Individual Consultancy: The Establishment of a Shipping Line for the Indian Ocean Island States

Introduction

Maritime transport handles over 80 per cent of the volume of global trade (and about 90 per cent of developing countries’ volume of international trade is seaborne) and knowing the reasons for differences in what a trader pays for the international transport of merchandise goods can help identify possible areas for intervention by policymakers.

According to UNCTAD (2015) Maritime transport handles over 80% of the volume of global trade and about 90% of developing countries’ volume of international trade is seaborne. Developing countries (Africa and Oceania) pay 40 to 70% more on average for the international transport of their imports than developed countries. This is due to trade imbalances, pending port and trade facilitation reforms, as well as lower trade volumes and shipping connectivity. Empirical evidence suggests that Shipping and Logistics costs constitute about 50% of total production costs.

Scope exists for policymakers to address the challenges through investment in infrastructure facilities, equipment and systems, reforms seaports, transit systems and customs administrations. Container freight rates for seaborne traffic have been declining globally over the past decade due to supply of new container ships, but comparisons clearly show that the cost to import containers for COMESA Member States is more than 3 times for Asia. Monopolistic tendencies among the shipping lines and freight forwarders over long distances to and from the markets appear to be a contributory factor to the high costs for COMESA Member States especially around Container Deposits.

International maritime transports costs depend on a number of factors including
(i)           Ports – infrastructure, productivity, tariffs, operational model

(ii)          Trade flows – trade imbalances, volume, complementarity

(iii)         Structure of maritime industry – competition, regulation, liner services supply

(iv)         Position within the global shipping network – connectivity, centrality, distance

(v)          Ship operating costs – crewing, bunker, registration

(vi)         Facilitation – trade & transport facilitation

(vii)        Shipped product – volume, value & type of produce

The rationale of establishing a regional Shipping Line for the COMESA Indian Ocean Island States is to promote trade between the islands and mainland COMESA Member States and the African continent through cheaper and direct routing of the vessels. Currently the islands are largely dependent on international shipping lines.

While the proposed shipping line should be able to address trade flows between the Indian Ocean Islands and mainland COMESA States through improved connectivity, it should also be able to carter for trade flows between and among the Island States themselves and the Island States and the global trade flows.

Creation of the shipping line will present opportunities to review shipping cost structures to  .reduce exposure. The costs will be reduced costs by influencing the cost structure. The structure of the Maritime Industry is characterised by domination by few big shipping lines and highly regulated. There is competition among the big liner shipping companies and a strong regulatory framework.

Article 88 of the COMESA Treaty identifies the areas of cooperation of Member States relating to maritime transport including the installing and maintaining efficient cargo handling equipment, cargo storage facilities and general operations and train related manpower (Article 88 k). The Treaty also presupposes existence of shipping lines in the COMESA region and urges Member States to encourage national shipping lines to form sub-regional associations (Article 88 p). 

1.2       Indian Ocean Island States 

Among the twenty-one (21) COMESA Member States four (4) are island States in the Indian Ocean. The Indian Ocean Island States are Comoros, Madagascar, Mauritius and Seychelles. Their unique geographical location places them at a disadvantage when considering regional integration particularly when considering physical infrastructure development to promote connectivity and trade. Trading with mainland Africa is only possible using air or maritime transport. Air transport is very expensive and therefore may not be sustainable especially where bulk low value commodities are concerned.

Maritime transport remains the main option to promote economic integration of the Island States and mainland States hence the need for a maritime based solution to promote economic ties particularly trade.

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RFP -CONSULTANCY SERVICES FOR THE ESTABLISHMENT OF A SHIPPING LINE FOR THE INDIAN OCEAN ISLAND STATES (64 downloads)