SIDS in the shipping universe: trade-related challenges

How do SIDS participate in the maritime global supply chain?

Maritime transport is a globalized industry, but countries specialize in different parts of the maritime supply chain. Policy makers have an interest in identifying maritime businesses where their countries participate or might participate in the future to design policies that can contribute to developing their service capabilities.

SIDS represented 17.5 per cent of global ship registrations as of 1 January 2020, only slightly behind the combined share of developed economies (21.6 per cent). SIDS have been gaining prominence in this maritime business since 1980, surpassing transition economies and LDCs (see figure 1). Given that the fixed costs of running a vessel registry are mostly independent of the size of an economy, small states can be competitive in this specific business.

Figure 1. Merchant fleet by flag of registration, selected groupings Figure 1. Merchant fleet by flag of registration, selected groupings
(Percentage of world total)
Source: UNCTAD calculation, based on data from -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
and -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
.

The Marshall Islands and the Bahamas are global leaders in maritime registrations, representing 3rd and 8th place among economies ranked by dead-weight tonnage -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
, accounting for 12.7 and 3.8 per cent of the registered tonnage globally. Bermuda ranked 28th, representing 0.35 percent.

Over time, and in line with trends observed in the composition of the world fleet since 1980, more bulk carriers, container ships and other types of ships are registered in SIDS in contrast with oil tankers and general cargo ships (see figure 2). This trend is linked to a decline in oil consumption in many consumer countries, rapid developments in manufacturing trade, development of global supply chains and the shift from general cargo to container shipping -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
.

Figure 2. Merchant fleet registered in SIDS, by type of ship Figure 2. Merchant fleet registered in SIDS, by type of ship
(Percentage of total)
Source: UNCTAD calculation, based on data from -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
and -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
.

SIDS accounted for 21.3 per cent of the US$ value of registered global tonnage in 2019 and 21.0 per cent in 2020. In 2020, the Marshall Islands occupied 2nd place in the ranking of leading flags of registration by value and the Bahamas fourth place , with shares of 11 per cent and 8 per cent, respectively. Oil tankers and bulk carriers represented the highest proportion of the value of the fleet registered in the Marshall Islands, whereas for the Bahamas, it was ferries and passenger ships and offshore vessels -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
.

SIDS’ participation in global shipbuilding, ship ownership and ship recycling industries, on the other hand, is negligible compared to other country groupings. Figure 3 illustrates the case of ship ownership.

Figure 3. Participation of selected country groupings in the ship ownership business Figure 3. Participation of selected country groupings in the ship ownership business
(Percentage of global ship ownership)
Source: -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
.

Originally, the decision of ship owners to register their ships in a different country was motivated by lower operational costs through the recruitment of foreign labour, reduction of registration and tax-related costs, at times lower compliance with environmental standards and avoiding political restrictions. Today, other factors are becoming increasingly important for the competitiveness of open registries. These include efficiency, certifications, supportive financial and logistic services and the presence of a cybersecurity framework -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
.

Most registries outsource important areas of these services, which allows them to remain competitive, even if those services are not necessarily available at home. At the same time, outsourcing some of these services to foreign companies located abroad also limits the financial and employment benefits that can be retained by the host countries. If key services provided by the registry are outsourced, this also introduces challenges for government policies regarding – for example – decarbonization measures in shipping and the representation of the country’s interests at intergovernmental organizations, such as, the IMO. In other words, governments need to ensure that ships flying their country’s flag follow government decisions, and not the other way round.

SIDS’ low shipping connectivity and high transport costs

A country’s position in liner shipping networks has far-reaching implications for trade. For instance, lacking a direct maritime connection is statistically associated with 40 per cent lower bilateral exports -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
. Out of the world’s 50 least connected economies, 29 are SIDS -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
. Some SIDS are among those with the longest ship turnaround times and lowest service frequencies -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
. SIDS’ marginalization from global transport networks is also associated with higher transport costs compared to other economic groupings -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
, making their trade uncompetitive and costly.

This situation stems mainly from diseconomies of scale and low levels of competition. Corporate strategies of concentrating cargo in bigger ships and using fewer ports makes it challenging for SIDS’ ports to attract services due to their low cargo volumes, which is linked to low trade volumes, narrow export base and lack of a wider hinterland, their geographic position, as well as port equipment and infrastructure gaps. As a result, few service providers operate in SIDS and traders face limited shipping choices and higher freight costs.

Liner shipping connectivity - The place of SIDS in the shipping universe

Although a few SIDS, such as Jamaica, Mauritius and Bahamas have successfully increased their levels of connectivity over the past 14 years, most SIDS have maintained low shipping connectivity, with declining or stagnating connectivity performance over this period (see Figure 4 and 5).

Figure 4. Liner shipping connectivity, top-5 SIDS Figure 4. Liner shipping connectivity, top-5 SIDS
(Index China 2006 Q1=100)
Source: -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
.
Figure 5. Liner shipping connectivity index, selected SIDS Figure 5. Liner shipping connectivity index, selected SIDS
Source: -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
.

A review of the LSBCI for selected SIDS shows that they are most connected with regional feeder hubs, transhipment hubs and, in some cases, top trading partners (see map 1).

Map 1. LSBCI for selected SIDS, top-5 partners, 2019
Source: -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
and UNCTAD Maritime Profiles.
Note: The overall connectivity has China in Q1 2006 = 100. The bilateral connectivity index ranges between 0 and 1.

