Brave New World

Happy Hour at CMA 2017
Courtesy: Chris Preovolos/CMA

By Jack O'Connell 2017-07-18 13:55:00

(Article originally published in the May/June 2017 edition) 

READY OR NOT, THE FUTURE OF SHIPPING IS ALREADY HERE.

It was a raucous gathering at this year’s CMA, the annual three day bash of the Connecticut Maritime Association in Stamford, Connecticut. More than 2,300 of the best and brightest (and richest) came from far and wide to renew old acquaintances and make new ones – and do some wheeling and dealing while they were at it.

The theme of the conference – in case anyone was interested in actually attending the presentations – was “Capitalizing on a Changing Industry,” and there was plenty of both to go around. The “cap ital” was represented by the deep pockets of the shipping VIPs and investment honchos in attendance while “change” was everywhere in the content of the presentations, which presented a bold vision of the future that was both exhilarating and scary.

Picture this: “Smart” ships guided by remote control from shoreside centers crisscrossing the globe and e-navigating themselves from port to port. An “ecosystem of digitized assets,” Transas CEO Frank Coles called it. And Coles is not alone. Speaker after speaker hit on the same theme: The “Internet of Things” will revolutionize shipping. The old model is out. The new model is ecommerce. And companies like Amazon, Uber and Alibaba are leading the way.

THE DIGITAL REVOLUTION

It all begins with data, of course: “Without data, you’re just another person with an opinion,” said famed management consultant W. Edwards Deming, and Deming should know. He led Japan’s industrial miracle after World War II and became the first true management genius, relying heavily on statistics to guide corporations in their decision making. Many have hailed him as the father of the Third Industrial Revolution – the Digital Revolution – that paved the way for the Fourth Industrial Revolution, the era of automation and artificial intelligence or AI, which is where we are today.

Christopher Rex, Head of Research at Danish Ship Finance, attacked this subject head on in his presentation on “The Fourth Industrial Revolution,” and it was anything but reassuring. The impact of the Fourth Industrial Revolution on shipping will include, among other things, the lengthening of supply chains due to the “reshoring of production.” Automation, 3D printers and the like will enable affordable, efficient production at home and reduce the incentive to look abroad for cheap goods. Increased productivity and efficiency will enable producers to “do more with less,” eliminate the middle man, and use fewer resources per dollar of growth.

Global trade will diminish as a result of the reduced demand for goods. Rex sees growth in trade volumes slowing to one percent a year from here to 2030 rather than the two to four percent that most experts expect. And never mind the five to ten percent annual growth of the last 25 years.

This is all bad news for shipping, which – as all you savvy MarEx readers know – accounts for roughly “ninety percent of everything.” And it gets worse. Growth in renewables like wind and solar will reduce and eventually eliminate the need for imported oil and gas – there goes the tanker business! Coal shipments will diminish – bye-bye bulkers! And automation and robots and AI and all the rest will cut deeply into the job market, meaning fewer new jobs.

DISRUPTIVE LOGISTICS

Frank Coles agrees that the drive for efficiency will change everything, but he sees opportunity where others see danger. He says Transas, a global leader in maritime simulation, navigation and bridge systems, will be an “enabler” of smart operations for shipping. In a digitized world, Transas will be part of the “eco system” as the rapidly emerging “ecommerce model” replaces the current maritime model. The efficiency of the maritime industry, he says, is the last piece of the puzzle.

Ecommerce has already revolutionized the so called “last mile” in the logistics supply chain with companies like Amazon, FedEx and UPS providing door-to-door service. Shipping is more of a “first mile” operation, and the logical progression for Coles is for companies like Amazon and Alibaba to begin leasing their own ships. They already lease their own airplanes and trucks, and the aviation industry is Coles’ model for the future of maritime.

Just as planes today basically fly themselves, guided by air traffic controllers in a globally controlled environment, so too will autonomous ships one day ply the oceans guided by a series of onshore controllers. And just as pilots are necessary on airplanes for safety and security reasons, so too will autonomous ships likely have at least a skeletal crew to handle emergencies and other unexpected occurrences.

“If global shippers are beginning to lease their own planes, own airports and manage their own logistics, then why not ships, ports and port operations,” he asks. “It’s easy to imagine electron i-c cargo booking and digital port operations with ecommerce giants owning ships, owning ports or sections of them, and con trolling the complete logistics chain.”

