by Dr. Konstantinos D. Melas,
Programme Leader of Business & Economics – Metropolitan College
– Post-doctoral Researcher in Supply Chain Finance – University of Western Macedonia
As this article is written, the Russian invasion is still ongoing, with Odessa being the most important city under attack at Ukraine’s southern frontier. These geopolitical developments have created increased frictions in international trade, since the ports at the Black Sea have become a dangerous place for vessels, even though the region accounts for a sizeable amount of the main agricultural and fertiliser products.
The war has a negative effect on the number of vessels that have been berthing at Russian ports over the last two months. While on average there were six vessels berthing in Russian ports on any given day before the war, only four are now doing so. While the decrease in the number of birthing vessels may not seem of high importance when compared with the overall market, one should consider the economic implications that maritime industry has for the economy of a country.
In the recent study “Container shipping trade and real GDP growth: A panel vector autoregressive approach” by N. Michail, K. Melas and D. Batzilis, the authors have shown that a 1% increase in the containers that pass through a country’s port can potentially increase its GDP by 0.2%. Thus, the latter leads to the conclusion that even a small change in the fragile world of international trade could lead to plenty of opportunities and threats.
In this context, Greece can significantly improve its position in the world’s port competitiveness, since the Aegean sea is a safe harbour compared to the Black Sea. Moreover, one should not disregard the fact that for a vessel to reach the Black Sea it should first cross the Bosphorus Strait. Nevertheless, the President of Turkey, Mr. Recep Tayyip Erdoğan, has already expressed his intentions to create an artificial canal that vessels would use instead of Bosphorus.
Given the above, Greece currently has a significant advantage when it comes to negotiations between port authorities and the shipping companies. The Aegean remains a tranquil place where vessels can berth undisrupted by any potential conflicts. Moreover, we should mention the significant infrastructure projects that have taken place over the last years by the Greek state, but also the hinterland infrastructures (roads, commercial trains and so on), which are currently developed even further.
Growth potential for cruise tourism
Apart from the commercial vessels that berth in Greece, the economic benefits that the country can potentially have from the cruise industry may also be significant. While the industry has been hit hard by the coronavirus period, this year it seems to have bounced back. It should be mentioned that the expected arrivals for the Greek ports this year appear to be of the same volume as 2019; moreover, cruise shipping companies are using Greek ports as home ports.
This has a significant effect not only on the cruise industry per se, but also on the tourism sector in general. As tourists will be using Greek ports, they will also be using the airports of the country, its hotels or other forms of accommodation (Airbnb’s, for example), restaurants and so forth, prior to or after their cruise. This means that the benefits for the Greek economy will be even higher.
By way of conclusion, we should state that the Russia-Ukraine war is in fact a crisis for the longstanding peace period on our continent. Such events will affect the economic outlook of the euro area for a long period. Trying to gain a piece of the world trade pie in such turbulent times, while it may appear unethical, ensures that the Greek citizens may be less affected by the volatility of the global markets, especially given the fact that this war is not a product of Greek politics in the region.
This article is published in the May/June 2022 issue of Greek Business File, available here.