URSABLOG: Uncertain Trade-Offs

URSABLOG: Uncertain Trade-Offs

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The tagline on the presentation was “Uncertainty Is Expensive” promoting a data driven machinery monitoring package. My gracious hosts were gently bemoaning – over two bottles of very good Ikarian red wine (2012 vintage since you ask) – the lack of take up from the shipping industry, particularly the Greek shipping industry, of such packages.

This should be no surprise, I said, because – in my opinion – most Greek shipowners know their ships better than their own children: they know where they are at any time of the day or night, and – actually if not metaphorically – which direction they are going in and at what speed. The sons and daughters of shipowners may ruefully agree with me. Even when the fleet is large and diverse, most owners have people who can report immediately to them – faithfully and without delay – their status. But if my dinner companions thought that the average Greek shipowner did not know the cost – and value – of everything, they were severely mistaken. I agreed that in terms of costs uncertainty was indeed expensive, but it was the adaptability of management and the ability to make quick decisions that was all part of the same hands-on control-freakery that also kept costs under control.

In a recent paper by the World Bank Group called Geopolitics and the World Trading System, the authors conclude that geopolitics has created great uncertainty in trade. In the past tariffs (that beautiful word) were used to nudge the world towards a more efficient and open trading environment, which was the point of the World Trade Organisation. However, with the world’s trading system already at – or at least very near to – the international efficiency frontier (i.e. trade is so efficient that there is not much slack in the system for it to take the strain), when geopolitical shocks occur, countries cannot rely on tariffs alone to improve trading conditions, especially now, when the use of tariffs is one of a range of weapons being used to carve out geopolitical advantage.

Nevertheless, and this may surprise Donald Trump, the authors also found that re-emergence of great-power rivalry, even when either the US and China, or both, are aiming for dominance as opposed to simply one of greater influence, does not, alter the efficiency of the international framework of tariffs for third countries even if they are in the immediate proximity, or orbit, of either country. Life – and trade, goes on, and adapts. I find this encouraging.

In this fast changing and contradictory world, there are new opportunities for shipping as the past few years have shown. Sanctions, as opposed to tariffs, are becoming less effective even as more and more are being imposed. Far from having the effect of stopping or even slowing down bad behaviour, the targets of the sanctions – having already been put on the naughty step – continue their bad behaviour by finding other ways and new friends to circumvent the obstacles put in their way. The world is not black and white, and people – and different countries, and the people within them – have their own stuff to be getting on with. And the world remains, whether we like it or not, still as interconnected as it ever was, at least for now.

Whatever you may think of the ethics or morals of the challenges to the rules-based international order, the fact that these rules were man-made mean that they can be man-destroyed as well. Real ethical choices present themselves when we are faced with a decision where none of the available options are good. In such circumstances simply opting for the least bad choice is the easy way out, just as bemoaning the loss of a choice that used to exist, but exists no longer, is a pointless waste of time. What if the unintended consequences of that least bad choice – even the most ethically correct choice – leads to the worst of all possible worlds? (This has happened in my personal life; I would hate to see it repeated and amplified in the wider world.)

Everyone has to be in the world, to have some skin in the game, to be alive, so not only should I not hide myself away – or absolve myself – from such difficult choices, I should be actively out there searching them out. In the meantime, I can think, and read, and observe, and act in a way that according to my own shaky and unreliable moral compass should help me pick my way through the mess and to continue to live: it’s a matter of survival, philosophically as well as materially.

Commercially too, shipping has to navigate through various moral hazards to survive. Is it ethically wrong to carry legal, non-sanctioned cargoes from one port to another just because someone else does not approve of the nationality of either the seller or the buyer of the cargo? As with most things in shipping, the answer is probably “It depends.” And as is usual in most cases, the people furthest from the decision – and with the least amount of information – can answer the question easiest. But if substandard ships cause a loss of human and marine life, or large amounts of money are made by others who will then contribute more to the problem the sanctions were meant to correct, then is declining to carry a perfectly legal cargo a good moral choice after all?

