With the first decade of the 21st century coming to a close, it would be very tempting to look back at the ?noughties? for clues about the next decade and beyond.
With the first decade of the 21st century coming to a close, it would be very tempting to look back at the ?noughties? for clues about the next decade and beyond. While a degree of rear-view driving is inevitable, I"d rather try and focus on the next 10 and suggest what we might begin to look out for. To begin with, the health of large parts of the shipping market depends on a revival in consumer demand in the developed world and although there should be a recovery from the dire levels of 2009, few of the growth forecasts for 2010-2020 can be made with the kind of authority of pre-2007.
Whether one believes that shipping is a trailing or leading indicator, it seems likely that even the optimists are budgeting for a tough year in 2010. Next year is when the wave of newbuildings will really begin to hit home ? although their appearance as the year ended has helped to slow the market ahead of Christmas.
Profits will also come under pressure because operational costs are going to rise and keep rising. The cost of money, of manpower, of fuel, of regulatory compliance, of insurance and protection will build as the aftershocks of the credit crisis roll in.
A repeat of the micro-bubble in commodity prices experienced in 2009 would add an unpleasant air of unpredictability to managing ships and people. It"s an economic miracle that there hasn"t been a major bankruptcy in the shipping market so far. In at least one case, this hasn"t been allowed to happen by artificial intervention.
More mergers and acquisitions can be expected next year as carriers run out of ideas of how to contain costs and continue operations. Some states have even hinted they would support their ?national carriers? but since the concept of nationality in shipping is infinitely transferrable, it"s hard to see this gaining much support or having much effect.
The prospect of nations defaulting on their sovereign debt has added further ripples of uncertainty. Not perhaps in the case of small European countries, but the shopping spree of the supposedly ?cash-rich? Middle East has already come to a juddering halt. There seem to be few fairy godmothers remaining.
India"s acquisitive nature might be tempered by the mess at its own ports and growing pains of its shipping lines. Further east still, China"s economic policy is so opaque as to be visible only from the inside. Even so, it has a clearly demarcated China-first policy which discourages investment without national benefit and speculation without fiscal restraint or some responsibility built in.
China has the potential to continue to be the global economic bellwether for oil, dry bulk, container shipping, offshore energy, shipbuilding and steelmaking but its status outside the OECD and its partial take on free trade makes it an effective if unpredictable counterpart to US economic hegemony.
In the OECD, shifts in economic and social policy suggest that crude oil demand here has peaked ? just a decade or so ahead of the physical peak in recoverable production. The increased share of energy resources from renewables and alternatives gives tanker owners a big window of adaption if sensible conservation is adopted and green energy begins to come on stream.
In the short term, the opposite effect is likely. Just like those who refuse to listen to arguments for global warming because they think the winters are colder now than when they were young, peak oilists might have to witness some inverted price effects before they are eventually proved right.
Postponement of oilfield exploration and development of marginal projects in the face of falling demand and prices below the OPEC floor, mean that should there be a quicker than expected economic recovery, prices could quickly pass USD 100 once again, prodded upwards by speculation. But as the last boom showed, excessively high and unstable oil prices are not the tanker owners" friend.
Similar changes to consumer demand might suggest that Europe and US will begin to stop being the first destination for Chinese and other Asian manufactures. Either the cost of production plus environmental taxes becomes high enough for production to re-start locally or demand itself dwindles as a "green society" emerges.
The destruction of the Asian advantage in manufacturing through erosion of its competitive cost edge has been debated before. Some economists believe the downturn will disconnect Asia from global consumer markets and a return to high transport costs will reduce the region"s ability to compete on goods manufactured with a labour cost advantage.
Dry bulk shipping demand to China and the Middle East should provide enduring support in 2010 and beyond, even though rates are unlikely to return to anywhere near pre-bust highs. The assertion that China is building ?10 Manhattans? might prove a mirage too, but there is still plenty of consumer demand to satisfy in a country at such a critical stage of economic development.
In some ways though, the above suggests the risks are greater than ever. The risk of volatility in prices and profits makes planning difficult and the near-term demand picture very hard to determine. Of course, every business likes to prove itself in a recession and many will be founded with this in mind, but shipping is in some ways hitting middle age, only to find itself playing in a game with new rules.
That probably means that shipping in western countries will follow shipbuilding into the niches, providing unique skills and experience but doing less and less of the primary business except on paper in coming decades.
What is equally important ? as the IMO Secretary General tirelessly reminds delegates to its meetings ? is that these challenges are not used an excuse for corner cutting next year and beyond. Mistakes are just as likely in a boom as a bust but a culture of fear and cost saving risks a natural disaster that could set back the industry cause by a decade.
However, we could end on a more optimistic prediction. Let"s assume a neutral to positive outcome for shipping from COP 15 and a mid-point in the numerous predictions for economic recovery. A steady, slow climb back to prosperity is accompanied by the emergence of a green economy which factors environmental costs into all stages of the supply chain and encourages fair trade and wealth distribution.
In shipping, owners and yards work out a radical deferment of the orderbook, netting their exposures and securitising their positions. Prompted by future changes and immediate pressures, the shipping industry makes huge strides in energy efficiency and is able to absorb a large amount of cost increases and pass on others to producers and consumers. All of a sudden, the next decade doesn"t sound so bad after all.