The Future of Shipping

Two new reports came out last month that deserve the attention of MarEx readers. Knowing how busy you all are, I know you don’t have time to read them (I mean, who has time to read 150-page reports these days?). So I thought I’d save you the trouble and summarize them for you right here. All you have to do is continue reading and, believe me, reading my column is much more fun than reading the actual reports.

The first is titled “Global Marine Trends 2030.” Two years in the making, it looks at the future of maritime, including seapower, and represents a collaborative effort by ship classification society Lloyd’s Register, UK defense contractor QinetiQ, and the University of Strathclyde in Glasgow. The second report is less ambitious but no less informative. Produced by Colliers International, the global real estate services firm, as part of its North American Port series and wittily entitled “CapEx or Capsize,” it examines the impact of the new Panama Canal on North American ports and assesses their readiness.

“Global Marine Trends 2030”
Let’s start with the big one. “Global Marine Trends 2030” forecasts a world in which global trade more than doubles, China owns roughly a quarter of the world’s merchant fleet, the number of offshore wind platforms grows a hundred-fold, and the U.S. remains the dominant naval power (whew!). The big story, not surprisingly, is China, which edges past the U.S. in GDP sometime in the 2020s and whose gargantuan appetite for commodities of all kinds drives world trade and spurs increased production of huge container ships.

Global GDP grows more than two and a half times with the biggest increase coming in – anyone, anyone? – India! Yes, the Subcontinent passes China in both population and rate of growth and becomes the world’s third largest economy by 2030, behind China and the U.S. Filling out the top five are Japan and Brazil.

On the energy front, coal remains the dominant generator of electricity, largely because of India and China, with consumption more than doubling over the next 20 years. Natural gas usage doubles, fueled by fracking and LNG, and the U.S. becomes the world’s largest producer (and consumer). Oil consumption grows by roughly half. While much is made of wind power and other “clean” energies, their impact remains muted – with the exception of Western Europe, where wind (both onshore and offshore) becomes a major power source.

Container ship tonnage grows the fastest among the major vessel categories, increasing two-and-a-half times as the world’s expanding middle class demands more and more of the world’s goods. Bulker tonnage more than doubles in response to imports of coal, iron ore and grains in emerging economies, and so does LNG tonnage with Australia, Qatar and Nigeria the leading exporters and Japan, Europe, India and China the main importers. Tanker tonnage grows the slowest as the world gradually shifts away from oil as the dominant transportation fuel.

And, since this is our annual shipbuilding issue, it’s appropriate to note that China, according to the report, increases its lead over rivals South Korea (#2) and Japan (#3) with emerging nations like Vietnam, India, Brazil and the Philippines gaining fast. The market for sophisticated vessels like LNG carriers, however, continues to be dominated by South Korea and Japan.

Disruptive Forces
The most interesting part of the report for this reader was the section entitled “Disruptive Forces.” We all know what those are, right? I mean, entering the first decade of the 21st century, did anyone expect 9/11, the financial meltdown, or the Arab Spring? I don’t think so. Similarly, the report identifies six unexpected and unlikely events that, were they to occur, would be “game-changers.”

The first is Russia joining NATO, which would shift the global geopolitical and military balance dramatically in favor of the West, increasing pressure on China and perhaps easing tensions in the Middle East. I like this one. It makes sense from a lot of perspectives, including Russia’s.

The second is the dollar losing its reserve currency status to the yuan as a result of unmanageable federal budget deficits. This is a truly scary – but perhaps inevitable – possibility with all sorts of negative consequences for the West if the U.S. doesn’t get its fiscal house in order. 

Third is a major pollution event in the Arctic, such as the collision of two crude carriers. Since the report envisions the opening of the Arctic to mineral development and shipping, this would have a major impact on world trade. Nonetheless, there’s a happy ending as the authors forecast such an incident leading to an agreement between Canada and Russia to jointly and more effectively police Arctic shipping lanes between Asia and Europe and thereby avoid future disasters.