Coles has emerged as the guru and de facto spokesperson for the forthcoming digitized world of shipping, and his message – like Christopher Rex’s – is both exhilarating and a little bit scary.

BLOCKCHAIN TECHNOLOGY

The next revelation came in the person of Evan Efstathiou and blockchain technology. “Blockchain solutions will revolutionize transactions the way the Internet revolutionized communications,” he stated, and at that point he had the undivided attention of everyone in the room, including myself. I had never even heard of blockchain. How could I be such a blockhead? I then learned that blockchain is the basis of bitcoin, and I did know about bitcoin. It’s now trading above $2,000 and has doubled since the beginning of the year and is doing much better than any stock, shipping or otherwise, I could recommend. I missed the boat on that one too.

Anyway, I spent some time with the youthful, MIT-educated Efstathiou, who is the founder and owner of Skysail Advisors, a maritime portfolio and technology advisory firm based in Boston. He has advised on a number of blockchain transactions and patiently tried to enlighten me on what it is and its potential for shipping. I still don’t get it (no surprise there), but you savvy Mar Ex readers probably do, and if you need more info you can google it or contact Evan directly.

I did, however, remember something about IBM and Maersk joining forces in what I now realized was a blockchain partnership, the first of its kind for the maritime industry. Here’s what the March 2017 press release said:

The blockchain solution based on the Hyperledger Fabric and built by IBM and Maersk, the global leader in transport and logistics, will be made available to the shipping and logistics industry. The solution will help manage and track the paper trail of tens of millions of shipping containers across the world by digitizing the supply chain process from end-to-end to enhance transparency and the highly secure sharing of information among trading partners. When adopted at scale, the solution has the potential to save the industry billions of dollars.

“Billions of dollars?” “Enhance transparency?” “Highly secure sharing of information?” Now I see what the excitement is all about, and if I hadn’t attended CMA I would never have known.

THE IMAGE ISSUE

One of the most interesting presentations came on the very first day when Peter Hinchcliffe, Secretary General of the International Chamber of Shipping, bemoaned the fact that shipping can’t shake its image as the dirtiest of all transportation modes. Citing carbon neutrality as the Holy Grail of shipping, he called on the IMO to take the lead in setting CO2 targets for the industry before it’s too late and politicians decide to do it for us. “The window to control our own destiny is short,” he warned, referencing the upcoming MEPC 71 meeting in July as the time to act.

Hinchcliffe wasn’t finished. “Nobody understands shipping’s role in the global economy,” he explained, “it’s dropped from the public consciousness, except when a disaster occurs.” And it’s the industry’s fault. We haven’t done a good enough job educating people, and no one is going to do it for us. Making things worse is its fragmented nature and the proliferation of industry associations, his among them, all of whom have their own constituencies and interests and are often at odds.

The industry needs to speak with one voice, he added, but whose? That is the question. It also needs to clearly define its position on issues and then communicate it clearly. It’s a tall order, and Hinch cliffe minced no words. It’s up to us to pick up the gauntlet.

THE REST OF THE STORY

As well-attended and well-worth-while as the presentations are, the real action at the conference takes place on the sidelines – in the crowded halls and corridors of the sprawling Hilton Conference Center, which seems bursting at the seams trying to contain all the activity. The effect is deliberate: By crowding everyone – and all the exhibits – into a space not quite large enough, people are forced to bump into each other and talk. Navigating some of the passage ways between exhibits can be a real challenge, and it’s easy to get lost. You turn down the wrong hallway and, before you know it, you’ve bumped into someone you haven’t seen in years.

And there’s plenty of alcohol around to encourage camaraderie. At all hours of the day and mostly free for the asking, drinks are available, which leads me to believe that the shipping industry could be the drinkingest group of professionals in any industry, a distinction most of us are proud to maintain.

BRAVE NEW WORLD

So there you have it – a quick overview of one of the best conferences of the year. If you were unable to attend, now you at least know what happened (well, some of it). And if you did attend but spent most of your time socializing – and why not? – I hope this helped.

It’s a brave new world, all right, and as a former college English teacher I cannot help but close with these words from Shakespeare’s The Tempest, his last, shortest and perhaps greatest play, written entirely in verse. They’re spoken by Miranda, Prospero’s daughter, near the end of Act V, when all conflict is resolved:

Oh, wonder!

How many goodly creatures are there here!

How beauteous mankind is! O brave new world,

That has such people in ’t!

-MarEx