This week I visited Athens as the guest of FONASBA, the Federation of National Associations of Ship Brokers & Agents. This year is their 55th Anniversary and was their first annual general meeting in Athens since 1981.
I was asked to present my 6Ds of shipping – which was described as a thesis but that seems to be overly complimentary. It is more of a set of themes which I listed with the initial letter D to make them easier to remember.
The six themes are very much all live issues which have short, medium and long-term effects for shipping. They are:
i. Decarbonisation – Efforts to reduce carbon emissions.
ii. Digitalisation – Increasing reliance on digital technologies.
iii. Deglobalisation – The retreat from global trade and integration.
iv. Dedollarisation – Moving away from the US dollar as the global trade currency.
v. Demographics – Shifts in population, peaking around 2050-2080.
vi. Defence – Rising geopolitical tensions and military considerations.
By the way, I am running an online version of our course, Fundamentals of ESG for Shipping, from 0900-1200 UK time on 11 and 12 November, and an online version of our course, Decarbonising Shipping, from 0900-1200 UK time on 13 and 14 November. To get more details and a 30% Macro Macchiato reader discount on the list price of £799, email me on info@shippingstrategy.com
From 30 September to 4 October, the IMO Marine Environment Protection Committee held its 82nd session at IMO HQ in London. Several issues were discussed, including:
· Mid-term measures for the reduction of greenhouse gas (GHG) emissions from ships
· Enhancing energy efficiency of shipping,
· Tackling marine litter
· Ballast water management
· Underwater noise reduction.
The first of these is of most interest to ship owners over the long term, necessitating as it does either the complete replacement of all fuel oil and gas oil powered ships. or the production of over 300 million tonnes per year of drop in bio fuels and e fuels.
At the meeting, IMO says that there was a discussion about the possible establishment of an IMO GHG Intensity Registry and an IMO fund/facility to facilitate the implementation of the technical and economic elements of agreed GHG reduction measures. The IMO says, “The Committee identified further areas of convergence and produced a draft legal text (“draft IMO net-zero framework”) to use as a basis for the next phase of talks.” you can read the IMO press release about the meeting here.
There is still no agreement on instituting a global carbon price for shipping. There is agreement that this is probably the best way forwards – and that view was echoed by delegates to the FONASBA meeting this week – but there is currently no process to get to that point, and no date by which there is an aim to achieve it.
At this point, ship owners are still being left to their best efforts to secure supplies of low and zero emission fuels. Maersk has led the way in investing in low carbon fuel production. This may well be the way forwards….perhaps independent owners with some cash at hand (which is most of them given the freight market performance of the last two years) should start to invest directly in alternative fuel production. I would go for e fuels. They are the most expensive to produce, but the easiest to drop in and consume, meaning that ships don’t have to be replaced. In effect, the capital costs of decarbonisation are simply transferred from the ship to the fuel.
The second theme, digitisation, is a twin process of decarbonisation. The two go hand in hand. A bubble of software solutions has expanded covering everything from enhanced situational awareness to voyage optimisation to digital twins and predictive maintenance. The arrival of Artificial Intelligence promises further innovations in technical and commercial vessel management to optimise efficiency and minimise emissions.
There are other uses of digital tech too. At Shipping Strategy, we are collaborating with partners AAC Clyde Space (a satellite owner) and Morphing AI (a data science company) on mining geospatial, AIS, and other data to provide operational risk insights to ship owners and insurers. The UK Space Agency has part-funded the project. I will make further announcements over the coming months.
Deglobalisation and DeDollarisation are also related, and the second is a consequence of the first. Since the GFC, the process of pushback against globalised supply chains has come from the importing nations of the OECD, where the greatest number of blue collar jobs and investment has been lost and populist politics has taken hold. Both US presidential candidates are China hawks. The EU is increasingly hawkish. The global West and global South are edging apart. We are in an unusual position: the liberal democracies are increasingly anti-free trade while the illiberal autocracies which export their energy and rely on imported agriproduce and hi-tech goods, are strident free traders. The world has truly turned upside-down.
