Marine

Rough Seas Ahead for Marine Industry

The sector’s profitability is precarious, but investments in technology and recruitment could assuage some of its challenges.
By: | October 3, 2017

The marine sector faced an uncertain and at times unstable year in 2016. Regulatory uncertainty, fluctuating shipment volume, tightening margins and changing technology challenged the industry and will continue to do so into 2017.

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But the convergence of trends in technology, labor, and market demands offer new opportunities as well as new risks for marine operators.

Marsh, which has a global marine practice spanning more than 100 countries, analyzed these trends in its recent report, “The Changing Tide of Risk: Expert Perspectives on the Marine Industry.”

Emerging Technology

New technologies are poised to help modernize the marine industry.

Logistics is one area ripe for a tech makeover. According to Marsh, container logistics is a $4 trillion per year industry “rooted in the byzantine world of legacy IT systems, massive amounts of data-entry type paperwork, and milestone management processes.”

A Maersk study concluded that about 30 individuals or organizations touch the shipment of a product using a shipping container – a process that involves as many as 200 transactions.

Blockchain offers a way to centralize data, documents and transactions, reducing risk of error, streamlining administrative processes, and cutting costs.

Uncertainty over environmental regulations makes it difficult for ship designers, owners and financiers to plan the best ship design, and it is unclear what incentives might be introduced by new regulations that affect operational decisions.

Some ports are experimenting with blockchain technology, but applications remain in the proof-of-concept phase.

Autonomous shipping holds promise as well. Marsh expects to see fully autonomous ships at sea by the end of 2020. Onboard technology can monitor cargo conditions, alert relevant parties to any issues, and provide records of incidents.

3D printing has also been tested by the Rotterdam Additive Manufacturing Lab to make metal castings. 3D printing can reduce the time it takes to make a casting from months to just weeks.

All of these technologies, however, increase exposure to hacking, with unknown impacts on business operations or worker safety. Hackers could break into connected systems to steal corporate data, intentionally damage cargo or ships, or interrupt business with a DDOS attack.

Human Capital

The world fleet grew by 3 percent in 2016, while shipments increased by 2 percent. But an aging workforce, lack of skilled laborers, and a lack of interest in the marine industry from young people mean shippers may not be able to handle the growth. According to the Marsh report, a study by BIMCO and ICS found that the marine industry could be short by as many as 147,500 officers by 2025.

In its efforts to recruit more workers, marine companies may benefit by improving gender diversity. Currently only 2 percent of seafarers are women, and 98 percent of those women work on cruise ships or in some type of service capacity. The Marsh report suggests that the industry must revamp its image to appeal to a broader pool of prospects.

Market Demands

International shippers will also face pressure to reduce greenhouse gas emissions. Global shipping is responsible for 2.3 percent of the world’s total emissions – down slightly from 2.8 percent in 2007.

The International Maritime Organization adopted standards to improve efficiency and cut emissions in 2011, and cargo shippers have since been able to reduce their carbon emissions even while shipment volume has increased.

But shippers are feeling the squeeze to further cut their sulfur emissions in addition to carbon. Significant emissions reduction won’t be possible without a viable alternative to fossil fuel, the report stated. Even with the ability to store energy in batteries, ships will still need a backup form of liquid fuel.

Uncertainty over environmental regulations makes it difficult for ship designers, owners and financiers to plan the best ship design, and it is unclear what incentives might be introduced by new regulations that affect operational decisions.

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Other challenging trends include cargo theft, which costs the U.S. about $50 billion each year, and falling export prices. The World Trade Monitor index shows global export prices at 20.5 percent below peak, Marsh said. Falling prices are largely due to excess capacity in heavily traded sectors and stagnant export volume.

Though shipment volume increased in 2016, industry researchers see the trend as short-lived and uneven across the globe. Prices and profit margins should improve, however, as global economic health continues to recover.

The Insurance Sector

Overcapacity is also challenging the market. More marine operators are shifting risks to non-traditional new entrants into the marketplace over historical markets like London or Paris, sometimes retaining more risk themselves. Prolonged complacency by underwriters “has done little to focus attention on the quality of tonnage being insured or the terms being offered,” the report said.

Overall, the report warns that the marine industry, including shippers, ports and every member of the supply chain, will face a difficult year ahead if it does not rein in excess capacity. A single Black Swan event could reveal inadequate insurance coverage and cause lasting damage to an industry already fighting for profit margin.

It is imperative for the marine sector to invest in attracting new talent, and in adopting technologies that can boost efficiency and help to control costs.&

Katie Dwyer is a freelance editor and writer based out of Philadelphia. She can be reached at [email protected]

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The R&I Editorial Team can be reached at [email protected]