A graph put out by Clarkson’s says global trade has more than tripled since the time I first went out to sea. (Actually, it has tripled since 1984- I went out to sea in the late seventies- and has doubled since 1995). The research firm adds two other interesting statistics; that seaborne trade will touch the 10 billion tonne mark this year. And that ships today carry, every year, 1.4 tonnes of cargo for each person on earth. “At 4% growth (a number we don’t feel is unreasonable for scenario planning on the basis of continued globalisation) we reach 15 billion tonnes by 2024 and 20 billion tonnes by 2031,” Clarkson’s says.
Those are remarkable figures, indeed, and worth remembering. However, it will be premature and ill-advised for long term industry players to sit back after a self-congratulatory pat on the back and assume that the next thirty years will be a repeat of the last three decades. Or that shipping’s long term profitability is a given, or that the return on investment figures will justify the risk maritime enterprises are exposed to, over the next three decades.
Beyond the present preoccupations of the maritime industry lie particular long term risks. The assumptions today include the widespread opinion that China will continue to drive trade despite current problems. That freight rates will improve dramatically soon because global economic recovery is underway. That the overtonnaging and reckless ordering of newbuilds will sort itself out in a few years, and that profits- handsome profits- lie around the corner of this recovery.
All of these assumptions may well be true; shipping is cyclical after all and has weathered many ups and downs in the past. We have the experience. We can forecast decently how trade will behave and what kind or size of ships we will need. We can see changing trade patterns- in energy for example, as the US in particular exploits shale, or as the Chinese start consuming more of everything.
We can control costs and source cheaper crews and all that. We can even predict and factor in new environmental regulatory costs. We have done it before. We can do it again. We don’t have to make a thirty year plan now, after all; we can change with the times.
I do not disagree with any of the above. I only wish to point out a couple of unique risks here that we in the industry do not normally factor in. Understanding these are critical because, as we are finding out today once again, getting stuck with the wrong kind, size or speed of a ship can kill your profitability pretty quickly.
The biggest risk, to my mind, is the possibility that global consumer consumption will stagnate even if the global economy improves dramatically. What if Americans (in particular, but others too) act on the realisation that their personal consumption levels are unsustainable? The dominoes will start falling immediately if US consumers do something stupid, like refusing to buy what they don’t need or curtailing discretionary spending drastically.
I am a believer in the theory that it is consumers who are job creators, not businessmen, as is commonly thought. I think consumers create investors who start or expand businesses that employ more people who, in turn, consume and complete the cycle. Trade is, therefore, dependent largely on consumption. The big consumers of the future, it is hoped, will be the Chinese and (to a lesser extent) the Indians. What if they, too, see the light?
Then there is, for want of a better term, energy risk. What if shale gas or LNG is not the next big thing by 2020? What will it do our fleets if trade, trading patterns and our propulsion costs- not to speak of ability to compete- if our new ships today become uncompetitive within a decade?
Next, structure and quality of manpower. I am afraid that the degradation in the quality of crews, if left unaddressed, will spread ashore; it is inevitable. The impact on safety and the environment will be considerable, not to speak of impact on financial liability. Besides, shipping is not structured right; it doesn’t have enough numbers of the right people ashore. What tomorrow’s industry needs is a multidisciplined approach, when most of shipping’s luminaries and organisations are one-dimensional today. Where are the scientists and the lateral thinkers? Where is the R&D investment required?
Finally, the Chinese risk. China drives global trade today. Chinese companies will control the largest tonnage in the world within the next decade or so. It is a significant player in shipbuilding; it will become a significant player in other maritime disciplines as well- crewing, maybe hull and machinery insurance and shipmanagement, for a start.
I am not saying that the Chinese government will collapse tomorrow or that the Chinese State is under some kind of existentialist threat today, but there are more than a few pressures- even fissures- within the Chinese system. For the most part they remain hidden from the outside world, much like the schisms in the Arabic world were hidden- or ignored- before the end of 2010, just three years or so ago, and which have caused upheavals in many more than a dozen countries, resulting in crippling economic disruptions in countries like Egypt, Tunisia, Libya and Syria. Like the quick collapse of the Soviet bloc all those years ago, nobody saw this coming either.
Therefore, one question for shipping pundits: What will be the impact on shipping if, in the next ten years, we see a ‘Chinese Spring’?