Countries in the EU are still importing Russian LNG by sea, and newspapers are shocked – shocked! – that the ships used to carry the cargoes are being repaired in European ports. I would rather have the repair and maintenance work on those ships going to those quality shipyards in Denmark and France that can do it, if the buyers of the very dangerous but legal cargo itself are happy to import it.

I detest the hypocrisy of those sleeping in comfortable beds with full stomachs bemoaning the transport and import of a cargo of grain by a regime they disapprove of, when that cargo will feed the people of that country which includes those who disagree with – and protest against, and are afraid of, and are persecuted by – that very same regime. The leaders of such regimes never go hungry.

Shipowners, and shipbrokers for that matter, are not the moral arbiters of world trade. God help us all if they were. The demand for shipping is ultimately derived from the demand for trade, and how that is arranged and policed will be reflected in the trade routes that develop. This does not mean that shipowners – or shipbrokers – are morally obliged to contract with everyone who approaches them for their services. Indeed there are as many reasons for owners and brokers not to engage in doing business with certain counterparties as there are reasons for it. But the cargo will move – one way or the other – with or without them anyway.

We are already navigating a world where sanctions and tariffs have become intertwined and confused with each other. The latest watchlist published by the US Department of Defense mentioned the CSSC shipyard group and AVIC – as well as COSCO – as being companies trading with the US that have links with the Chinese military. That this should shock anyone in shipping is beyond me. Where would the Chinese military build and repair their PLA Navy vessels except in their own state owned shipyards, amongst others? The original military-industrial complex was developed in the 1950s in the US – and its power warned against by President Dwight D Eisenhower in his farewell address in 1961. Imitation is the greatest form of flattery apparently, but China should be careful. The US military-industrial complex still exists, but its longevity has helped neither US shipbuilding or the US merchant fleet, and although this is now being addressed – in the form of the latest SHIPS Act before Congress – I am extremely sceptical they will succeed, if only because the world of shipping has moved on without them.

The DoD watchlist proposes no action – so far – against Chinese companies that have had the temerity to do business with their own military and use the US dollar at the same time. However confusing and contradictory this may be – intentional or otherwise – I am sure action of one sort or the other is forthcoming, whether it is the imposition of tariffs and/or sanctions. Retaliations will – by their very nature – have to follow on from that. This is of course not about trade but national security, and therefore about geopolitics, but which in turn does affect trade.

A further confusion is that of the threat of tariffs being imposed by the US on its allies and closest partners, militarily and economically. Whilst we may now live in a bipolar world dominated by the US and China, other countries, large or small, peaceful or belligerent, will have choices to make, and due to the complex interconnectivity of our planet, this will more likely be in trade-offs with either of the great powers at different times rather than simply picking one side or the other as the belligerents of the old Cold War demanded.

Which leads to uncertainty, which indeed may prove to many expensive, and fatally so. But this uncertainty can also lead to profit, astoundingly so as perfectly innocent and benign shipowners – and shipbrokers, amongst others – take advantage of geopolitical and macroeconomic events not of their creation. It is an ill wind indeed that blows nobody any good. It is a myth to assume that every owner or broker will search out the darkest or most dangerous business possible in the hope of maximum profit. In my conversations and discussions with many owners and brokers I have been surprised by opinions and decisions that some have taken when the impression given would have suggested the exact opposite.

I am finding the challenge to some of the old behemoths of the international rules-based order quite refreshing, even as it brings up moral dilemmas and ethical quandaries. When companies, institutions and societies face change they have to adapt successfully or face extinction. New ideas, innovations have to be found. The rise of uncertainty in the world – whatever its source – may prove to be expensive, leading to disaster, tragedy, conflict and pain. Or it may lead to profit, consensus and growth, and spawn a new way of thinking – with accompanying technologies – for use in the world that may not be as harmful as we now think, and indeed may surprise us on the upside. That’s the thing about uncertainty: you can never really be sure.

Simon Ward

www.ursashipbrokers.gr