Earlier this year, fast-food executives began to use the term “two-tier economy” to describe the trend they were seeing of wealthier consumers splurging on burgers and fries while lower-income households pulled back. Last year, Amazon Web Services EMEA Managing Director Tanuja Randery said a bifurcated model was emerging in how startups versus established corporations adopted AI.
Now a new two-tier economy is emerging, and it’s not about the income levels of consumers or the surge of certain technologies, but rather about the integrity of global maritime trade.
As the Iran war enters its seventh month, global trade may be reaching a breaking point, and shipping authorities are warning of a new reality of shadow fleets emboldened by geopolitical tensions and protectionist policies that are splitting maritime entities into legitimate and illegitimate operations.
In a joint statement published on Tuesday, the Consultative Shipping Group (CSG), a consortium of maritime authorities across 18 shipping nations, cautioned continued chaos at sea would lead to this “two-tier” maritime system, “one governed by rules, the other by opacity.” That would undermine the structure of trade by sea, which makes up 80% to 90% of global trade. The cornerstone of the world economy, maritime trade accounts for more than 30% of the world’s GDP, about $35 trillion, and employs 41 million people in the U.S. alone.
“Without maritime trade, supply chains would fragment, and the global economy as we know it would come to a sudden halt,” said the group representing 18 shipping nations including Canada, Norway, and the UK.
The ‘two-tier’ maritime system
Concerns about shadow fleets reached new heights in the early days of the Iran war, when, following the effective closure of the Strait of Hormuz, vessels ignoring international restrictions were able to move through the key chokepoint. Called “shadow fleet,” these ships can smuggle unauthorized goods and often don’t abide by international anti-pollution regulations. They do this by either not registering as a flag state, or the shipping nation from which they are travelling, or they are falsely flagged ships pretending to be from another state where trade restrictions have not been placed.
Ultimately, while most of the world’s shipping nations abide by rules set by the International Maritime Organization (IMO), shadow fleets do not.
CSG Chair Brian Wessel said these illegitimate fleets make up 20% of tankers, and though still the minority of trade vessels, can have tangible impacts on trade and the environment. In July, Caroline Bezengi, a sanctioned oil tanker carrying 800,000 barrels of oil and linked with Russia’s shadow fleet, began leaking crude oil near the coast of Oman following an explosion on the vessel the month before. Because ships that are part of shadow fleets lack widely recognized insurance, local entities are often stuck with the cost to clean up these environmental disasters.
These practices create “a risk for safety, the environment, but also an uneven playing field,” Wessel told Fortune. “Specifically, if you want to transport oil and compete with somebody who doesn’t live up to that, that’s an uneven playing field—and that also fragments the whole market and makes it very uneven around the world.”
But the emergence of these shadow fleets are hardly just the result of the Iran war shutting down crucial trade passages. For the last half decade in particular, protectionist trade policies like sanctions and tariffs, as well as other geopolitical conflicts, have incentivized vessels to skirt crackdowns by illicit means.
Maritime authorities like the CSG have worked for years with both flag states and port states, or the nation where shipped goods arrive, to enforce IMO laws. Without these regulations, Wessel said, trade becomes delayed, supply chains become strained, and consumer prices rise—a threat large enough for CSG to issue a public statement about it.
“These recent events—war in Ukraine, war in the Middle East, conflict in the Red Sea, the rising of the shadow fleet—all of these events are bigger, and we see it as a general trend that the rules of shipping are not respected in the way they used to be,” Wessel said. “And that’s why we react now more in public because we want to warn that these events slowly undermine a system that has been well functioning and maybe has been taken for granted.”
Reversing course of global trade disaster
CSG has called on a renewed focus to enforce international maritime law, such as increasing transparency and information exchanges between shipping authorities and member states, as well as political support for developing and upholding standards.
While legal and policy experts note enforcement of maritime law has become harder as a result of countries acting in their own interest and technology evolving that requires adaptation of existing laws, there’s evidence countries are indeed interested in mitigating maritime crimes.
Christian Bueger, professor of international relations at the University of Copenhagen, told DW News one good sign has been the U.S. repeatedly seeking international backing from the United Nations Security Council in the form of troops from other countries and financial resources to strengthen its own enforcement of international law.
“This is a moment of contestation and in that sense it is also an opportunity to develop better and more stable rules for the seas in the long run,” Bueger said.
This story was originally featured on Fortune.com
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