Freedom of the seas – The key to success in world trade and world commerceDr. Hans G. Payer

Hellas CommitteeAthens 24.11.2004 Costamare Vessel on the Elbe

Freedom of the seas has been the basis for the success of shipping, a most important element in world trade

Economic Situation

• The world economy has fundamentally been on an expansion course during the past 50 years

• Customs tariffs have been reduced from an average of 40% to 6% during the past 15 years

• The cost of transportation fell some 70% in the past 30 years

With internationalisation shipping has retained its central role in the world economy

• Despite expanding land and air transport more than 90% of world trade volume is transported by sea• Shipping is very

efficient

Container ships have become an integral part of modern world trade

• Their tasks are demanding: • efficient and cost-effective delivery

of goods• according to a tight time schedule• largely independent from weather

and the sea states on route• The cargo is well protected in

containers• Containerships are generally well

maintained and have a good safety record

Booming World Trade – Shipping plays a Central RoleVolume 1950 = 100

Source: WTO

2000

2.000

Growth in World GDPReal growth in % per yearAverage between 1991 and 2000: 3.3%

2,8

1,91,6

1,0

2,8

3,73,7

2,22,1

1,5

4,04,2

3,6

4,7

0,0

1,0

2,0

3,0

4,0

5,0

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Growth in World Trade (about 2.5 * GDP)

3,6

6,9

10,6

4,35,5

12,6

2,7

4,7

7,4

-0,1

4,8 4,3

8,78,9

0

2

4

6

8

10

12

14

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Real growth in % per yearAverage from 1991 to 2000: 7.0%

Containerships are at the centre of globalisation: they have shown the fastest growth of any ship type

• 3,200 containerships make up 14% of world merchant fleet tonnage today• In 1995 only 5% were

containerships • 9 % average growth of

container fleet over the past 7 years

Main factors for continued strong growth in container shipping: • Continued growth of the

population• Increase in living standards• Globalisation of manufacturing• Trade liberalization by new WTO

regime• Continued containerisation of

general cargoes• Development of e-commerce

Impact of rising living standards in China

Trading Giant China

China – a global trading colossus with total imports and exports in 2003 of $ 850 billion

Shipping, particularly container shipping, plays an important role

As this development continues, we’ll need more ships

The success of shipping is based on Freedom of the Seas

The great benefits from containerisation include dependable, in-time delivery of goods in pristine condition

Leading national merchant fleets –Nationality of owner (in million GT)

• Greece 91 mGT 16%• Japan 77 mGT 13%• Norway 37 mGT 6%• Germany 36 mGT 6%• USA 35 mGT 6%• China 31 mGT 5%

• China + Taiwan + Hong Kong 63 mGT

Containership fleet by Flag(in million GT)

• Panama 16.6 24%• Liberia 11.2 14%• Germany 5.1 7%• UK 4.3 6%

• China (11) 2.2 3%_______________________• World 78.4 100%

Containership fleet by Nationality of ownerin 1,000 TEU carrying capacity

• Germany 1,900 31%• Japan 567 9%• Greece 484 8%

• China (6) 309 5%_______________________• World 6,100 100%

Freedom of the seas is threatened today

• Zero tolerance for marine accidents results in regulatory overkill• Ship-owners are swamped

by waves of new regulations, particularly after spectacular accidents• Ships are constrained by

excessive inspections and paper work

Overregulation is only one of a number of the threats to our freedom and to shipping

• The growing proliferation of unilateral port state regulations• The hazards of exceptionally

bad weather• Civil disruption: • strikes • piracy • terrorism • wars

• The consequences of the ISPS code

Unilateral introduction of new regulations: The Prestige disaster highlights how the traditional system has been eroded

• Ship was prevented from entering sheltered waters and broke in two in a storm

• Master was arrested• EU: Tankers in the future to

sail outside of 200 mile Economic Exclusive Zone

• Phasing-out of single hull tankers unilaterally brought forward

• Role of IMO undermined

Extensive and sensational press coverage leads to politically motivated actionism …

• …well before the true cause of an accident has been investigated• …mostly without

consultation with the industry

• New, often unilateral legislation and rules are imposed

We need to be better prepared: Accident investigation - a key factor in improving safety at sea in the past

• Results of accident investigation have added immeasurably to ship safety

• The sinking of the TITANIC has caused radical changes, internationally agreed, such as• bulkhead layout,• radio watch procedures,• provision of safety equipment

• Rational solutions are threatened in the present climate

A positive example: Grounding of the Braer 1993-01-05 Shetland Isles

• One of the very best casualty reports• Results allow

conclusions for ship operators and class on how to prevent recurrence of the mishap• Report has contributed

to improvements

The US started unilateral legislation following the Exxon Valdez accident

• OPA 90 - Compulsory for tankers trading to US • Double hull tankers• ERS - Competent advice in

case of an accident• With ERS Prestige may have

survivedExxon Valdez

Changes in maritime legislation should be decided and introduced through the IMO

• IMO should continue to play the central role in developing and introducing changes in maritime legislation• IMO has been too slow in

the past – this is changing• National maritime safety

agencies should closely co-operate with the IMO• New rules and legislation to

be coordinated by the IMO

Tendency towards Regional Regulations -Stimulate more environmental concern or create confusion?• Example for Local Solutions:

