TPT May 2024

INDUSTRY 360

A focal point in the Pacific Although Somalia is no longer a primary point of origin of this scourge, and although piracy is far more dispersed now, another geographic area warrants attention these days. As reported in The Flagship Brief, a daily newsletter published by Armada Corporate Intelligence, the point of contention is the Spratly Island chain. The authors of the newsletter estimate that 85 per cent of the world’s trade moves through this region. Some or all of these islands are claimed by five Pacific nations. A power struggle in the region is emerging, and it could damage this trade route. If one of the five contending nations is successful in establishing some level of control in the region, it likely will drive the others to apply more effort to attempt to dominate the chain. Outcomes? Tension in the region could invite more piracy. Too much focus on political and military adversaries could mean too little time spent patrolling trade routes, leaving them prone to piracy. Beyond that, a nation that establishes dominance in the region might use its position to disrupt the trade route intentionally. Stopping ships selectively, for something seemingly mundane such as a search for contraband, stands to tip the scales. Just a little selective harassment likely would go a long way, providing a somewhat faster passage for some vessels and a slower passage for others. The harassed might be driven to avoid the area altogether, adding more time and expense. Another possibility, however unlikely, is a shifting balance of power, a misunderstanding of intentions, and open hostilities. In this sort of situation, the owners of the merchant vessels (or their insurance carriers) might mandate alternate routes. Of course this isn’t piracy, but the effect is the same: more time at sea and higher costs of transport. Vulnerable tube and pipe shipments Of course tube, pipe and related products represent a tiny part of global commerce, but tube and pipe producers are still vulnerable. And, the growing use of tube and pipe in the manufacturing, construction and extraction industries makes tube and pipe producers more vulnerable as time goes on.

The export record of one commodity, small diameter steel tube and pipe, item 730630 in the Harmonised Schedule, demonstrates this. The shipping activity for this commodity category has more than tripled over the last 25 years. What’s next? In the future, supply chains might be fewer and some might be shorter, but it’s unlikely that shipping will ever be dramatically reduced. Economies are simply too intertwined. A nation can strive for self-sufficiency, but the goods and services available these days are just too numerous and too varied for any economy to have it all, and to do it all efficiently. And despite the efforts of naval powers across the globe, transoceanic shipping trade is likely to be plagued by increasing turmoil as time goes on. Volatility – in shipping and as well as other aspects of manufacturing – was a hot topic at a recent industry gathering, the Automotive Logistics and Supply Chain Europe conference. As reported in the 26 March edition of newsletter Automotive Logistics, representatives of two of the world’s largest automakers, BMW and Volkswagen, discussed strategies to deal with modern logistical challenges. The newsletter quoted Dr Michael Nikolaides, senior vice president of production network, supply chain management and logistics at BMW Group, who expressed concern that the recent turbulence isn’t going to abate anytime soon. “I assure you, volatility will stay and we should prepare together for volatile market demand, geopolitical tensions and everything which might come,” he said. BMW created a new department, its Programme Commission, to manage the hostile economic environment, which brings production, finance, sales, purchasing and supply chain and logistics under one umbrella. Likewise VW Logistics Group had a new task force style approach to deal with recent disruptions. Resources are available to help exporters keep an eye on the situation. One comprehensive agency is the International Chamber of Commerce (www.icc-ccs.org), which has a variety of offices and bureaus that deal with piracy and other criminal activities, such as counterfeiting and fraud. Figure 3 : Tube and pipe producers are not immune to acts of piracy. Data concerning one commodity class, small-diameter tube (harmonised code 730630), shows that international trade in this item category nearly quadrupled since 1998 Source: The Observatory of Economic Complexity

Figure 2 : Acts of piracy dropped remarkably over the last 15 years. The biggest driver was enforcement off the coast of Somalia. However, data from 2018, 2020 and 2023 show that the downward

trend often has setbacks Source: IMB Piracy Reporting Centre

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MAY 2024