The Shipping Industry Should Reinvent Itself!


  • Shipping industry is to face a range of technological, environmental and geopolitical challenges.
  • It will test the resilience of the maritime sector over the coming decades.
  • Firms have increasingly turned to liquefied natural gas (LNG) to reduce their impact on the environment.
  • Autonomous cargo ships have long been touted as the next big thing, combining cost-efficiency with green credentials.
  • Nearly all major shipping firms have been involved in blockchain initiatives and consortia.
  • Shipping industry is vulnerable to strong headwinds in global politics.

An article published in the World Finance illustrates the challenges that shipping industry is to face in the next coming decade.  It is essential for the industry to adapt to the situation to sustain the changes that takes place from time to time.

LNG is less harmful than traditional alternatives

Cheap, clean fuel is an asset that can make or break a shipping company’s balance sheet. Consequently, firms have increasingly turned to liquefied natural gas (LNG) to reduce their impact on the environment. But while LNG is less harmful than traditional alternatives, such as heavy fuel oil, the cost of installing the necessary equipment is often prohibitive. What’s more, the heavy metallic tanks used to store the fuel reduce the volume of freight LNG-powered vessels can carry.

“We were searching for green solutions for high-speed vessels and we came across equipment that NASA uses to launch rockets into space,” Panagiotis Zacharioudakis, Director at Ocean Finance, told World Finance. “Every gram counts in this process, which is quite relevant for the shipping industry.” The tank, which has already received preliminary approval from the American Bureau of Shipping, is expected to become available this spring. It can also be retrofitted to store liquefied hydrogen, a fuel considered to be the greenest solution for the shipping industry moving forward.

Not all in the same boat

Such moves are imperative for an industry that accounted for approximately 3.1 percent of carbon dioxide emissions globally between 2007 and 2012, according to the International Maritime Organisation (IMO). The IMO wants the maritime sector to cut its greenhouse gas emissions by at least 50 percent by 2050 compared to 2008 levels. At the beginning of the year, it imposed new regulations that limit the sulphur content of marine fuel to 0.5 percent mass by mass, effectively increasing fuel costs for most shipping companies. Only ships equipped with exhaust gas cleaning systems are exempt from the regulation.

Many think the target set by the IMO is unrealistic given the relatively short time frame in which shipowners will have to adjust to the change and the disparities in regulation across different jurisdictions. In Europe, for example, regulations are deemed to be too strict, harming the competitiveness of EU-based firms.

“The target… is ambitious,” Harilaos Psaraftis, a maritime logistics professor at the Technical University of Denmark, told World Finance. “The IMO process is way too slow, mainly as a result of political obstacles.” In response, several organisations representing the industry submitted a proposal in December to form a collaborative research and development programme aimed at finding green solutions, with participants providing funding of around $5bn over 10 years.

The transition may confuse shipowners 

The transition to greener technology poses a conundrum to shipowners, though, as they are forced to make investment decisions without having a clear picture of the industry’s future needs and regulatory framework. A ship ordered in 2025 will still need to be operating in 2050, if the owner is not to face substantial losses,” Pyers Tucker, Head of Strategy at Hapag-Lloyd, a German international shipping and container company, told World Finance.

All hands on tech

One way the industry can adjust to the new era is by embracing automation. Autonomous cargo ships have long been touted as the next big thing, combining cost-efficiency with green credentials. Two Norwegian companies, Yara International and Kongsberg Maritime, expect to launch the world’s first autonomous, zero-emission container vessel this year, but many in the industry are sceptical. “We don’t see autonomous cargo ships as more than a short-distance gimmick,” Tucker told World Finance. “For deep-sea services, we can envisage remotely piloted cargo ships – perhaps with small maintenance crews helicoptered on/off – as… a more realistic future.”

As with driverless vehicles, the advent of autonomous technology in the shipping industry poses a series of legal and ethical questions, from liability to insurance costs. The industry’s presence across multiple jurisdictions adds extra complexity. Philip Damas, Head of Drewry Supply Chain Advisors, the logistics arm of UK maritime research consultancy Drewry Group, told World Finance: “The question is whether governments, regulators and insurers around the world will be willing to accept – and coordinate – such a dramatic switch in a worldwide industry like global maritime transport.”

Also, many start-ups remain customers of incumbent shipping companies, but Saxon believes they may pose a bigger threat to established players in the future: “The question for shipping companies is whether they can innovate and reinvent themselves fast enough, or lose the customer relationship to new platforms.”

Chain reaction

The hype surrounding blockchain, the ledger technology underpinning cryptocurrencies, was not lost on the maritime sector, which has long been riddled with arcane bureaucracy and complex supply chains. According to Saxon, an estimated $19bn is wasted in the container shipping value chain every year due to a lack of communication and suboptimal use of capacity. Despite this, practical uses of blockchain in the sector remain modest.

