How Can Your SME Best Utilize Today’s Shipping Industry?

The shipping industry in the global marketplace has been a hot topic of discussion over the past year, and rightfully so. Oftentimes, other industries are overlooked when high-growth, ever-changing industries such as technology and fashion fill newspaper headlines and occupy websites. However, the curious case of the shipping industry has caused analysts to pay attention and take notice.

There is no denying the importance of domestic and international shipping, and how much it effects businesses and people in all locations of the world. But in recent times, the industry is poised to undergo some large-scale changes. A wave of new threats and the consequences of unsustainable growth are casting a possible dark cloud over the industry. But, there are some silver linings looking forward, and there are ways that your SME can utilize what Ireland and beyond has to offer.
The Shipping Industry: Cause for Concern?

The shipping industry itself has seen rapid growth and change since the beginning of the 21st century. Take into account the following statistics: for one, the size of shipping containers have increased sharply over the last five years, and doubling since the year 2000. With a more-than-ever globalized economy, the demand for large shipping containers has increased; consider, 90% of world trade is carried out by the international shipping industry. Around the year 2000, the largest shipping container carried around 8,000 equivalent units of containers, or TEUs. Now, the biggest ships carry over 19,000 TEUs. With increasing global trade and larger shipments, one would think this could only continue to be positive for the industry.

Unfortunately, history does not always pan out the way many see it. According to Drewry Shipping Consultants, the next size increase for shipping containers would impose significant costs on worldwide seaports, and essentially outweigh the advantages of shipping goods and cargo. Since the financial crisis in 2008, the industry has funneled billions upon billions into higher-quality and larger-sized vessels, thus creating significant financial woes for shippers around the globe (to see an interesting TedTalk on the shipping industry by journalist Rose George, click here:https://www.ted.com/talks/rose_george_inside_the_secret_shipping_industry). This has created an excess capacity on ships, which has driven down shipping costs substantially. Tim Power, managing Director of Drewry, says of the movement towards larger ships that “When you put the 24,000 vessels in, the total system becomes slightly more expensive … The terminal costs go up and they offset the savings that the shipping lines make.” Even AP Moller-Maersk, whose Maersk Line runs the largest international container ship fleet, has publicly stated that the industry conditions are “significantly worse” than they were during the 2008 financial crisis. Combined with extremely low oil prices, shipping companies have struggled greatly in recent times.

Another interesting factor to look at would be the Baltic Dry Index, which focuses specifically on the cost of raw materials around the globe. In January, this index fell below 400, something that had not happened since the index began recording in 1985. In 2010, this index was near 4,000, and in the summer of 2015, it was at 1,000. Currently, it is much cheaper for companies to ship raw materials than it has been for the past 30 years.

So, What Does this Mean for Irish SMEs?

With all the negative news surrounding the shipping industry, there is a silver lining for companies to look forward to, especially those in Ireland. In a recent article published by the Irish Times, the Irish Maritime Development Office’s (IMDO) iShip Index reported a 7% increase to 29.8 tonnes in the 2015 year. A total of 4.4 million people traveled through Dublin, Rosslare and Cork ports in the same year. The index also showed that ports in areas such as Cork, Wicklow and Waterford all recorded above average growth rates in traffic in the past year. Breaking it down even further, LoLo traffic (“lift on, lift off cargo”, loaded by cranes) increased by 8%, while RoRo traffic (“roll on, roll off” truck traffic) increased by 6% (see chart below).

 

Evan blog

 

For those with small and medium-sized enterprises, there are no shortage of options for shipping your products within Ireland or into the EU and elsewhere. Beginning with the Irish Continental Group, which is the largest maritime shipping company in Ireland, the 2015 was rather successful for them. Revenue was up 10.5%, net debt was down 27.7%, and earnings per share up 87.7%. If your SME is looking to export to the U.K. and other parts of the EU, this company services Ireland, U.K. and continental Europe. The ports serviced by Continental include Hollyhead, Pembroke, Rotterdam, Antwerp, Roscoff, and Cherbourg. Another option would be Woodland Global, a logistics firm that has and repeated success throughout Ireland and Europe. They have many divisions, which include logistics, media, entertainment, and specialist services. They have had success finding alternative and affordable shipping options for businesses in Ireland, as well as in the EU.

There is no denying that growth cannot be sustained forever, especially in the shipping industry, without running into hindrances and obstacles. There also is no denying that some major changes need to be made by many of these shipping companies, such as Maersk, MSC, and others, in order to avoid undue financial stress throughout the entire industry. But Ireland certainly has a silver lining, along with other economically successful European countries, and can continue success with the blueprint they have established over the past few years.

 

 

Evan Carvalho

 

International Trade Associate

World Trade Centre Dublin

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