CENTRO INTERNAZIONALE STUDI CONTAINERS
ANNO XXXVIII - Numero MAGGIO 2020
THE SHIPPING INDUSTRY MUST ADAPT IF IT IS TO SURVIVE IN THE
Cheap, clean fuel is an asset that can make or break a shipping
company's balance sheet. Consequently, firms have increasingly
turned to liquefied natural gas (LNG) to reduce their impact on the
environment. But while LNG is less harmful than traditional
alternatives, such as heavy fuel oil, the cost of installing the
necessary equipment is often prohibitive. What's more, the heavy
metallic tanks used to store the fuel reduce the volume of freight
LNG-powered vessels can carry.
"A host of technological, environmental and geopolitical
challenges will test the resilience of the maritime sector over the
Ocean Finance, an Athens-based business development and
consulting firm that operates across the maritime and energy
sectors, may have a solution to the problem. In partnership with
Cimarron Composites, an American advanced composite structure
manufacturer, Ocean Finance is building a carbon-fibre tank that is
up to 90 percent lighter than conventional tanks, borrowing
technology and techniques from the aerospace industry.
"We were searching for green solutions for high-speed
vessels and we came across equipment that NASA uses to launch
rockets into space," Panagiotis Zacharioudakis, Director at
Ocean Finance, told World Finance. "Every gram counts in this
process, which is quite relevant for the shipping industry."
The tank, which has already received preliminary approval from the
American Bureau of Shipping, is expected to become available this
spring. It can also be retrofitted to store liquefied hydrogen, a
fuel considered to be the greenest solution for the shipping
industry moving forward.
"The advent of autonomous technology
in the shipping industry poses a series of legal and ethical
Not all in the same boat
Such moves are imperative for an industry that accounted for
approximately 3.1 percent of carbon dioxide emissions globally
between 2007 and 2012, according to the International Maritime
Organisation (IMO). The IMO wants the maritime sector to cut its
greenhouse gas emissions by at least 50 percent by 2050 compared to
2008 levels. At the beginning of the year, it imposed new
regulations that limit the sulphur content of marine fuel to 0.5
percent mass by mass, effectively increasing fuel costs for most
shipping companies. Only ships equipped with exhaust gas cleaning
systems are exempt from the regulation.
Many think the target set by the IMO is unrealistic given the
relatively short time frame in which shipowners will have to adjust
to the change and the disparities in regulation across different
jurisdictions. In Europe, for example, regulations are deemed to be
too strict, harming the competitiveness of EU-based firms.
"The target... is ambitious," Harilaos Psaraftis, a
maritime logistics professor at the Technical University of Denmark,
told World Finance. "The IMO process is way too slow, mainly as
a result of political obstacles." In response, several
organisations representing the industry submitted a proposal in
December to form a collaborative research and development programme
aimed at finding green solutions, with participants providing
funding of around $5bn over 10 years.
The transition to greener technology poses a conundrum to
shipowners, though, as they are forced to make investment decisions
without having a clear picture of the industry's future needs and
regulatory framework. "A ship ordered in 2025 will still need
to be operating in 2050, if the owner is not to face substantial
losses," Pyers Tucker, Head of Strategy at Hapag-Lloyd, a
German international shipping and container company, told World
"Companies that are fortunate enough to place their bets
well will survive; the rest will struggle - or go under - with
assets that will have devalued much faster than their worst-case
business plans. Any new ships we order in the next few years will
almost certainly be LNG-capable... [But] the shipping industry will
not be able to solve this [problem] on its own."
For an industry notorious for its aversion to change, ditching
carbon fuel will be highly disruptive. When container shipping
appeared in the late 1950s, it revolutionised the sector by creating
unprecedented economies of scale. Companies transporting crude oil
from the Middle East to the manufacturing powerhouses of the
developed world thrived, but the demise of fossil fuels now
threatens to unravel these global supply chains.
The maritime sector's traditional affiliation with the energy
industry makes planning a risky business for shipowners. In 2018,
fossil fuels accounted for more than a third of the cargo
transported by ships globally. With commentators earmarking peak oil
- the hypothetical point at which global oil production hits its
maximum, before falling into terminal decline - to be reached within
the next two decades, a significant portion of the sector may face
an existential crisis.
Steve Saxon, a partner at McKinsey & Company specialising in
shipping and logistics, told World Finance: "Demand for
large-scale crude tankers will taper off and ultimately may decline.
More interestingly, we see the product mix shifting. With the growth
in refining in the Middle East, we see more demand for product and
chemical tankers, which appear bright spots for shipping."
All hands on tech
One way the industry can adjust to the new era is by embracing
automation. Autonomous cargo ships have long been touted as the next
big thing, combining cost-efficiency with green credentials. Two
Norwegian companies, Yara International and Kongsberg Maritime,
expect to launch the world's first autonomous, zero-emission
container vessel this year, but many in the industry are sceptical.
"We don't see autonomous cargo ships as more than a
short-distance gimmick," Tucker told World Finance. "For
deep-sea services, we can envisage remotely piloted cargo ships -
perhaps with small maintenance crews helicoptered on/off - as... a
more realistic future."