As Damas explained to World Finance: “The noise around the predictions that blockchain will… revolutionise global transport and global trade has decreased in the past three years. At present, efforts are concentrated on data standards and governance, without which blockchain cannot work.”

Nearly all major shipping firms have been involved in blockchain initiatives and consortia. Maersk, the world’s largest container ship and supply vessel operator, has partnered with IBM to create TradeLens, a blockchain-based digital tracking system that enables members to track freight transportation in real time. Since its launch in 2018, the platform has attracted some of the world’s largest overseas shipping companies, including Hapag-Lloyd, ONE, CMA CGM and the Mediterranean Shipping Company.

The increasing use of sophisticated technology will pose significant challenges to ports, many of which lack the necessary infrastructure to accommodate blockchain-enabled solutions. Neil told World Finance: “Blockchain can help improve efficiency, but this requires all ports to have the appropriate facilities to make use of this technology, as well as regulatory changes, which will be difficult to implement.”

Choppy Waters

Currently, shipping is the dominant mode of transporting goods, with more than 90 percent of world trade being seaborne. According to the UN Conference on Trade and Development (UNCTAD), vessels transported 11 billion tons of goods in 2018, a 2.7 percent increase on the previous year. However, the industry is vulnerable to strong headwinds in global politics.

Populist politicians in Europe and the US often point to international trade as one of the reasons for increasing inequality, questioning the rules-based status quo that was established after the Second World War. A case in point is the US Government’s attempt to undermine the World Trade Organisation by strangling its appellate body. Global foreign direct investment (FDI) dropped for a third consecutive year in 2018 (see Fig 1), while many multinationals are reportedly scaling back their global supply chains. Experts fear that fragmentation will ensue, with trade blocs becoming increasingly insular and relying on sheer power to promote their interests.

US-China trade war

The ongoing US-China trade war is a prime example of how protectionism can negatively impact the shipping industry. Although trade between the two countries only accounts for a small fraction of global trade, the conflict has hurt the shipping industry greatly. For example, the US’ decision to sanction two subsidiaries of the China Ocean Shipping Company in September 2019 affected around 130 vessels, although the sanctions have since been partially lifted. Chinese imports of soybeans and crude oil from the US have also taken a hit, impacting the shipping industry further. These two commodities are at the heart of negotiations between the superpowers, with China promising to increase imports to satisfy US sensibilities.

Peter Sand, Chief Shipping Analyst at BIMCO, a Copenhagen-based shipping association that represents shipowners, told World Finance: “BIMCO doubts that the agreed… volumes will be reached, given the huge increase, but any boost to volumes will benefit the shipping industry, especially given the long sailing distances between the US and China, boosting tonne-mile demand.”

The trade war has pushed many firms in the two countries to think laterally. Some Chinese manufacturers have shifted production to nearby countries such as Vietnam to avoid sanctions, while imports from the US have been partly replaced with increasing volumes of trade from Brazil and Australia, among other nations. Chinese exporters have also turned their attention towards Northern Europe as an alternative destination market.

The COVID-19 crisis will also test the resilience of the Chinese economy. In January, the Baltic Capesize Index, which tracks freight costs for dry bulk commodities, slipped below zero for the first time. “The current coronavirus outbreak has highlighted the danger of being overreliant on one source,” Heaney said. “I believe these factors will lead to less China-centric shipping in the future.”

A new course

In the long term, radical changes to industrial production may affect the role of shipping in world trade. New technology, including robotics, artificial intelligence and 3D printing, is expected to boost localised manufacturing, reducing the need for long-distance trade. A recent study by Research and Markets predicted that the global 3D printing market would more than triple in value by 2024, reaching $34.8bn.

Sand told World Finance: “Container shipping on the major trades – from manufacturing nations in the Far East to Europe and North America – relies on manufacturing continuing to take place away from the consumption regions. Anything that threatens this, including 3D printing and nearshoring, threatens container shipping. The industry is… already feeling the pain from the changing nature of economies around the world, with growth recently focused more around services, rather than the sectors of the economy that promote the physical trading of goods”.

Shorter distances and lower trade volumes, combined with the push to cut gas emissions, may benefit the industry by forcing it to reinvent itself. As Stopford told World Finance: “Shipping would focus much more on local business-to-business services, using the new generation information technology to provide reliable sea transport to outlying ports. Some analysts are doubtful about this ‘Uber of the seas’ philosophy, but Uber’s great achievement was to bring cab services to areas that previously did not have them, generating growth. Maybe ships can do the same.”

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Source: World Finance


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