Ballast water management• Countries: Canada,

Australia, USA, New Zealand, Chile, Argentina, Israel• Ports and Regions:

Vancouver, Great Lakes

Swedish Maritime Administration Decrees SJÖFS 1997:27 & SJÖFS 1997:28Creation of incentives for low emission• Regulations concerning

Fairway Dues

• Regulations concerning requirements for environmentally differentiated Fairway Dues

Hazards of exceptionally bad weather

• Meteorologists and climatologists agree that we are in period of increasing average temperature

As the average temperature rises - extreme weather conditions become more frequent

Extreme weather conditions:• Extreme waves become more

frequent• “Freak waves”• Cyclonic storms• Extreme ice conditions

Hurricane Juan (September 29,2003)

What are the consequences of rising average atmosphere temperatures?

• With an increase of 4°C the return period of 100 years – the basis for ship design in the past -reduces to 12 years• Rare, once in 100 years-

events are practically becoming normal events

Disruptions in any part of the transport chain have immediate knock-on effect on others

• Typhoon Maemi in Korea destroyed Container-terminal in Pusan• Pusan handled 80% of

Korea’s container throughput• Container transportation

chain was severely disrupted• Authorities started response

program to ready port for new weather patterns

Parametric rolling of large containerships -Need for a ship routing system

Weather damage on OOCL America

Shipboard Routing Assistance System (SRAS)Measured wave data Actual loading condition

Central processing and display unit

Weather forecast (alternatively) Hydrodynamic database

(pre-dtermined)

Benefits of SRA

• Ship owner / operator• Continuous seaway information• Nautical advice (especially valuable with poor

visibility)• Routing assistance by scenario forecast• Risk reduction regarding container loss and hull

damage⇒ negotiable insurance rates?

• Class• Increased insight into ship response• Validation of Rules

Civil disruptions: Man-made problems

• Strikes• Strike on the US-West

coast in 2002 resulted in factory shut downs in the US within a week

• Piracy• Terrorist attacks• War

Sole dependence on West coast ports recognized as a weakness in the supply chain - Contingency:all-water route for container shipping from Asia to US-East Coast

• Widening of the Panama Canal has been under consideration for many years• Widen the canal locks from

presently 32.6 m to 50 m• Post Panamax ships can

pass the Canal

Piracy: In view of the enormous energy currently being dedicated to security issues…

• ..it is ironic that the problem of piracy and armed robbery at sea is still given inadequate attention• Shipping is being terrorised in many

waters of the world by piracy• Bold attacks: from robbing the ship’s

coffers, to stealing containers, to hijacking the whole ship• Piracy – a threat to reliable shipping

Security

• Ship and port security today are of fundamental importance for safe, secure and uninterrupted operation in shipping

Terrorist attacks: Container ships are particularly vulnerable

• Misuse ship or containers to carry weapons• Terrorist attack on ship• Misuse ship itself or

container as a bombLimburg terrorist attack

ISPS increases security and safety, but carries the danger of slowing down the transportation process

What to do, when a container deep in the hold does not get security clearance?

Disruption of container transport by security checks - an example

• Palermo Senator, 2,860 TEU container carrier, forced to anchor six miles off New York for several days while FBI searched for a container suspected of radiation and for stowaways• False alarm with significant

economic impact

As Ashdod suicide attack showed, containers can well be misused to carry terrorists….

Security: A close look at the contents of containers

• Container Scanners are being installed in major ports of the world

• X-Ray scanning of containers for suspicious contents

• Radiation Checks• Danger of false alarms from

cargo with low level radiation• Alternative: Eagle System or

small sensors for individual container relaying data

Thing of the past: Fire in container loaded with self-igniting chemical unknown to the master

• Fire spreads in cargo hold and burns for many days

• Severe damage to cargo and ship structure

• Now: Contents of containers need to be specified(“Unclear descriptions will no longer be accepted by customs officers”)

Other Dangers• Danger of other port states

to follow US and EUexamples• Unilateral criminalization by

some nations of shipping incidents• Arduous shore leave

restrictions imposed by US• Unilateral US ship tracking

system independent from IMO-AIS• EU plan to set up its own

security directorate-general

Reasonable balance must be struck to preserve our cherished freedom of the seas

• Complex world needs more regulation

• Least-costly, most practicable and effective course of action to be taken

• Adhere to ISPS but press for optimisation of the processes

• Support the IMO in its efforts to re-establish its role as the central world shipping regulatory body

• Inform the public and politicians about the importance of freedom of the sea and benefits to the economy

Our freedom to trade upon the seas must be controlled - but not unduly restricted

• Our industry is threatened• Only one body can do

anything about it:Ourselves

The End