On September 25th, 2008, the vessel FAINA entered the Gulf of Aden, one of the most notorious pirate hotspots in the world, where the ship was hijacked, and the crew was taken hostage. FAINA carried military hardware that included tanks, military vehicles, aircraft artillery, rocket batteries, machine guns, RPG, etc. Given their sensitive cargo, it was expected that best efforts would be placed, and the vessel would be freed soon. However, only after five months, a Ukrainian Billionaire paid the negotiated ransom of 3.2 million dollars, FAINA was freed .
Pirates have often been portrayed as swashbuckling adventurers, but that is something miles away from reality. In today’s world, pirates pose an immediate threat to seafarers and cost hundreds of millions of dollars to the global economy. Let’s understand how this piracy affects global trade, what risks it poses to the maritime industry, and how we, sitting miles away in our homes, are indirectly affected by it.
It comes as no surprise that the war on Ukraine is unraveling the fabric of the global supply chain. It is causing a cascading effect on the world, which is already distraught from the pandemic, climate change, and geopolitical tensions. The throttling of exports from Russia and Ukraine is driving up prices and leading to fear of food and energy security in prosperous European nations and poor developing nations alike. The immense human suffering continues as the power play of securing new independent supply lines remains at the fore. All the while, sanctions choke even those who are issuing them.
One out of every 5 container ships worldwide is waiting outside a Chinese port due to heavy congestion brought in by covid lockdown in China . This could mean that another supply chain crisis is looming large on the horizon, waiting to crumble the global supply chain. The first signs became visible in March 2022, when the volume of goods being shipped by sea out of Shanghai dropped by 26%. It was seen that between March 12, when the targeted lockdown was introduced, and April 4, the volume of goods leaving the Shanghai ports by trucks fell by 19% . The scale of the problem hanging over our heads can be sensed by the AIS data of the ships around China, which depicts 300 container ships and 500 bulk ships waiting off the coast of China .
The story begins with the outbreak of the omicron variant in China, following which the Chinese Government resorted to its tried and tested method of initiating its zero covid policy. China’s zero covid policy is directly responsible for such a steep drop in cargo movement. There are enormous backlogs of cargo to be shipped and to be received. At this point, even if the lockdown were to be magically removed, it would be cold comfort to the supply chain professionals as it only opens the floodgates for the crisis to progress.
The latest report of the IPCC (Intergovernmental Panel on Climate Change) woke the world from blindly following the economic frenzy at the expense of the environment. IPCC forecasts read that the global temperature could rise as much as 10F over the next decade.
In this environmental disaster, the maritime industry happens to be a significant contributor. The 4th IMO GHG study states that ships worldwide emitted 1076 million tons of greenhouse gases in 2018, which accounts for nearly 3% of the global greenhouse emissions . The IMO has been pulling its weight to put a damper on this unchecked emission growth and limit the damage. IMO has come up with its ambitious goal of achieving a 40% reduction in CO2 emission from the 2008 level by 2030 and a massive 70% reduction by 2050 . Pursuing its goal, IMO introduced mechanisms such as EEDI (Energy Efficiency Design Index ), EEXI (Efficiency Existing Ship Index) and now the latest is the Carbon Intensity Indicator (CII).
What exactly is the CII ?
In essence, CII measures how efficiently a ship transports its goods or passengers in terms of CO2 emitted. More precisely the CII is the grams of CO2 emitted per ton of cargo transported across every nautical mile. It was one of the regulations adopted by IMO in June 2021 and will come into force from 1st January 2023, covering all cargo, RO Pax, and cruise ships above 5000 GT .
The CII value of a vessel will be evaluated annually and compared to the reference CII values determined by IMO. The emission data of 2019 sets the reference line. Based upon this comparison, the performance of every ship will be rated on a scale of A to E, with A being the best. Achieving the CII rating equivalent to the reference line will land a ship squarely in the middle of the C rating, with better and poorer performances progressively leading to higher or lower ranks. For the start in 2023, the reference line will be set at 5% emission reduction concerning the 2019 level and then gradually move up to 11% reduction by 2027 .