At the FONASBA meeting, participants on the geopolitics panel (including myself) all agreed that these trends are real, but that trade, like water, always finds a way through. The global trading system may become more expensive and less efficient, but as one speaker put, it, shipping tends to benefit from disruption.
As the US has combined tariffs with sanctions, its strategic competitors have begun to trade with each other in their own currencies. China has paying RMB for years already for coal, oil, gas and metals from Iran and Russia. Offshore RMB markets operate around the world in various financial centres now. China has begun to reduce its holdings of US treasuries, though it remains the second largest creditor. During October, the Russian Ministry of Finance, currently the BRICS chair, has published a paper on cross-border trade payments that can avoid the US dollar. The idea is to create a system which would “include a financial messaging component and allow to conduct settlement via tokens backed by national currencies, CBDCs, at the discretion of each participating country – this approach would allow a greater degree of decentralization.”
On demographics, I note a paper published by respected medical journal The Lancet, in April this year. It says, “Global annual livebirths peaked in 2016 at 142 million (95% UI 137–147), declining to 129 million (121–138) in 2021…Fertility is declining globally, with rates in more than half of all countries and territories in 2021 below replacement level…These future trends in fertility rates and live births will completely reconfigure the global economy and the international balance of power.”
For me, this is key to an understanding of future shipping demand trends. Shipping demand is derived from global GDP growth, which relies on population and productivity. The latter has stalled since the Global Financial Crisis. The energy transition may deliver less efficiency, while deglobalisation is essentially designed to reduce the productivity of trade. So the burden of growth falls to population growth. In Europe and the US, this has meant rapid immigration, which has led to political populism. This week Ursula van der Leyen, at a Brussels migration summit, seemed to indicate a stricter EU immigration regime.
Meanwhile, with China stuck in low gear, the world will rely more on fast growth populations for GDP growth, which means shipping will rely on them more for demand growth. For instance, from a relatively small base, African consumer spending was this month forecast to grow in double digits for the next 10 years. EBANX, a payment services company, says that consumer spending will grow by 167% in Egypt, 429% in Ethiopa,115% in Kenya, 107% in Morocco and 106% in Ghana. South Africa, a model of how not to run a country in the last decade, will still see 47% growth in consumer spending. EBANX has also highlit India and South America consumer spending to grow quickly – by 198% in India, making it the third largest consumer market after the US and China. Brazil (62% growth) and Mexico (42% growth) will each exceed USD 2 Tn of consumer spending per year by 2034. EBANX says that “we heard from numerous global players that emerging countries are becoming increasingly important to their businesses.”
It is a small leap of the imagination to suppose that these regions will become increasingly important to liner and tramp shipping companies as today’s major trade routes mature. Are the liner companies building the right ships for these changing trades? Are port developments happening in good time? Can these trades start out as low-carbon green corridors rather than having to change working practices? I cannot answer those questions today, but I will be following the story closely.
Finally, on defence, the key issue for shipping today is the danger of navigation in and around the Red Sea. In the October edition of our shipping markets monthly (subscribe here, free trials available), published on 6 October, I wrote, “Any further regional conflicts could cause shipping, so stoical and resilient in its handling of the situation – to demand more effective action from military navies to protect international ocean supply chains. About time too, we say.” Imagine my surprise then when the US used B2 stealth bombers carrying bunker busting bombs to attack Houthi weapons storage sites. What the navy cannot do, the air force can.
We can only hope that the various conflicts under way come to their own conclusions as soon as possible. But with Ukraine, the Middle East, Taiwan and the Korean peninsula all causing anxiety, it is easy to feel overwhelmed. So Bonne Courage to us all and let us hope that shipping’s resilience, demonstrated during the pandemic and today, continues to deliver the goods, safely and profitably.
