The maritime industry is comprised of river, lake and coastal cargo shipping companies, passenger ferry and cruise services, and the port infrastructure that supports these activities. The domestic water freight revenue is forecasted to reach $30 billion in 2013 based on growth of 0.3% per year from 2008 (Freedonia3 2010).Other estimates value the industry at $60 billion in 2015 (Datamonitor3 2010). The U.S.-flag cargo fleet counts with over 40,000 vessels. Seaport operators and their assets constitute a large sub-sector of the industry. The U.S. is home to some of the most modern and large port facilities in the world.
Physical Exposure Risk. Being located at the coast, ports are vulnerable to changes in sea level rise caused by high tides and increased storm surges (URS 2010). High winds associated with increase in the frequency and intensity of storms can also have physical and efficiency impacts on ports and ocean-going vessels (URS 2010). Some scientific estimates suggest sea level rise may start to take effect in the 2050s. Unless ports and other coastal infrastructures take steps to mitigate the, the risk of physical impact is moderate.
Policy & Regulatory Risk. The maritime industry faces the prospect of increased regulatory intervention in the short-term. Maritime GHG emissions have been rising steadily and also contain other harmful gases such as carbonaceous particulate matter and sulfur, which is a precursor to acid rain. Even if the U.S. takes a status quo approach to climate change policy, U.S. shipping companies trading with European Union countries, for example, may have to adopt stringent carbon regulations. In 2008, the Port of Los Angeles introduced strict regulations on incoming vessels such as a no engine-idling policy. Such intra-industry policies can also materially affect the industry’s business as usual.
Reputational Risk. Shipping is an industry far removed from the public eye and will most likely be immune to reputational or litigious risks. Cruise ship operating companies, however, will have to articulate at some point their stance on the global warming issue. Ocean ships use the lowest grade of fuel – bunker fuel. In most cases, policy will be key in requiring the use of better grade fuels, such as the European Union’s levy on carriers that disregard to follow the low-sulfur diesel requirement. But in the case of cruise companies, customers, if well informed, may drive this change.
Competitive Risk. The viability of the shipping sector’s business model is marked by risks on multiple fronts. The sector relies on the constant availability on fossil fuels thus making shipping operators and the supply chains these sustain vulnerable to disruptions in the supply of oil. Higher oil prices are typically transferred to customers, but prolonged higher fuel prices – as is expected in future scenarios – will most likely cause a structural reduction in demand. High fuel prices and subsequent decreases in demand will most likely affect cruise ship companies more pronouncedly.