Fourth is the rise of the Green Crescent (I love that term “Green Crescent”), meaning the emergence of a new Islamic “Caliphate” across the Middle East, North Africa and the ‘Stans (Pakistan, Kazakhstan, Afghanistan) that would cause major upheavals in oil supply, threaten the Suez Canal, and bring about – like Russia’s joining NATO – a new geopolitical configuration. (For an interesting counterview to this possibility, see Economides & Glover’s “Eye on Energy” column in this issue.)

Number five on the hit parade is disruptive technologies. These include clean coal and biofuels that eventually replace oil, robotics, and something called “3-D printing.” Does anyone know what that is? I sure don’t, but it doesn’t mean printing in the traditional sense of printing a newspaper or magazine. It means “printing” or stamping parts, as in manufacturing. According to the report, Japan and Germany lead the way with Germany building the first three-dimensional printing plant for automobiles sometime around 2030.

The last scenario is global collapse. This envisions a world in which countries can no longer feed their growing populations; unemployment and unrest increase; there is revolution in the streets, and no international leadership. I suppose we got a preview of something like it a few years back with the Great Financial Meltdown, but this would be worse, much worse.

I don’t see it. I think it more likely that the world will come together over the next twenty years, driven by mutual self-interest and the needs of a growing and thriving middle class. But I’m an optimist, and so apparently are the authors of this fascinating report, who state in the “Foreword” that their purpose in making it freely available to the public is “to encourage a broader understanding of global issues that affect the marine industry and their impact in the form of scenarios…and to stimulate debate and thinking of the realities and challenges – and solutions – that will shape the future.” Bravo.

“CapEx or Capsize”
The second report, “CapEx or Capsize,” is a treasure trove for trivia nuts like me. For instance, what is America’s leading grain-export port? (Hint: It’s not New Orleans.) What is the busiest port on the Great Lakes? How many East Coast ports are post-Panamax ready? What is the largest air-cargo city in the U.S. – and the world, for that matter?

OK, on to more weighty matters. The report’s author, K.C. Conway, Chief Economist for Colliers International in the U.S., says that America needs to spend a whopping $3.6 trillion on infrastructure in the next seven years in order to remain competitive once the new Panama Canal opens. That’s about $500 billion a year. “This is ‘make it or break it’ time for North America’s port cities,” he explains. “Changing trade patterns and evolving e-commerce trends will present great economic opportunities for the cities that invest capex in their transportation infrastructure. And for those cities that don’t invest, they put their economies at serious risk.”

Charleston, Houston, Miami, New York/New Jersey, Port Everglades (Fort Lauderdale) and Savannah, among others, are taking him at his word. They all want a piece of the post-Panamax pie. Baltimore and Norfolk are already ready with 50-foot channels and expanded terminals and intermodal facilities. And that’s really what it’s all about – dredging and cranes and rail connectors and distribution centers and all the nitty-gritty that goes into a modern transportation system.

And it’s really about intermodal (read containers), the fastest growing part of the global supply chain, which will become even more important after the expanded Canal opens in 2015. Conway says rail will be the big winner at the expense of trucks and river barges. Why? Because of new hours-worked rules for truck drivers, the public health risks of smog and increased highway congestion, and the deteriorating condition of the nation’s roadways, bridges, and navigation locks – not to mention low-water levels or flood conditions that inhibit or prevent river barge movements. New rail connectors are, in fact, being established in all of the key East Coast ports to hasten the transfer of containers from ships to distribution centers.

The report talks about, importantly, the “onshoring” of manufacturing operations in the U.S. as foreign automakers, in particular, recognize the benefits of cheap energy and a highly skilled workforce. But the most interesting point was the assertion that “Latin America is the next big growth opportunity and can be for the East and Gulf Coasts what Asia is for California.” Wow. “Much like the United States in the 1950s, Latin American countries are in the early stages of a growth economy with a newly developed middle class…The demand for American products is growing so rapidly that Walmart revealed in its Q4 2012 earnings that, for the first time, the net sales growth in Latin America surpassed that of Asia.” Bring it on! And the new Canal doesn’t even open for two more years. Imagine what will happen then!

So there’s mainly good news all around, except for global collapse.

Postscript
Regular readers of this space know that the May/June edition usually features my annual report column. Alas, this year’s crop did not impress, and I felt you would be better served by the two reports described above. If you really want to hear about company annuals, drop me a line.