For the eleventh consecutive year, Singapore came out top at the Xinhua-Baltic International Shipping Centre Development Index (ISCDI) 2024. The Index ranks the world’s leading shipping centers based on a comprehensive evaluation of port factors, professional business services, and the general environment.

“Shipping centers like Singapore, London, and Shanghai continue to lead the way, providing world-class services and infrastructure that underpin the industry’s success.,” said Mark Jackson, CEO, Baltic Exchange. Along with Jin Yu Cheong, head of Baltic Exchange Asia, both leaders spoke with Maritime Fairtrade to explain the crux of strategizing feasible yet profitable business models to be future-ready for the industry in 2025. 

Mark Jackson, CEO, Baltic Exchange. Photo credit: Baltic Exchange

How did the droughts which plagued the Panama Canal cause a chain reaction of restricted flow of shipping?

Mark: The impact of the recent droughts in Panama on global shipping has been significant. The Panama Canal, a critical artery for international trade, has faced unprecedented disruptions due to environmental challenges, adding considerable complexity to global supply chains. 

These conditions have forced shipping companies to make tough commercial decisions – either consider longer and costlier routes or transit the canal with reduced cargo loads, resulting in decreased revenue. In either scenario, the reduced water levels in the canal have led to cost implications.

Choosing longer routes to avoid the Panama Canal leads to increased fuel expenses and longer delivery times, while reduced cargo loads through the canal require additional vessels to meet demand. Over the past year, we have observed these trends through the Baltic Exchange Investor Indices, which provide shipping stakeholders and investors with essential data on vessel asset values, earnings health, and operational costs.

For instance, our data shows that the tightening vessel supply and reduced available tonnage caused by the canal’s operational challenges have driven up vessel prices significantly. The cost of a Capesize vessel has risen by 35 percent, reaching nearly US$57 million since January 2023, while VLCC tankers have appreciated by more than 17 percent, now valued at approximately $109 million. 

These increases in asset values, coupled with the Panama Canal disruptions, translate to higher costs for shipping companies, which ultimately cascade through the supply chain and affect end consumers.

Jin Yu Cheong, head of Baltic Exchange Asia. Photo credit: Baltic Exchange.

With the Suez Canal tension, what is the outlook moving into 2025? 

Jin Yu: Predicting developments for the Suez Canal in the coming year remains challenging. However, we observe that shipping companies are implementing contingency plans, increasing flexibility in delivery schedules, optimizing cargo loads, and maintaining the agility to respond swiftly to events by rerouting vessels when disruptions occur.

Geopolitical uncertainty is rising, and recent Houthi missile attacks have impacted goods in transit, causing a shift in trade volumes, with over 70 percent more vessels choosing routes around South Africa to avoid the Suez Canal. This rerouting has also driven a notable increase in demand for refueling services in South Africa.

The key question now is whether these shifts in global trade patterns are temporary or long-term, as both vessel owners and cargo clients must make investment decisions based on their forecasts. Up-to-date information and data analytics are playing an increasingly critical role in guiding these decisions.

The maritime sector remains remarkably resilient in the face of market shocks. Shipping players adapt swiftly to new realities, often seeking first-mover advantages in emerging patterns. Such changes, however, can lead to inefficiencies in trading routes; traditional triangulation patterns to reduce ballast time may no longer be viable. 

Consequently, more vessels are required to transport the same volume of cargo, which can drive up ocean freight rates, fuel costs, and insurance premiums.

Why is the boom in e-commerce beneficial to the shipping industry?

Mark: The boom in e-commerce has significantly increased shipping volumes and demand for international shipping services, particularly from manufacturing hubs in Asia. This surge has also transformed traditional shipping patterns, as the need to transport higher volumes of smaller parcels has prompted a shift in logistics strategies, with air freight gaining prominence to meet the demand for faster delivery times. 

This trend has been evident throughout 2023, as highlighted in the Baltic Exchange’s weekly air cargo indices, published in collaboration with Hong Kong-based TAC Index.

Shipping companies have responded to these changing consumer expectations and expanding global markets by increasing their capacity, diversifying their offerings, and optimizing routes to support this sustained growth. 

Beyond increased volume, e-commerce has driven innovation in warehousing and last-mile delivery solutions, often requiring integrated logistics networks that enhance shipping efficiency. 

Additionally, the heightened demand for fast and reliable services has led to growth in technology adoption, including tracking and digital logistics management, enabling companies to handle complex supply chains with greater accuracy and responsiveness.

Overall, the rise of e-commerce has been highly beneficial to the shipping industry by opening new revenue streams, encouraging modernization, and reinforcing the sector’s integral role in the global economy.

Technology, green transition, and robust global trade patterns – what strategic adaptations should shipping companies consider?

Jin Yu: The importance and impact of decarbonization on the shipping industry is going to impact every sector of our industry. Most notably, the regulation side of vessel emissions is becoming increasingly complex. Shipping companies need to ensure that they are compliant with all manner of decarbonization regulations, particularly when there are market factors that are often overlooked. 

For example, a ship owner that prepares for a voyage without including the EU Emissions Trading System (ETS) in their costs may themselves be exposed to financial implications they did not expect. This could have commercial or reputational implications, including counterparty risks and cash flow.

Baltic Exchange members are continuously taking these costs into account through our Emissions Calculator, which enables shipping players to calculate their costs across various emissions regulations using Baltic Exchange dry and tanker routes and based on standard Baltic ship descriptions. This is a tool we have developed for the maritime industry for free as we recognized the importance of being informed of the costs of emissions regulations in daily expenditure. 

Top photo credit: iStock/ VichienPetchmai