SIDS have fewer operators and port calls

In the first quarter of 2021, the top-3 best connected SIDS ports were Kingston (Jamaica), Caucedo (Dominican Republic) and Port Louis (Mauritius), and the least connected ports were Port Mathurin (Mauritius), Palmeira (Cabo Verde) and Luganville (Vanuatu). Caribbean ports feature prominently among the best connected SIDS ports, as per the port LSCI (first quarter 2021) whereas most of SIDS less connected ports are in the Pacific. Connectivity can vary significantly among ports within a single country, as in the case of Mauritius, which has one of both the best and one of the least connected SIDS ports (Port Louis and Port Mathurin). (See figure 6.)

Figure 6. Port liner shipping connectivity, selected SIDS ports Figure 6. Port liner shipping connectivity, selected SIDS ports
(Index China 2006 Q1=100)
Source: -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
.

A more in-depth look at one of the components of the LSCI, the number of companies providing shipping services, which is an indicator of the level competition, reveals that several SIDS had more companies providing shipping services in the first quarter of 2016 than they do in 2021, as illustrated with the case of Trinidad and Tobago, Jamaica, Antigua and Barbuda and Mauritius in figures 7 and 8. Some, like in the cases of the Federated States of Micronesia and Saint Kitts and Nevis, have maintained the same, albeit very low, number of operators throughout the period. In rare cases, like the Marshall Islands, the number has increased. (See figures 7 and 8.)

Figure 7. Number of operators providing container shipping services, SIDS with more operators Figure 7. Number of operators providing container shipping services, SIDS with more operators
Source: UNCTAD secretariat calculations, based on data from MDS Transmodal.
Figure 8. Number of operators providing container shipping services, selected SIDS Figure 8. Number of operators providing container shipping services, selected SIDS
Source: UNCTAD secretariat calculations, based on data from MDS Transmodal.

COVID-19 has had a severe impact on port calls. The number of ships calling at SIDS ports in 2020 compared to 2019 declined by 28.3 percent. If passenger ships are excluded, the number of port calls declined by 12.5 per cent (see figure 9). During the pandemic, many SIDS introduced measures affecting ship arrivals, such as, bans of certain ships, varying periods of quarantine, only allowing access to ships depending on where they came from and on their period at sea and interisland transport restrictions. The strategies adopted by shipping lines to adjust their shipping supply capacity in reaction to the lower demand during the pandemic resulted in temporarily suspending or blank sailing one third of ship calls in SIDS during the first half of 2020. The result was reductions in cargo throughput, ship diversions, and cuts in the number of port calls. SIDS recorded a 20 per cent drop in port calls in the second quarter of 2020 compared with the same quarter in 2019, and thus were among the countries that were most affected. -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-

Figure 9. Number of SIDS’ port calls, excluding passenger ships Figure 9. Number of SIDS’ port calls, excluding passenger ships
Source: -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
.

The decline in SIDS’s port calls varied by ship types. The highest declines in 2020, compared to 2019, included passenger ships (-49.1 per cent), dry bulk carriers (-30.0 per cent), LNG carriers (-21.9 per cent), breakbulk carriers (-20.1 per cent) and LPG carriers (-16.4 per cent). Semi-annual data show variations in patterns among ship types: dry bulk carriers and breakbulk carriers port calls declined most comparing the first semester of 2020 with 2019, whereas passenger ships and LNG carriers were most affected comparing the second semester of 2020 with 2019.

On average, SIDS pay twice as much for the international transport of their imports as developed countries. As shown above, they are also confronted with far lower shipping connectivity than other countries. This situation leads to a vicious cycle, where low trade volumes lead to high trade costs, and high trade costs makes trading uncompetitive. This in turn leads to diseconomies of scale and infrequent transport services, further increasing trade costs.

The disruption caused by the pandemic created an additional challenge, exposing the heavy dependence of most SIDS on maritime transport for their livelihood and access to the global market. During the first half of 2020, COVID-19 affected SIDS essentially in terms of deployed capacity and direct calls -—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
-—
– ‒
- –
—-
. It will be important to ascertain whether the observed negative trend is long-lasting or temporary. As shipping is the main lifeline for these island countries, it is crucial that developments shaping the port calls and connectivity patterns of these islands are closely monitored and that the liner shipping connectivity of SIDS, which is already relatively low, not be further reduced.

References
    Lorem ipsum dolor sit amet, consectetur adipiscing elit.
    Donec tincidunt vel mauris a dignissim. Curabitur sodales nunc id vestibulum tempor. Nunc tortor orci, sodales nec eros eget.
    Lorem ipsum dolor sit amet, consectetur adipiscing elit.
    Donec tincidunt vel mauris a dignissim. Curabitur sodales nunc id vestibulum tempor. Nunc tortor orci, sodales nec eros eget.
    Lorem ipsum dolor sit amet, consectetur adipiscing elit.
    Donec tincidunt vel mauris a dignissim. Curabitur sodales nunc id vestibulum tempor. Nunc tortor orci, sodales nec eros eget.
    Lorem ipsum dolor sit amet, consectetur adipiscing elit.
    Donec tincidunt vel mauris a dignissim. Curabitur sodales nunc id vestibulum tempor. Nunc tortor orci, sodales nec eros eget.
    Lorem ipsum dolor sit amet, consectetur adipiscing elit.
    Donec tincidunt vel mauris a dignissim. Curabitur sodales nunc id vestibulum tempor. Nunc tortor orci, sodales nec eros eget.