Shipping & Ports

The government's free ports policy – creating low-tax investment zones around selected UK ports where tariffs and charges are reduced and managed directly by the operator – has proved controversial. It has the potential to create winners and losers in the sector. Designated free ports receive increased public and private investment, while those not selected in the initial crop experience a decline in existing trading volumes. How this will impact on the ports themselves, and the supply chains depending on them, is not yet clear.

For the shipping sector, many of the logistics issues dogging global routes throughout the pandemic have slowly unwound, with container pricing falling steadily in recent months. As the acute issues around global shipping capacity diminish, two longer-term challenges have (re)emerged: sustainability and geopolitics.

Sustainability is the more controllable of the two. Recent changes to IMO regulations demand a rapid transition to low sulphur fuels, increasing costs or requiring expensive fleet modifications. Higher capex is now required for emission ‘scrubbers’ and there is an increased risk of fleet obsolescence. Divestment in the sector by large banks in recent years has reduced financing options for smaller vessel owners and operators, which makes navigating this difficult period even tougher. Consequently, larger businesses with cash-rich balance sheets may look to identify acquisition opportunities and increase market share.

An increasingly tense geopolitical landscape is the more unpredictable long-term challenge – not just in Ukraine but other areas across the world, including critical global supply chains. For shipping businesses, rolling with the punches is the name of the game. There are also options to improve financial and operational resilience and robustness, making further periods of economic disruption easier to manage.