How will CII impact the shipping industry?
With the adoption of guidelines and tools such as the CII, EEXI, SEEMP, etc., IMO is working on reducing the carbon footprint of the maritime industry. However, some industry experts believe that IMO might have been overzealous in reducing emissions. An analysis conducted by ABS using EU-MRV 2019 data suggests, that to 92% of the current container ship fleet, 86% of bulk carriers, 74% of tankers, 80% of gas carriers, and 59% of LNG carriers would require modification and operational changes of some kind to achieve A, B or C energy efficiency rating .
FleetMon in Research & Development: EmissionSEA – Extrapolation of emissions from ships
The ship owner’s struggle
From the above ABS data, it is obvious that a vast number of ships would require retrofitting to achieve favorable CII ratings. Securing finance for such retrofitting will be a challenge for small shipowners who often have older ships as ship finance is rapidly moving towards Environment, Sustainability, and Governance (ESG) goals. The Poseidon principles and the Sea Cargo Charters are essentially frameworks for integrating climate considerations in shipping’s financial decisions. Financing a poorly CII rated ship would increase the risk of the financer as a D-rated vessel today might slip to an E rating tomorrow when CII becomes stringent in coming years .
2020 should be a record year for the cruise industry with 32 million expected passengers, almost double the 2009 numbers of 17.8 million. But unfortunately, the world was hit by the novel coronavirus, and things went downhill, putting the cruise industry in an unprecedented crisis.
As per research: 54 reported infected ships and 2.592 ill crew members and passengers worldwide. 65 people died aboard cruise ships as matters spiraled out of control. Following this, ships were placed on stasis one by one, crewed by minimum possible staff. The now superfluous staff members were sent home on chartered planes, mass bookings, and even aboard cruise ships while the world struggled with convoluted and sometimes closed border crossings.
The cruise industry is remarkably resilient and has endured and overcome many challenges. The new coronavirus, however, has been different. Governments issued advisories against the cruise industry, with some experts calling ships viral incubators and that the industry needs to be shut down. Dr. Anthony Fauci, Director of the National Institute of Allergy and Infectious Diseases, issued a direct statement of avoiding cruises on an NBC telecast. There have been indicative signs of industry slowdown, from the prediction of industry experts to shipbreaking yards receiving an increasing number of cruise ships.
Building up of the storm
On March 4th, 2020, the German Federal Government stated an increased risk of infection aboard cruise ships. On March 14th, the CDC of the US issued a no sail order for 30 days. Ships were left fully staffed by the liners, with the intent of salvaging the remaining summer season. On April 9th, 2020, the CDC extended this order for 100 days, prompting drastic and quick revaluation by the shipping industries to survive, leading to loitering ships with minimal staff. The Foreign Commonwealth Office of Britain also recommended no traveling on cruises on July 9th, 2020.
Spreader events aboard the ships started to surface, such as the infamous DIAMOND PRINCESS. Crew unpreparedness led to the mingling of infected and healthy passengers, resulting in more than 700 crew and passengers testing positive and the death of 8. Another case, the RUBY PRINCESS, where 2.700 passengers were released without quarantine or tests, later resulted in more than 900 infected and 28 dead. Such events saturated the media, causing an effect similar to what the 9/11 attacks had on the airline industry; causing unpleasant associations with ships in the minds of people.
National governments around the world put the safety of their citizens above foreign nationals. Ports refused to accept cruise ships. Australia banned cruise ships from arriving on March 15th, 2020, and on March 27th, the country directed all foreign vessels to leave the ports.
Recently the maritime industry became aware of what has been stated in the media as “China’s terrestrial AIS data blackout”. Following two new data security laws in China, the reception of data from China became challenging. The new Data Security Law (DSL) and Personal Information Protection Law, both coming into effect on Nov 1, 2021, intend to increase government control over domestic and overseas companies collecting and exporting China’s data. Industry experts are concerned about how those changes might impact ocean supply chain visibility in China, especially taking into account the country’s leading role in global container shipping and coal and iron ore import. Besides, mainland China is home to six of the world’s ten largest container ports.
