June 17, 2022, 01.24 PM

The capacity of shipping operators in emerging countries is constrained due to the inability to procure vessels associated with vessel price fluctuation.

The global vessel index increased dramatically during the pandemic from about 5000 to nearly 25.000 which indicates the price of container vessels might increase five times compared to the pre-pandemic period. Even so, the exact change varies depending on the size and age of the vessels.

The absence of dedicated financial intermediaries in the shipping industries adds to the complexities. This is a loophole where a stronger tie and cooperation between the G20 countries might facilitate the establishment of the global financial institutions that understand the typical risks in the shipping industry hence emerging economies can strengthen their shipping industry reducing the dependency on the global Main Line Operators (MLOs).

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Some countries decide to assist the industry by providing private and government bank loans, banks devoted to the shipping industry, or institutions such as Maritime Finance Incentives (MFI), Bank Pembangunan Malaysia Bhd (BPMB), and Merchant Marine.

To spread the risk of vessel price volatility, the government could offer a guarantee to the shipowner for gaining a loan from a commercial bank or subsidy the interest rate by the lenders offered by the government.

Another solution is that syndication between banks to provide lending for the shipowner. These solutions could be a way out to help the small and open economy in the world including Indonesia facing the capacity constrain that entails cascading impacts on transportation costs and inflation.

(This article is written jointly by Senior Research Associate Ibrahim Kholilul Rohman and Research Associate Afif Narawangsa Luviyanto from IFG Progress, a leading Think Tank established by the Indonesia Financial Group. The views expressed in this article belong to the writers).

 

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