact that the hijackers used Dubai as a transit point and that two of them were citizens of UAE. The new owners had to finally cave in and had to sell their stake back to an American company.
This highlights the important role that governments till today have to play to define and manage the implementation of shipping policy. If the consensus view in U.S. is that only domestic companies can control terminal operations at domestic ports then this criteria should be part of the national shipping policy. Any changes to that must be preceded by administrative procedures such as discussions in the Congress and legal changes could be made by asking the Congress to support suitable legislations.
Port growth and expansion has been directly affected by the growth in maritime trade and advances the industry has made in the technology. The introduction of containers in 1956 and the continued growth of containers as a medium of maritime transport have also led to changes in port handling. Increased trade has meant that the ship handling capacity also comes under strain. The government needs to be aware of the changing dimensions of the trade and make forward looking policies that allow the handling of suitable traffic, takes into account the nature of fleets and also the growth that it foresees in the future.
Taking a look at an example from the European region we can try and understand the problems faced by Irish shipping industry. In 2007 the Irish Ship Agent’s Association put forth its assessment of the problems faced by the Irish shipping industry to the relevant authorities. It citied the problem of lack of capacity at ports. It says that the Dublin and Cork ports are operating at near capacity levels. A lot of non port companies are operating from the port area leading to congestion. It says that the proposed new developments are still to materialise. The association called the government to invest more in ports and port infrastructure, maximise the efficiency of port estates, make Dublin and Cork port 24 hours port to increase trade and to invest in rail network for freight movement.
The challenges faced by the Irish ship agent’s further highlight the important role that the government needs to play in infrastructure through the shipping policy.
The recent Mumbai attacks highlight the national security aspect related to the industry. One Indian media organisation having affiliation to CNN, America covered the terror attack by calling it ‘Blunder at sea made Mumbai attack possible’. The recent attack is sure to dent the liberalisation of norms to allow international companies to control port and port operations. Though the attack did not happen via any specific port on Indian Territory the attackers are thought to have boarded their mother ship from Karachi port.
This attack brings forth the emotive connection that people have with shipping industry. It has been viewed as strategic to the nation’s security by both the government and the people. This attack might in the developing South Asia region highlight the limitations that the government faces while trying to convince people that international companies can control strategic parts of shipping infrastructure. The Dubai ports authority example highlights the problem that even U.S. a proponent of free trade faces when it comes to the shipping industry.
The recent attacks by Israel on Gaza using naval fleets, the history of the three wars between India and Pakistan and the proximity of the Karachi and Mumbai port highlight the potential role that the navies might play in any present or future military action. In the face of this the role of the shipping industry and the guidelines to manage it become very important.
The standoff between the owners of Sirius Star and the Somali pirates also highlights the security aspect related to the industry. The fact that the shipping industry is still related to the national security and political domination aspect is reinforced by the decision of the Chinese to deploy their naval ships of the coast of Somali to participate in a global force fighting against the pirates. This deployment of the navy furthest from its shore till now is a being seen as a sign of Chinese intent to dominate the world political scenario.
We have understood the traditional role of the shipping industry by looking at trends in global trade, interdependencies of U.S. and China, the role that imports play in the UK and the changing dynamics of maritime trade. We can conclude that the military objectives related to the shipping industry have subsided. Hence there is less need of a shipping policy in that regards. But then, the threat of terrorism via sea or on strategic ports to disrupt trade has increased.
The Dubai ports authority’s potential confrontation with the U.S. Congress highlights that fact that the administrative and legislative process of shipping industry is still protectionist in nature to an extent. Hence the role of a shipping industry still exists from that perspective. The Irish Ship Agents Association’s submission to the Irish government is a reminder of the strategic impact that the national shipping policy could have on the growth of the industry.
Hence, we can conclude that there is room for national shipping policy to be still there. National shipping policy is still alive in its role and importance. There however needs to be a review of the role of the policy and amendments should be made to keep its role relevant.
International Journal of Maritime Economics, 2001, 3, (333-350), The End of National Shipping Policy, Gunnar K Sletmo
Trends in Maritime Transport and Port Development in the Context of World Trade, Carlos M. Gallegos, available at
Economy Watch, UK Foreign Trade, available at http://www.economywatch.com/world_economy/united-kingdom/export-import.html
World Shipping Council (2008) “Record Fuel Prices Place Stress On Ocean Shipping” Public statement, 3 pp. http://www.worldshipping.org/pdf/WSC_fuel_statement_final.pdf
ISAA ( Irish Ship Agents’ Association ) Submission to the Department of Transport and Marine on it’s Statement of Strategy 2008-2010, 28th September 2007 http://www.transport.ie/upload/general/9788-0.doc
Blunder at sea made Mumbai attack possible, online available at http://ibnlive.in.com/news/blunder-at-sea-made-mumbai-attack-possible/79910-3.html