FleetMon collaborates with several Chinese companies and AIS Partners to receive terrestrial vessel position data from Chinese coastal waters. The new rules restrict foreign access to important data like vessels’ AIS signals collected in China without the government’s prior notice and approval. Some of our loyal AIS Partners and data sharers from China have paused transmitting data in fear of massive fines announced by the Chinese government in case of law violations.
Now, how severe is the impact of China’s new Data Security Laws on AIS coverage in the region?
Los Angeles and Long Beach ports have long been the primary source of pollution on the US West Coast, which also happens to be the smoggiest region in the country. Since June of this year, the accumulation of diesel-powered container ships and a large number of cargo-moving trucks in the ports has exacerbated the situation. Residents living near these ports face the highest risk of cancer from the air pollution in that region, which is primarily caused by smoke-belching ships anchored at these ports. California has set a 2023 deadline for reducing smog and improving air quality, but the situation on the ground has deteriorated in recent years. Especially, with the ongoing congestion at the LA port.
While efficient ports are critical for the economic development of their surrounding areas, the associated ship traffic, cargo handling in the ports, and hinterland distribution can all hurt the environment as well as the economy.
Port congestion and Pollution:
When a vessel arrives at a port and is unable to berth, it must wait at the anchorage until a berth becomes available. This is a problem that only gets worse over time and Southern California ports have been facing congestion issues like never before. A huge crowd of container ships has been constrained to queue outside Los Angeles and Long Beach, causing the latest supply chain disruption in the United States.
The ships are stranded outside two of the busiest ports of the country, which together handle 40% of all containerized cargo entering the US.
The number of ships awaiting entry into the largest US gateway for trade with Asia reached a record high, increasing delays for businesses attempting to replenish inventories during one of the busiest times of the year for seaborne freight.
On September 12, Port of Los Angeles Director Gene Seroka warned that a “significant volume” of goods was “coming our way throughout this year and into 2022.”
Consequently, on September 18, a record 73 ships were trapped outside the port – nearly double the number as that of the previous month.
The current congestion — with both ports setting records regularly — exemplifies cargo surge since the pandemic. The backlog has increased pollution and poses a threat of supply shortages ahead of the holiday shopping season.
If the global shipping industry were a country, it would be the world’s sixth-highest CO2 emitter, ahead of Germany. As an international industry, shipping was not covered by the 2015 Paris climate change agreement that focused on individual nations’ responsibility for critical emissions. But as unprecedented heatwaves, forest fires and flooding raise global awareness of climate change, the shipping industry is starting to make up for lost time.
How significant is their response? And was Maersk’s recent announcement of investing over US$1.4bn in eight post-Panamax containerships that can run on methanol or bunker fuel just a drop in the proverbial ocean? Let’s take a closer look at how shipping is responding to the climate crisis.
Port resilience is described as the capacity of ports to anticipate and respond to changing situations, as well as to survive and/or quickly recover from disruptions, with the goal of preserving the sustainability of operations and flow of cargo to, from, and through ports.
Due to the multitude of interdependencies inherent in supply chains, the breakdown of any node in the network can have an immediate impact on demographics, their safety, and well-being, as well as on the regional economy and its enterprises.
Have you recently tried to buy a computer, Peloton exercise bike or new furniture? If so, you may well have experienced an unexpectedly delayed delivery. You’d be in the same boat as millions of other consumers and corporate buyers in the western world. Though your order may have been stuck in one of the many thousands of containers on the Ever Given, the ship held up in the Suez Canal for months, the most likely reason for delayed deliveries is the global shortage of containers. The metal boxes that make global trade possible are in very short supply – with a domino effect on supply chains worldwide. And it all began with the COVID-19 pandemic.