Until 1980, the world merchant fleet expanded rapidly in response to thriving seatrade markets. Since then, it has not grown much. The industry did not adjust effectively to periodic global recession, and the fleet's earnings deteriorated as the gap widened between the supply of tonnage and the demand for transport. The unpredictability of seatrade markets and the changing structure of demand for ocean transport complicated shipowners'efforts to retrench and draw up defensive strategies. Advances in ship design and ocean transport technologies allowed shipowners to adjust to the greater need for specialized vessels, but chose to retain their assets and their adoption was expensive. Most shipowners added a few new vessels after 1980, often supported by government subsidies. Government regulations created serious distortions in ocean transport and impeded free market adjustments. The most serious issues the industry faces are a critically overaged fleet and shortage of capital. Becauseof reduced freight earnings, maintenance has been neglected, leading to frequent structural failure. Ship casualties - often with serious envionmental damage - have reached alarming levels. The deteriorating safety record has caused insurance costs to escalate and has provoked calls for stricter liability rules, stringent technical standards, and rigorous inspection. Enforcement would make ocean transport more expensive. To meet expected demand for ocean transport safely and efficiently, a great deal of overaged tonnage must be replaced, maintenance must be improved, and new tonnage has to be added. The estimated cost: almost US$400 billion in constant 1992 prices. But traditional financing, through mortgage lending and government subsidy, is becoming scarce. Leasing or cashflow-based lending are promising alternatives, but they required predictable revenue streams based on long-term freight contracts predicated on cargo-owners'cooperation, which remains doubtful. No effective arrangements have been made to meet the industry's capital requirements, and doubts are more numerous than assurances in the industry. The crisis that has developed is unprecedented.
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