Who is to blame for overcapacity?

Malcolm Latarche
Malcolm Latarche

22 November 2017


Earlier this week, the ICS issued a statement on the environmental and economic sustainability of shipping. Addressing government trade negotiators in the OECD Working Party on Shipbuilding at a workshop on 'green growth' in Paris, the shipowners’ organisation asserted that the shipping industry could only be environmentally sustainable if it is economically sustainable too. 'The perennial challenge facing shipowners is overcapacity, aided and abetted by government subsidies and support measures that encourage shipyards to produce ships that are surplus to requirements' said ICS Director of Policy Simon Bennett. 'If governments are serious about helping the shipping industry deliver on the United Nations Sustainable Development Goals, the OECD needs to reboot efforts to have a global agreement on the elimination of market distorting measures from shipbuilding. Despite being in existence for over 50 years it's disappointing that the working party on shipbuilding has still made little progress, with the last round of negotiations on a new OECD agreement having been suspended several years ago.' Bennet and the ICS are or course correct when they link economic sustainability with environmental sustainability but whether shipyards or shipowners are to blame for overcapacity is a moot point. The overcapacity in several areas of shipping has been more the result of over zealous fleet expansion by ship operators than because of shipyard capacity. If they truly believed that freight rates were being depressed by the number of ships operating, the question is really why did the likes of Maersk, MSC, CMA CGM and so many others continue to order ever larger vessels? With very few exceptions, shipyards only build ships against firm orders and if the orders did not come then the yards would either close because they were economically unviable or survive on government subsidy. The latter could only happen in a few areas of the world one of which would be China. And perhaps there is the reason for the ICS’ real concern. State owned shipping companies supporting state owned shipyards will always give an unfair advantage to the state concerned. How long the major European operators could survive that sort of competition is debateable, but it would surely not take many years to drive them to bankruptcy without government support of their own. The problem for the western (and particularly European) shipping industry is that it is the final part of the chain to be affected. Globalisation has already seen most of the former western manufacturing move east, shipbuilding too has gone the same way leaving just the transport element left. If there is an answer to the overcapacity issue it might be ironically that the old 40-40-20 principle of the UN Code needs to be revived but this time to protect the developed nations rather than developing nations attempting to build a national fleet. That battle of the 1970s and 80s was long ago won by European owners – success in the battle against China is much less certain.