EUROPE'S SOUTHEASTERN GATEWAY: ROMANIA'S PUBLIC POLICY RESPOSE TO CHANGING PATTERNS OF WORLD SHIPPING.

• Author: Hamlin, Roger E.

1. Introduction

   This article is a follow-up to one published in December of 2012 (Hamlin and Lazar, 2012). Global trade and related transportation are changing dramatically. Trends are difficult to follow, but important in the effect on cities, countries and continents. As indicated in the previous research, few countries are on top of what is happening even though these trends are critical to their economic future. The public policy response to these trends is difficult because infrastructure costs are high and the immediate benefit to the general public is not always clear to them.

   Over the past two decades, rising energy prices, rising wages, environmental concerns and other factors have produced a shift back to ocean shipping as an important transportation mode. While slower than other modes, ocean freighter transport can belower in cost and create lower carbon emissions. These advantages continue to improve as container freighters are becoming larger. Some container ships now carry 20,000 standard shipping containers (TEU) per ship, more than double the volume of just a few years ago.

   These advantages are only available to some countries. Even affluent countries that had good seaports are finding that their facilities are rapidly becoming out of date. Just a few seaports are able to accept the largest ships. Only a few ports in North America and Europe accept the next smaller-sized ships, and those ports are often congested. The two most important canal systems of the world, Panama and Suez, are upgrading but behind, and some of the great inland waterways, such as the St. Lawrence Seaway and Danube River require improvement just to handle 'handoff' traffic. Not keeping up with this ship size escalation could cause a country or a whole continent to fall behind economically, and could be the basis for the redistribution of world wealth (Hamlin and Lazar, 2012).

   The 'Great Recession' of 2008-9, the large drop in oil prices in 2014, and economic slowdowns in several large economies including China, Brazil and Russia during 2015 have created shockwaves in the shipping industry. These shocks have made large infrastructure investments more difficult for both the public and private sectors. Total shipping volume dropped dramatically, came back slowly and changed in composition. However, ship sizes continue to increase and long-term trends may still strongly influence the world economic balance of power. Where does Romania stand in the new global shipping war?

   The purpose of this article is to update the information found in an article published in 2012 and follow-up on the implications of changing trends. It will also look more closely at the public and private sector response in the key Romania port of Constanta. The first part will lay out the current situation. The second will update and evaluate the Eastern European responses to the current situation, looking closely at the Port of Constanta.

2. The current situation

   The first step is to describe general shipping trends. Then the article will look in more detail at trends in the components of the maritime shipping industry. The current status of containerization will be followed by a discussion of current ship characteristics and the shipbuilding industry. Then we must look more closely at the canals, ports, inlandwaterways and other hinterland infrastructure needed to handle those big ships.

   2.1. Global shipping industry

   The maritime shipping industry has been growing steadily for decades, largely the result of containerization. Growth has consistently exceeded world GDP growth. In the years just prior to the financial crisis of 2008-09 the shipping industry was expanding rapidly along with global trade. The economic and financial crisis of 2009 dramatically effected total shipping volume. Since then, 'the slow global economic recovery has continued to impact the overall shipping industry' according to Svein Engh, Group Head and Managing Director, CIT Maritime Finance.' Broadly speaking, global trade is not growing at the same level that it had been growing for the last number of cycles. That means that time charter rates in the shipping sector have not improved dramatically'. Although he says, 'Certain aspects of the industry are doing better than others' (Javali, 2015).

   Conflicting indicators portend the situation in 2015. Some claim the industry is making slow but solid gains but with shifting market emphasis, as well as changing financing and organizational structures. Some claim the industry is experiencing chronic over capacity that may last for some time (1).

