November 27, 2019
Watershed, Rubicon, Crossroads. Call it what you like, 2019 probably won’t go down as the one we remember in five or 10 years’ time. Instead it will be 2020 that the industry will remember as ‘when it changed’.
The year to come is going to reshape shipping in some ways that we already understand and in others that we don’t fully appreciate yet, but 2019 was when a lot of the issues crystallised, as deadlines drew near and new forces emerged. With this in mind, here are five things that we learned in 2019, with an eye on what they will mean in 2020.
1. Choosing the path of least resistance
The first is that Occam’s Razor only sometimes applies to shipping. This rule states that ‘the explanation that requires the smallest number of assumptions is usually correct’ or to put it another way, given the choice between full engagement with a problem and the path of least resistance, the latter will usually be taken.
Somehow, the industry managed to spend a huge amount of time talking about sulphur scrubbers and LNG as fuel, despite these being little more than short term fixes to much bigger problems. To be clear there is no bar to using scrubbers under Marpol Annex VI, except that some owners have fitted them purely as a financial play and the fear is that they simply move pollution from one place to another.
About 3-4% of the fleet will fit scrubbers yet they were rarely out of the headlines. Similarly LNG as fuel, which has taken a decade to reach 1% penetration of the fleet. Touted as a solution for 2020 and 2030 compliance, LNG has failed to catch fire for the opposite reason; incredibly expensive and complicated, with huge safety issues.
2. Establishing a robust level playing field
Next, market measures are back, but this time they may work. The last time the shipping industry seriously considered MBMs to combat greenhouse gas emissions, a cabal of emerging market economies at the IMO saw the idea kicked into touch while the practicalities of IMO2020 received the attention necessary to get them over the line.
Now MBMs are back, in the form of the Poseidon Principles and the Getting to Zero Coalition, via the Global Maritime Forum, which admits it is little more than a coalition of the willing. The difference this time is that the PPs imply that owners will be forced to reduce GHG emissions if they are to secure finance in future, at least from the banks that have signed up.
The partners will use IMO DCS data to monitor their clients emissions performance, with assistance from flag and class; the other side of the equation is Getting to Zero, whereby the signatories attempt to drive the industry’s GHG emissions to zero by 2030 promoting the use of alternative fuels. Exactly how this will happen is unclear but again the ambition is set and (theoretically) simple; and all of this sits outside the formal regulatory process.
3. War and rates hit the roof
Third; shipping will always be at the mercy of Geopolitics. While analysts expend huge amounts of grey matter predicting future scenarios, nothing moves a market like good old-fashioned events.
The large tanker market languished for much of the first half of 2019 until the Saudi refinery attack and attacks on shipping in the Middle East Gulf saw rates rocket. Next, the unpredictable politics of the United States saw Chinese-linked companies sanctioned as collateral damage of the on-off trade war and rates hit the roof again. This also propelled the futures market, which cleared as many paper trades in the first week of October as it had in the whole of June.
Earlier in the year, the same effect was felt in the dry bulk market, after the tragedy of the Vale dam collapse and the slow pace at which production recovered as further Brazilian iron ore facilities were closed. Despite some of the same analysts calling the top of China’s demand for iron ore, the country shrugged off reports of its demise and piled on demand, seeing Capesize rates soar and the futures market hit record strong volume growth.
4. Unprepared for change
Next, we learned, again, that no matter how long a regulatory deadline, somebody in shipping will never be ready. There can barely have been a day since January without a headline warning of either impending chaos, the inevitability of a price spike week or, that the industry was unprepared and could not expect to be ready by January 1, or that the transition would be smooth.
If this sounded like a self-fulfilling prophesy then it was; there were owners who perhaps believed that after the debacle of ballast water management, the IMO would somehow blink on 2020 if they complained loudly enough.
Not only was this assumption incorrect, it also marked an important point of difference in the industry’s future relationship with regulators. The IMO’s ambitions for greenhouse gas reductions are understood, and the final shape of the regulations will be known by 2023, but it seems that IMO is to be believed when it says things will happen, something that bodes well for the future
5. Living in the age of the maritime start-up
Finally, we realised, if we had not done so before, that we are living in the age of the maritime start-up; though we may not be for ever. A technology tie-up with a maritime start-up was the must-have accessory of 2019 and without one, you couldn’t really be taken seriously on a conference platform.
The maritime ‘shiptech’ sector alone could be worth $100bn and could be nearly $300bn by 2030 according to consultancy Thetius and the potential for small, agile teams to help solve big, entrenched problems has obvious appeal. But as our own interview with Ari Marmajaa of Raa Labs made clear, many such ventures will struggle unless they can get into the shipboard IT systems they are trying to re-imagine.
Vessels have little of the compatibility that can connect data from A to B and often have no-where to deploy the software so start-ups end up putting hardware on the vessel because there’s no environment to run applications, he pointed out.
As a result, a lot of brilliant companies have version 1.0 or a single company pilot but realise that without an accelerator or on an aggregator, it can be hard to scale across the industry, which puts the opportunity for innovation at risk.
Even so, access to data, the ability to shape and leverage it, is the critical factor underlining almost everything noted above; and so will be even more critical in 2020. There is plenty that is still uncertain about 2020, but of the value of data to its outcome, there can be little doubt.