As with driverless vehicles, the advent of autonomous technology
in the shipping industry poses a series of legal and ethical
questions, from liability to insurance costs. The industry's
presence across multiple jurisdictions adds extra complexity. Philip
Damas, Head of Drewry Supply Chain Advisors, the logistics arm of UK
maritime research consultancy Drewry Group, told World Finance: "The
question is whether governments, regulators and insurers around the
world will be willing to accept - and coordinate - such a dramatic
switch in a worldwide industry like global maritime transport."
According to Stuart Neil, Communications Director at the
International Chamber of Shipping, the technology is not currently
advanced enough to have a significant impact on the industry: "If
we look at the automotive industry, driverless technology took
decades to develop and has yet to impact the job market. We see no
reason as to why autonomous technology for shipping will be markedly
Some think that autonomous ships may fill a gap in niche markets
such as short-haul services in territorial waters, where proximity
to land and high labour costs could push shipowners to experiment
with new solutions. However, Saxon believes the same cannot be said
for ocean-going cargo ships: "Crew costs are a relatively small
part of the cost base of a shipping company, maybe one to five
percent... Second, the range of things [that] can go wrong and need
attention is broad. The ships are often days from the nearest port;
the risks of fully autonomous [vessels] are too high."
"The maritime sector has long been
riddled with arcane bureaucracy and complex supply chains"
As a traditional business-to-business industry, shipping has so
far evaded the dangers of 'platformisation' - a trend that has
disrupted many customer-orientated industries with online
marketplaces, eliminating the need for intermediaries. That said,
some platforms are beginning to gain traction in niche areas such as
freight forwarding. Online freight forwarder Flexport, for example,
uses data to automate manual processes and integrate fragmented
Jan van Casteren, Flexport's vice president of Europe, told
World Finance: "It can take up to 18 different companies to get
a single shipment from point A to point B. Today, logistics
professionals have to deal with each of these challenges separately
because there is no end-to-end solution to move, finance and make
better decisions about freight." Another platform, Freightos,
operates as an online marketplace for small exporters and importers,
allowing users to compare freight quotes from several forwarders and
track their orders.
In response to the emergence of new players, many container
lines have created digital platforms. In February, Evergreen Line,
one of Asia's largest container lines, announced the launch of
GreenX, a digital platform that provides customers with seamless
booking and trade services. Freight forwarders are also rushing to
set up customer-facing websites: Kuehne and Nagel, the world's
largest ocean freight forwarder, launched a platform that provides
booking and quoting services in April 2019.
Many start-ups remain customers of incumbent shipping companies,
but Saxon believes they may pose a bigger threat to established
players in the future: "The question for shipping companies is
whether they can innovate and reinvent themselves fast enough, or
lose the customer relationship to new platforms."
A smart port in Qingdao, China
The hype surrounding blockchain, the ledger technology
underpinning cryptocurrencies, was not lost on the maritime sector,
which has long been riddled with arcane bureaucracy and complex
supply chains. According to Saxon, an estimated $19bn is wasted in
the container shipping value chain every year due to a lack of
communication and suboptimal use of capacity. Despite this,
practical uses of blockchain in the sector remain modest.
As Damas explained to World Finance: "The noise around the
predictions that blockchain will... revolutionise global transport
and global trade has decreased in the past three years. At present,
efforts are concentrated on data standards and governance, without
which blockchain cannot work."
Nearly all major shipping firms have been involved in blockchain
initiatives and consortia. Maersk, the world's largest container
ship and supply vessel operator, has partnered with IBM to create
TradeLens, a blockchain-based digital tracking system that enables
members to track freight transportation in real time. Since its
launch in 2018, the platform has attracted some of the world's
largest overseas shipping companies, including Hapag-Lloyd, ONE, CMA
CGM and the Mediterranean Shipping Company.
Damas believes further innovation lies ahead: "Because
global maritime transport is notoriously fragmented, with numerous
documents, stakeholders and hand offs, we believe that blockchain
cooperation, centralisation and smart contracts could deliver
enormous benefits to providers and users of international transport
in the long term. Today, these activities employ thousands of
employees among exporters, importers, traders, transport companies,
ports and banks engaged in international trade."
The increasing use of sophisticated technology will pose
significant challenges to ports, many of which lack the necessary
infrastructure to accommodate blockchain-enabled solutions. Neil
told World Finance: "Blockchain can help improve efficiency,
but this requires all ports to have the appropriate facilities to
make use of this technology, as well as regulatory changes, which
will be difficult to implement."
According to Research and Markets, the global smart port market
will be worth approximately $5.3bn by the end of 2024, driven by
initiatives to make the transport of goods cheaper and faster.
Currently, shipping is the dominant mode of transporting goods,
with more than 90 percent of world trade being seaborne. According
to the UN Conference on Trade and Development (UNCTAD), vessels
transported 11 billion tons of goods in 2018, a 2.7 percent increase
on the previous year. However, the industry is vulnerable to strong
headwinds in global politics.