   The slowing Chinese economy is seen as a major cause. According to official Chinese statistics, the economic growth rate for China has dropped from double-digit gains in GDP to 7.4% GDP growth in 2014. The first quarter year-over-year GDP growth rate for 2015 was officially 7.0%. So, as the world economy continues to struggle to recover from the global 2009 slowdown, China represents a new drag on those recovery efforts more than five years later. Perhaps more importantly, China trade is declining. China's monthly trade data for March of 2015 indicated that exports fell from a year ago by 15% in US$ terms, compared to expectations for a rise of more than 8%. Imports meanwhile fell 12.7% from March of 2014. This negative trend continued in April of 2015 (China's Export Numbers, BBC, 2015).

   Also important are the housing and infrastructure sectors in China. Housing prices have been falling in nearly every metropolitan area in China. Overcapacity is causing construction to slow down. Likewise infrastructure investment is slowing, much of that carried out by local governments who raise capital by selling land to developers and/or going into debt, much of the debt in the shadow-banking sector. A combined tightening of credit standards along with a national crackdown on corruption have caused local governments to be more cautious about investing in infrastructure. All of these factors lead to less steel production and less coal and iron ingots imported from places like Australia as the energy and raw materials for steel production.

   The chief executive of the world's largest container-shipping group recently warned that global trade growth could slow this year in spite of low oil prices as Chinese, Brazilian and Russian economies disappoint. Milne (2015):Tm personally more towards the low end of that [estimates of global trade]'. Soren Skou, Maersk Line's chief executive, told the Financial Times on March 1, 2015: 'Growth from a historical perspective is quite sluggish'. His comments have weight as Maersk's predictions are seen as a good indicator of future global trade.

   2.2. Containers

   Inter-modal containers are large metal boxes used to transport freight. Built to standard dimensions, containers transfer easily between transport modes. Freighter or train capacity is often expressed in twenty-foot equivalent units or TEUs, referring to 20' long containers (Containerization, 2012; Container Standards).

   Containerized shipping has existed for more than 60 years (World Shipping Council, undated) but grew rapidly in the 15 years prior to the global slowdown. Containerization grew over the decades because of the substantial reduction in cost it allows at the break-of-bulk point. This growth has been cited as a cause of long-term growth in world trade.

   Historically, oceans and waterways were the preferred mode of transportation, particularly for heavy freight. The break-of-bulk point, where men carried goods from one mode of transportation such as ships to another mode on land, was so labor intensive that the world's great cities typically formed near good harbors. And, routes of internal land transport often developed to feed into those points. As world wage levels rose, these labor-intensive methods of transferring goods between modes became too expensive. Containerization has released the shipping world from this impediment, while liberalization of longshoremen labor contracts has allowed containerization to accelerate.

   Goods not regularly containerized include dry bulk goods such as corn and coal, and liquids such as oil. Even these categories are experiencing increased containerization with the advent of tanker containers and inflatable rubber liners for containers called bladders (Global Security.org, undated).

   A variety of types of containers make up the world inventory. Historically, dry containers comprised about 93%. The other 7% is split between insulated refrigeration containers and tank container (different from tanker ships). Reefers make up approximately 6.25% of the global fleet. Tank containers, for transporting various liquids, occupy the remaining 0.75% (Drewry Maritime Research, 2014).

   Increases in terrorism and other security issues have also improved the relative cost advantage of containerization. Containers can be inspected and sealed at their origin and remain sealed, electronically monitored and tracked until they reach their destination (Lick and Hamlin, 2012). A disadvantage is the weight of the container, but use of new composite materials can reduce container weight. A second disadvantage is the need to dead-head empty containers or just to dispose of or reuse containers for other purposes.

   Demand for container shipping dropped dramatically after the Great Recession, and has been slow to recover. Container demand rose by about 4 per cent in both 2013 and 2014 (Milne, 2015). Maersk Line, the Danish group that ships about 15 percent of the world's seaborne freight, expects it to increase 3 to 5 percent in 2015 (Milne, 2015). Container demand used to expand at up to 10 percent a year before the financial crisis, but Mr. Skou, CEO of Maersk, said those days were behind the industry. He said, in a recent interview, that increase in demand would more closely mirror global GDP growth in the future, much like shipping volume in general (Milne, 2015).

   2.3. Ships

   Container...