By Xin Jicheng

Being alert to shipping safety under dollar decline

By Xin Jicheng

The event which influences most for the international shipping industry in 2017 is the announcement of Federal Reserve System (FED) to raise the interest rate at the end of 2016. This round of raising the interest rate by FED indicates that after many years’ quantitative easing monetary policy since 2008, the fl ow direction of dollars in the world starts to reverse substantially. With continuous fermentation of interest raise in the future, the safety situation of international shipping market will be more and more serious, and this is an important issue that must be paid high attention by international shipping industry.

The long-time low freight make owners significantly cut the maintenance budget of ships. From the point of the actual situation of international shipping industry, the ship situation is not ideal , whether they are old or less than 5 years. Compared with the regular cargo ships, the maintenance problem for irregular cargo ships is more serious; under the background of dollar reverse circulation in the future, the living condition for ship repairing companies is also terrible. Under the current situation of liquidity crunch, breaking contracts can easily happen, this would put the ship repairing companies in a more severe situation. In the future, the difficulties of operation of ship repairing companies will easily affect the repairing quality. Seen from the actual situation of current international shipping, the operation diff i culties of ship repairing companies has affected the quality of ship repairing. Compared with the ship repairing companies, the living condition of shipbuilding companies will be more diff i cult. Especially for the shipyard who hold dollar debt due to low interest rate, the increasing debt cost caused by interest raiseis likely to threat the survival of the companies in the future. At present, the diff i culty faced by the shipbuilding industry has inf l uenced the quality of the delivery of new ships in recent years; and under the situation of dollar reverse circulation, the crew’s declined income will become the key factor to affect to some extent the safety of shipping industry in the future.

“Hugging together for warmth” seems to be the only choice for shipping industry under the background of post financial crisis. Since the end of 2015, the international shipping industry entered the peak period of mergers and acquisitions (M&A). Under the wave of M&A, the pattern of global shipping alliance has changed dramatically, the international shipping market is showing an oligopoly situation. However, the problem caused by large-scale M&A cannot be ignored for the development of shipping industry in the future. At the end of 2016, the fact that most maritime safety accidents occurred to ships belonging to merger and takeover companies has ref l ected the safety management confusion in the post M&A age of shipping industry. Also, the change of shipping ecosystem in the post M&A age will threat the safety of shipping industry in the future to some extent.

The international shipping industry will be inevitably inf l uenced in the short term by dollar reverse circulation in the future. Shipping accidents under the sluggish market will make the life of shipowners even worse. From the point of the pattern of global political and economic development, with the dollar inverse circulation, the globalized production pattern is also questioned around the world. The previous economic globalization has basically come to an end, and Brexit, Trump’s counterattack and US exit from TPP are all indications of the reverse of the globalization trend. In the future, as long as the non-dollar countries manage their domestic capital market well, they will have a chance to solve the problem caused by dollar inverse circulation.

The collapse of Bretton Woods system leading to the separation of dollars from gold makes the order of international monetary and financial market more diversified. Although the supply of offshore dollars will signif i cantly reduce in a period of time, other types of currency in the international trade market are still sufficient. In contrast with FED raising the interest, the main trade countries in Europe and Asia still implement the quantitative easing monetary policy and cheap money policy to balance the domestic debt and ensure the competitiveness of national goods in the international market. If these countries cannot only keep the surplus but also effectively control the domestic capital flight, then the appreciation of dollars would be good news in the short term. To keep the competitiveness of the export goods in the international market and ensure the stability of domestic capital market will become two gold keys to solve the diff i cult problem of dollars inverse circulation.

Currently, “de dollarization” will be one of the important issue for shipping industry to consider in the future. But whatever the shipping market will change in the future, the safety and environmental improvement are the important issue that cannot be ignored in the development of international shipping industry. For the shipping industry that is experiencing diff i cult times, the expense in fleet maintenance cannot be cut when the additional cost after the accident is taken into account.