Join hosts Dr. Ian Oxnevad and Chris Mason as they discuss the impact of geopolitics on the shipping industry with Joshua Hutchinson, Managing Director of Intelligence and Risk at AMBREY.
Introduction to Maritime Geopolitics
The global economic system heavily relies on maritime shipping. In fact, 90% of all trade travels by sea.
Despite its critical role, maritime shipping often operates under the radar of public awareness. When a package arrives at your door or a product hits the store shelves, little thought is given to the complex journey it has taken to get there. The maritime industry plays an indispensable role in global trade, moving raw materials and finished goods to their destinations around the globe.
Conflicts and tensions in various regions impact the security and efficiency of shipping routes, posing serious challenges to the industry.
From the Middle East to Southeast Asia, maritime channels are becoming hotspots of geopolitical struggles, with significant ramifications for global trade and economics.
Regional Threat Dynamics
The risk landscape and the required risk mitigation techniques can vary dramatically by region.
For example, navigating through the Red Sea entails different challenges and required precautions compared to traversing areas known for piracy, such as West Africa.
Regional Threats:
- Red Sea: A current hotspot for terrorist attacks on shipping channels with continuing conflict in the region.
- East Africa: Risks include piracy, local corruption, and political instability.
- Southeast Asia: Navigational hazards, piracy, and regional disputes are significant threats in the region.
- Latin America: Organized crime, including drug cartels exploiting the shipping industry to launder significant amounts of cash creates a unique set of risks.
Managing Risk versus Mitigating Threats
It is important to distinguish between managing risk and managing threats, especially when it comes to managing maritime risk.
Risk management is about adopting strategies to minimize exposure to potential losses, which is an intrinsic part of doing business in the shipping industry. This requires ensuring you have contingency plans in place and verifying that your firm’s compliance policies and programs are up to date.
On the other hand, managing threats involves understanding and neutralizing specific dangers that could jeopardize your operations. In the case of direct attacks, this may even mean protecting a specific vessel’s safety. Dealing with threats requires having a tactical plan in place to deploy as needed.
Increasing Costs and Logistical Challenges
The geopolitical tensions described earlier don’t just disrupt shipping lanes; they also increase costs and complicate logistics throughout the maritime industry.
For example, many ports in Africa are struggling to expand their capacities quickly enough to meet the growing demand from reshoring. Efforts to ramp up these expansions are often stalled by limited infrastructure and funding, which further exacerbates logistical inefficiencies.
At the same time, insurance costs for certain routes have skyrocketed, with some carriers outright refusing to cover specific regions. This imposes additional financial burdens on shipping companies, which must either absorb these higher costs or shift them down the supply chain, affecting manufacturers and, eventually, consumers.
Financing options are also shrinking, particularly for areas that are deemed high risk, complicating the ability of shipping companies to plan and execute their logistics effectively.
Stakeholder and Shipping Partner Impact
Understanding the various stakeholders behind shipping deals is crucial.
The risk strategies adopted by shipowners, insurers, and cargo clients often reflect their broader business strategies and tolerance levels. Hence, a comprehensive evaluation of shipping partner risk profiles is essential for coherent risk management planning.
For example, if you are looking at reshoring options you may need to work with new ship owners or port logistics companies. Service providers can vary widely overseas in terms of their risk management approach and adherence to regulatory requirements.
Avoiding doing business with high-risk partners or even bad actors requires conducting deep dive due diligence to get a true understanding of who you are doing business with.
About AMBREY
Ambrey was established in 2010 to offer a dynamic and creative solution putting clients’ needs first, providing safety, security, marine and risk management services to the Shipping, Oil & Gas, and Offshore industries.
At the time Somali Piracy was reaching its peak and early market entrants to the counter-piracy security market were struggling to meet demand from the shipping sector for compliant armed-guard services off the coast of Somalia.
The demand was so high that many early market entrants were unable to fulfil them, and service levels were being compromised in order to scale support operations quickly. Ambrey quickly responded to the client need for compliant, well-trained and reliable armed security guards on merchant vessels and pioneered industry initiatives to standardize and regulate services.
About Infortal Worldwide
Infortal Worldwide provides the full suite of due diligence investigation services to support your company’s risk management program and investment due diligence process. This includes investigation capabilities in over 160+ countries worldwide.
For over 35 years, Infortal has enabled clients across all industries to mitigate their business risks and protect employees and assets globally.
Infortal Worldwide is also at the forefront of examining how geopolitical risk can impact strategic decision-making, the long-term sustainability of your business, and the potential downstream impact on key partners and suppliers.
Infortal Worldwide focuses on solving risk before it starts.™
Resources:
Joshua Hutchinson on the Web | LinkedIn
Dr. Ian Oxnevad on LinkedIn
Chris Mason on LinkedIn
