The collective industries of shipping, freight, maritime, and logistics are the backbone of international commerce enabling global trade..
As we enter 2024, these industries stand at a crucial juncture with the need to balance global trade demands with emerging environmental and geopolitical challenges including the world’s response to climate change, technological advancements, and regional conflicts..
The impact of COP28 on the shipping industry
The 28th Conference of the Parties (COP28) brought significant focus on reducing greenhouse gas (GHG) emissions which directly impact the shipping industry..
Placing clear emphasis on sustainability, leaders from leading shipping lines made transformative commitments aimed at increasingly adopting cleaner fuels including
- advocating for a multi-fuel strategy like biofuel and liquid gas,
- renewing fleets,
- retrofitting ships for reduced fuel consumption,
- redesigning networks for efficiency,
- developing green corridors by land and sea,
- investing in zero-emission trucking,
- end to the delivery of fossil fuel vessels,
- power in terminals, and
- a fleet of emission-free vessels by 2027
While these challenges are substantial, involving high costs and technological uncertainties, they present opportunities for innovation and leadership in environmental stewardship..
While efforts to decarbonize the industry and find cleaner solutions are being carried on on one hand, on the other hand, the industry is also stymied by issues in the Red Sea region..
The attacks on commercial shipping in the region have forced the rerouting of 300+ ships around the Cape of Good Hope instead of through the Suez Canal increasing both costs and GHG emissions for the industry..
The Red Sea region which includes the Suez Canal is a crucial global shipping route currently facing escalating tensions due to Houthi attacks on commercial vessels raising concerns over maritime security, leading to increased insurance premiums and rerouting of cargo..
The international community has been responding with heightened naval patrols and diplomatic efforts, highlighting the intricate balance between regional conflicts and global trade dynamics..
Peter Tirschwell perhaps summed this up best in his LinkedIn post about the above situation where he says “A protection regime has not materialized that guarantees freedom of navigation and eliminates or significantly reduces the risk of attack in the area of the Bab al-Mandab strait.
No organized system of naval escorts or convoys has come into existence, or indicated it’s coming, nor have land-based threats been eliminated let alone seriously confronted.
Rather the Operational Prosperity Guardian coalition led by the US Navy is relying on deterrence created by a limited physical presence and its ability, mostly with success so far, to intercept air-based weapons to keep the Suez route open to at least some shipping traffic.”
This is so true as without the above, it is all left to chance..
Not just politically, but in terms of trade as well, this has caused the yo-yo-ing of freight rates although there are widespread concerns that the shipping lines are also possibly using the Red Sea re-routing situation to increase freight rates and charge unreasonable additional surcharges in the form of war risk surcharges and varied other surcharges..
In addition, the other major canal in the world of shipping, the Panama Canal is also going through its own challenges in terms of tackling water shortages leading to restricted transits, delays, and additional costs..
Technological advancements in 2023
On a positive note, it sees that as we head into 2024, the shipping, freight, and logistics industry is witnessing a wave of technological advancements that are significantly reshaping its landscape..
There have been some key points highlighting these developments :
- The ICC Digital Standards Initiative (DSI) – unveiled its expanded digital standards recommendations under DSI’s Key Trade Documents and Data Elements (KTDDE) practice in 2023.. The launch marks a major step forward in DSI’s mission to bridge the gap between standards and adoption within the industry and Shipping and Freight Resource is privileged to be a contributor to this initiative..
- The UK Electronic Trade Documents Act and the digitalization of the industry – possibly the most key act of this nature was also passed as law in 2023 quickly becoming a game-changer, legalizing the use of electronic trade documents, including electronic bills of lading..
- Bills of lading will be 100% electronic by 2030 – a bold commitment by the members of DCSA (Digital Container Shipping Association) committing to a 100% adoption of electronic bills of lading (eBL) based on DCSA standards by 2030 moving away from the issuance and use of physical paper bills of lading..
- Not to be left behind and overshadowed by the container sector, some of the world’s biggest shippers in the bulk sector committed in 2023 to target moving 25% of their annual seaborne trade volume for at least one commodity using electronic bills of lading by the year 2025 under a pledge titled “25 by 25 pledge”..
These are just some of the positive moves made by the industry on its road toward digitalization of the industry..
In addition, there seems to be a resurgence in the use of blockchain technology enabling countries like Uganda to enhance their international trade capacity with TradeXchange..
TradeXchange is a national trade facilitation platform for exporters in partnership with CargoX, expected to be a game-changer for Uganda’s export trade landscape..
On the Trade Finance side, ICC and SWIFT launched their API standards for Bank Guarantees and Standby Letters of Credit and SWIFT also successfully tested their interoperability solution for electronic bills of lading..
Electronic trade documentation facilitates faster and more efficient trade, reducing the reliance on paper-based processes that are often slow and prone to errors with electronic bills of lading enhancing the security and traceability of cargo, and reducing the risks of fraud and loss of documents..
These technological advancements are not just modernizing the shipping, freight, and logistics industry but are also setting new standards for efficiency, security, and sustainability..
The digital transformation, spearheaded by laws like the UK Electronic Trade Documents Act, is paving the way for a more interconnected and streamlined global trade and shipping ecosystem in 2024..
Uncertainties for the shipping industry in 2024
While the Red Sea situation has given the shipping lines a bit of a fillip in terms of hiking up the freight rates, there is a very apparent overcapacity of TEU in the market with many carriers announcing losses..
As an example, container shipping line ZIM reported a net loss of USD 2.27 billion in Q3 2023 compared to its net profit of USD 1.66 billion in the same period OF 2022..
Maersk reported a USD27 million loss in Q3 2023 on the back of declining freight rates and worsening of the market environment forcing the company to let go of 10,000 of its global headcount in 2023..
It remains to be seen how this overcapacity and decrease in freight rates will be addressed in 2024 by the shipping lines and how their actions will affect the market..
2024 certainly promises to be an interesting year for the shipping, freight, and logistics industry in trying to unravel this Gordian Knot..