March 31, 2011

The road from Fukushima

A moment, first, to bow to the Japanese. Their discipline, stoicism and sheer humanity in the face of catastrophe is a lesson to us all. From the father who bought just four bottles of water because he wanted to leave some for other shoppers- despite near panic when the water in Tokyo was said to be irradiated and unsafe for infants, to people who simply put fallen items back on supermarket shelves and quietly left after the earthquake first struck, to restaurants that dropped prices, to doctors, dentists, barbers et al providing their services for free in relief camps today, to the millions who did not loot or plunder or become animals fighting for survival, all have my awestruck admiration. Salute again.

It is too soon to forecast, as some of my industry friends are doing, how the triple disaster in Japan-the earthquake, the tsunami and the near nuclear cataclysm at Fukushima- will affect shipping long term. The simplistic view is that there will be a huge hit to immediate Japanese demand, but this will pick up substantially as the country stabilises and starts rebuilding, when everything from raw material to oil to finished goods will be needed.

My non-simplistic view is that it won’t be so simple. Or, I just don’t know.

The world’s third largest economy has been brought to its knees in a blink of an eye. Japan had a massive debt issue even before the disaster; that problem is now far, far worse. Recovery will take years, not months. Exports- the Japanese economy’s lifeblood - will take a long time to even come close to present levels. The demand for freight will not be uniform across vessel types or classes; car carriers, for example, may be particularly hit now, just as the Japanese car giants have been.

Losses to the Japanese economy post the earthquake are estimated at 200 billion dollars today. Japan says it can cost up to 25 trillion Yen to rebuild the shattered nation- that is another 200 billion dollars, give or take. Power outages and rolling power cuts are common today, and they will be common in the weeks ahead.

The World Bank says it will take five years for Japan to recover and rebuild, and the costs will be 6% of the entire Japanese economic output in 2010. The Bank of Japan says that, in the aftermath of the quake, the impact on Japanese output and economy will be ‘severe’, prolonged and much greater than the impact of the earthquake at Kobe sixteen years ago. For those who remember, that impact was bad enough.

As I write this on the weekend four days before publication, analysts say that if radiation from Fukushima increases, it will threaten the Tokyo Bay ports- that handled 38% of the entire Japanese container throughput last year. Some German companies have already stopped sending their ships there. The Japanese PM has warned that the situation at Fukushima is still ‘grave and unpredictable’; one reactor core may have been breached. Radiation levels are rising there. Higher levels have been detected in close by China, including aboard a merchant vessel calling China from Japan.

I shudder to think what the impact on world trade would be, if cargoes and ships from Japan were to become subject to radiation checks elsewhere. I worry about the impact of small - but continuous - radiation exposure on crews’ health- they can’t run and hide anywhere. I have no doubt that Japan – so dependent on exports- would be very severely hit should some sort of ban on their goods be enforced by countries that fear irradiated goods and ships landing on their shores. If this happens, trade- and shipping- would be severely hit too.

All in all, I wouldn’t hold my breath waiting for a quick, sharp and sustainable Japanese increase in demand next month.

Then there is the logistical nightmare. A massive chunk of Japanese infrastructure lies in ruins. Ports, roads and railways have been decimated. Also power- Japan used to get almost thirty percent of its power from nuclear energy. The reactors that were flooded with seawater will probably never be reusable. Moreover, will the Japanese- and the rest of the world- rethink nuclear energy options? Some countries, China included, already are. Led by Germany, Europe- with France leading the pack where nuclear energy accounts for three quarters of total energy needs- is planning stress tests on its own reactors, probably in an attempt to calm the public. Regardless, obvious questions are being asked across the world- Can Fukushima happen here? Are we prepared? Are we safe? Do we even know what the hell we are doing at these reactors?

As of January 2011, 29 countries were operating 442 nuclear reactors for electricity generation and 65 new nuclear plants were under construction in 15 countries. Some countries across the world will go back to older- and dirtier- alternatives, I think, after Fukushima. Coal demand may pick up down the line- an event that, if it happens, will have a far reaching and long term impact on bulk freight demand. It will also have negative consequences for the environment and climate change, perhaps even more significant than the radiation from Fukushima.

But that is later. Today, Japan has a huge power problem that will not get better very quickly, especially if some of its reactors have been rendered useless by seawater.

Leaving Japan aside for a moment, I think that the industry is going through a time, along with the rest of the world, when the sheer speed and number of major geopolitical events makes any analysis extremely difficult, even impossible. Revolts in Libya and other countries in North Africa threaten to expand into Jordan, Syria and maybe other countries yet unknown. The world may see the cost of its addiction to oil, which is already around 115 dollars a barrel, rising further with instability in the region, with resultant consequences for shipping. Near revolution in Yemen, continuing anarchy in Somalia and piracy are other issues the industry has to contend with.

All these, added to the new environmental concerns have arisen post Fukushima, are defining issues that need to play out and be digested. Occurring almost simultaneously across the world, these events are near overwhelming. Logical analysis seems impossible when there are so many variables and so many what-if scenarios.

The world- along with the shipping industry and Japan- needs to pause, methinks, instead of forecasting and perhaps then acting on ill-conceived impulse. Besides digesting or managing geopolitical and natural upheavals, it needs to reevaluate its energy options going forward. Before the shipping industry commits to new assets on ephemeral incidents, it needs to wait a bit, also because I suspect the nuclear vs. coal energy debate will soon reignite. Going by history, we won’t do too good a job of this debate, but that does not matter from shipping’s business perspective.

What matters is that shipping resists the temptation, for once, to try to stay ahead of the curve; that it waits for some clarity to emerge from Japan and elsewhere. That it waits to see which way the wind is blowing before it sets sail. Capital intensive and tonnage heavy shipping cannot afford to jump this way or that before the dust settles in Japan or until the Arab revolutions play out. There is too much uncertainty across the world today; blindly zigging now and finding out, in retrospect, that you should have zagged instead will cost you very dearly. So my general recommendation to the industry is to pause. Wait until clarity emerges, and then –only then- evaluate.

And while you are waiting, a moment of silence, please, for those brave souls at Fukushima- the workers at the plant who put their lives repeatedly and knowingly at risk fighting nuclear meltdown. A moment for those heroes, who put themselves at horrible risk by choosing to stay and fight the madness. They taught us, while we were busy calculating Fukushima‘s impact on our businesses, that a blazing light can sometimes shine from the abyss of deep tragedy.


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