December 19, 2018
Making predictions at the turn of the year is as unwise as making New Year’s resolutions. You may forget them, they may prove unfounded or simply be forgotten. Luckily there is so much going on in shipping right now that it’s hard to be wrong; degree, direction and timescale are the variables.
As Mark Williams, MD of Shipping Strategy told the recent Lloyd’s List 2019 Outlook Forum, the biggest macro risk to shipping in 2019 is political, not economic. Having moved into the era of de-globalisation, with the WTO ‘irrelevant’, he said we have replaced globalisation with bilateralism, transactionalism and tariffs.
Still, economics plays a role. “Shipping remains in thrall to emerging markets and thus a growth downturn in China, India and southeast Asia is bad news for shipping. Any impact that trade tariffs have on growth is also bad for demand.”
Economically the signs are mixed in 2019; good growth in the US, weak growth in Europe and of course BREXIT risk. A populist has taken charge in South America’s biggest economy while Southern Africa, something of a shining beacon a few years ago, is now going backwards, he said.
“There won’t be a huge amount of strong economic growth in 2019 and despite being an industry made of big, heavy things, shipping is a service industry. The bottom of the interest rate cycle means there will be challenges to costs for shipping, not to mention regulatory risks.
Despina Panayiotou Theodosiou, CEO of Tototheo added digitalisation and diversity to the mix and noted that in terms of environmental regulations, owners are between a rock and a hard place. “But it’s also an opportunity for us to clean up as an industry improve our reputation with the outside world. In terms of digitalisation there is fear; there is some pushback and perhaps denial but at the same time an opportunity to improve operations.”
As for diversity she is encouraged by the subject ‘being discussed with more maturity’ and that the industry as a whole now realises the benefit of promoting, not excluding 51% of workforce.
Wallenius Wilhelmsen’s VP, Global Sustainability Roger Strevens has been at the sustainability game for a while and pointed out that the threat grows where companies are slow to engage. “If you approach it early and apply resources, you are better off. It’s a dilemma for the industry because a lot of them are struggling to get to the end of the week. It’s a difficult thing to put your head above the parapet and get to grips with bigger, unusual challenges.”
WWL effectively began its 2020 planning in 2012, preparing for the first emission control areas and Strevens’ advice was not to rely on the experience of others. “Technical solutions to 2020 are case specific; the right solution for a particular kind of vessel let alone an individual vessel will depend on design how and it’s operated.”
Strevens also noted ‘a grand convergence’ between sustainability and business. “They used to be poles apart but look at 2020; it requires operational and technical work but also commercial preparation. You need to have customer discussion and that means a different kind of preparation but this is our new normal.”
Jorgen Strandberg, General Manager Advanced Solutions at Wartsila acknowledged the difficulty of balancing short and long term objectives but unsurprisingly advocates for the ‘10% opex gain’ that digitalisation can deliver. “There are hurdles because there are costs initially just to get to the short term but the planet we are living in has issues. There are goals for sustainability and we need to come up with ideas that enable us to be a good player and not the one that turns its back and says it’s business as usual, don’t bother me.”
Head of Ship Finance at Citibank Michael Parker went off brief and waved a cutting of the recent announcement by AP Moller Maersk that its operations would be carbon neutral by 2050 and another laying out the UN sustainable development goals.
Both were goals we should work towards, he argued. “The Environmental Social Governance agenda is driving USD6trn of investment. Every company, every industry is going to have to respond, whether because of internal drivers or regulation. As a service industry you do what your customers want.”
It is this pace of change – rather than digitalisation – that is more important, he argued. “Digitalisation is like electricity; its effect will take a long time to be felt. ESG is now. Look at an issue like (sulphur) scrubbers. As soon as a charterer tells the owner they are not going to charter their ship, it changes the commercial relationship.”
Rather closer to home is the industry’s relentless battle between excess shipyard capacity and cheap, plentiful money. Parker believes the latter might be coming to an end, but he suggested that if oversupply can be kept under control then issues such as paying for lower sulphur bunkers would be less of a problem.
“Discipline in capacity is one thing, facing up to an external agenda is another. It’s a huge opportunity because the investment decisions made now will have a big impact on what will happen [by 2050].”
Capt Rahul Khanna, Global Head of Marine Risk Consulting at Allianz took a different tack, reminding delegates how much risk had changed, with total losses over the last decade declining 35-40%. “It’s a one of few things we can congratulate ourselves on and it is down to efforts of industry and regulators that it has moved in right direction over a long time period.”
However, the industry cannot afford to be complacent on risk in 2019. With containership size until recently growing relentlessly, the value at stake from a major casualty, not just in dollars but in environmental risk has changed for good but has yet to be properly addressed.
“Containership fires are still a big problem for which we need to come up with the answer. We can say yes to economies of scale but in parallel we need to contain risk going forward. Cyber is another big talking point, we have not had a major vessel loss [from a cyber-attack] but there have been issues and they will increase. The industry has done some good work, but a lot remains to be done.”