Populist politicians in Europe and the US often point to
international trade as one of the reasons for increasing inequality,
questioning the rules-based status quo that was established after
the Second World War. A case in point is the US Government's attempt
to undermine the World Trade Organisation by strangling its
appellate body. Global foreign direct investment (FDI) dropped for a
third consecutive year in 2018 (see Fig 1), while many
multinationals are reportedly scaling back their global supply
chains. Experts fear that fragmentation will ensue, with trade blocs
becoming increasingly insular and relying on sheer power to promote
Tucker believes such a move would be catastrophic for the
shipping industry, which has benefitted enormously from
globalisation in the past. He told World Finance: "'Might' is
becoming 'right' again. This is likely to constrain global and
regional trade in unpredictable ways. It will likely dampen overall
global trade growth and make shipping more risky and expensive."
Others, however, think the sector will find ways to adjust. Dr
Martin Stopford, Non-Executive President at Clarkson Research
Services, a provider of data and market intelligence for the
shipping sector, told World Finance: "In future decades, the
focus is likely to be on regional rather than global trade... China
is no longer cheap, and the developing countries are no longer
willing to do deals for raw materials or to import foreign goods -
they want to build their own economies."
"Experts fear that trade blocs will
become increasingly insular and rely on sheer power to promote their
The ongoing US-China trade war is a prime example of how
protectionism can negatively impact the shipping industry. Although
trade between the two countries only accounts for a small fraction
of global trade, the conflict has hurt the shipping industry
greatly. For example, the US' decision to sanction two subsidiaries
of the China Ocean Shipping Company in September 2019 affected
around 130 vessels, although the sanctions have since been partially
lifted. Chinese imports of soybeans and crude oil from the US have
also taken a hit, impacting the shipping industry further. These two
commodities are at the heart of negotiations between the
superpowers, with China promising to increase imports to satisfy US
Peter Sand, Chief Shipping Analyst at BIMCO, a Copenhagen-based
shipping association that represents shipowners, told World Finance:
"BIMCO doubts that the agreed... volumes will be reached, given
the huge increase, but any boost to volumes will benefit the
shipping industry, especially given the long sailing distances
between the US and China, boosting tonne-mile demand."
The trade war has pushed many firms in the two countries to
think laterally. Some Chinese manufacturers have shifted production
to nearby countries such as Vietnam to avoid sanctions, while
imports from the US have been partly replaced with increasing
volumes of trade from Brazil and Australia, among other nations.
Chinese exporters have also turned their attention towards Northern
Europe as an alternative destination market.
Simon Heaney, Senior Manager (Container Research) at Drewry,
told World Finance: "The current situation is probably a blip
in the long-term trend, and normality will resume once the main
actors are consigned to the history books. However, the world is
likely to remain volatile, so the risk of isolated trade disputes
flaring up will be a constant, which will contribute to more diverse
manufacturing sourcing strategies [that] spread the risk."
Chinese economic policy will play a key role in shaping the
shipping industry's future. While the country's export-driven boom
has enormously benefitted the sector over the past three decades,
China's GDP growth rate slowed to 6.1 percent in 2019 - its lowest
rate since 1990 (see Fig 2) - and trade with the rest of the world
has been steadily declining. This is in line with the government's
policy of transitioning from an export-driven economic model to one
focused on domestic consumption and services.
"As the Chinese economy continues to mature, an increasing
proportion of this GDP growth is actually due to the expansion of
service industries, rather than manufacturing or infrastructure
development, which does not generate the same demand for shipping,"
Stuart explained to World Finance. "A lot will depend on how
China manages any slowdown."
The COVID-19 crisis will also test the resilience of the Chinese
economy. In January, the Baltic Capesize Index, which tracks freight
costs for dry bulk commodities, slipped below zero for the first
time. "The current coronavirus outbreak has highlighted the
danger of being overreliant on one source," Heaney said. "I
believe these factors will lead to less China-centric shipping in
A new course
In the long term, radical changes to industrial production may
affect the role of shipping in world trade. New technology,
including robotics, artificial intelligence and 3D printing, is
expected to boost localised manufacturing, reducing the need for
long-distance trade. A recent study by Research and Markets
predicted that the global 3D printing market would more than triple
in value by 2024, reaching $34.8bn.
Sand told World Finance: "Container shipping on the major
trades - from manufacturing nations in the Far East to Europe and
North America - relies on manufacturing continuing to take place
away from the consumption regions. Anything that threatens this,
including 3D printing and nearshoring, threatens container shipping.
The industry is... already feeling the pain from the changing nature
of economies around the world, with growth recently focused more
around services, rather than the sectors of the economy that promote
the physical trading of goods".
Shorter distances and lower trade volumes, combined with the
push to cut gas emissions, may benefit the industry by forcing it to
reinvent itself. As Stopford told World Finance: "Shipping
would focus much more on local business-to-business services, using
the new generation information technology to provide reliable sea
transport to outlying ports. Some analysts are doubtful about this
'Uber of the seas' philosophy, but Uber's great achievement was to
bring cab services to areas that previously did not have them,
generating growth. Maybe ships can do the same.".
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