dr martin stopford non- executive president, clarkson...

Dr Martin StopfordNon- executive President,

Clarkson Research

Martin Stopford, May 2019

Coming to terms with the next era for shipping and shipbuilding

Dr Martin Stopford, President Clarkson Research


ISSUE 1: The shipping market- still strugglingISSUE 2: Market fundamentals - looking betterISSUE 3: Strategies for reducing carbon emissions:-A. Cargo – lower growthB. Ships - slower speed etc C. Shipbuilding – lower carbon power & systemsD. Companies – future transport factories

The next era for shipping and shipbuilding – Martin Stopford

SEVEN ISSUES TO COVER

THE ISSUES


Part 1: The shipping market – still struggling

Freight rates and prices remain “stuck in a rut”,

and the market is still struggling


The Shipping Cycle – 12 month average to $11,239/day in April

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Clar

ksea

Inde

x $0

00/d

ay

The Clarksea index shows the average earnings of tankers, bulkers, containerships & gas

Clarksea Index 12 month

average $11, 239/day, 25% below 29 year

trend

29 year average $15,230/day

2016

2013

2002

1999

1992

12 month moving

average in arrears


THE MARKET IS STUCK IN A RUT

-100% -50% 0% 50% 100%

VLCC 1990sSuezmaxAframax

Cl Prod

CapesizePanamax

Handymax

Chemical TankerOffshore

GasContainer

Tankers -21% below trend

Bulkers 15% above trend!

Offshore -40%

Containers 22%Gas -54%

Cycle status in 12 markets: last 12 months as % seven year trend • Chart shows average

earnings in last 12 months as a % of average earnings in last 7 years (April 2012 to April 2019)

• Bulk carriers are above the 7 year trend (but only just)

• Tankers below trend

• Gas market now well below trend

Data to 29 April 2019

Chemical -13%

Part 2: Market fundamentals looking better

The world economy is caught up in long

running developments in both supply and

demand


World seaborne trade 1963-2019 – recently slow but steady

y = 1712.4e0.0346x

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19631965196719691971197319751977197919811983198519871989199119931995199719992001200320052007200920112013201520172019

Billi

on to

nnes

of s

eabo

rne

impo

rts Chemicals

Gas

Other Dry

Containers

Minor bulks

Grain

Coal

Iron Ore

Oil Products

Crude Oil

World Trade

Expon.(World Trade)

1975

Seaborne cargo consists of many commodities

1983

1998

2909

Growth trend 1963-2019 was 3.4%


World sea trade 1963-2019 – about 2.8% in 2019

11.9%8.7% 7.9%

5.1%9.7%

10.0%8.5%

5.9%7.2%

13.0%4.1%

-6.2%8.7%

2.6% 2.0%7.2%

-2.5% -4.0%-7.3%

-3.6%11.6%

1.0%1.3%

4.7%5.9%5.9% 5.0%

2.0%2.8%

3.6%1.7%

5.7% 4.3%5.6%

-0.9%6.0%

7.4%0.6%

3.0%5.6%

6.8%4.8%4.5%4.2%

2.5%-4.1%

9.4%4.3%4.2% 3.5%

3.4% 2.0%2.4%

4.1% 2.7%2.8%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019

Sea

trad

e %

gro

wth

per

ann

um

Axis Title


Growth positive

(about 2-3% pa) but slow

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 052.852.6

9 9 8 8 8 9 1012

141617

1922

2527

323536 31 24

15 1214

17 17 1518 17 15 10

1213

1517

21 21 2023

26 26 2528

32 3133

3640

4753

5768

7898

103 9671 64

68 66 6657

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1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018

Mill

ion

GRT

deliv

erie

sShipbuilding production at a more sustainable level

15Peak 1036 m GT

1

2011Peak 12

103.2 M Gt

2


Half peak output

-4.0%

-2.0%

0.0%

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8.0%

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19631965196719691971197319751977197919811983198519871989199119931995199719992001200320052007200920112013201520172019

% g

row

th o

f wor

ld c

argo

flee

t (th

e re

d lin

e)

Wor

ld c

argo

flee

t m d

wt (

blue

bar

s)

World cargo fleet (dwt) Fleet forecast m dwt % growth

Period of negative growth 1982-1987

when the fleet declined due to heavy scrapping and low ordering

World fleet growth - about 2.6% in 2019 & 1.8% in 2020


Shipping market balance – 25% surplus (but tied up slow steaming!)

-10%-5%0%5%10%15%20%25%30%35%40%45%50%55%60%65%

0.0

0.5

1.0

1.5

2.019

6319

6519

6719

6919

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7519

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8119

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21

% su

rplu

s cap

acity

at n

orm

al sp

eed

Billi

on d

wt s

uppl

y/de

man

dscenarioBars show surplus

(+) & shortage (-) capacity as % of the

fleetDark red line shows fleet capacity

in billion dwt (left axis)

Light blue line shows demand in billion dwt (right axis)

shortage

surplus

surplus

shortage


Part 3: Strategies for reducing carbon emissions

The ship’s emissions have become the

industry’s most pressing challenge


16-May-19 Climate change: four responses to IMO's maritime challenge 14

IMO’s Vision for elimination Greenhouse Gases (GHGs)– April 2018

“IMO’s vision is to reduce GHG emissions from international shipping. Emissions should peak as soon as possible and fall by at least 50% by 2050 compared to 2008. At the same time, the industry should pursue efforts towards phasing out GHG emissions entirely".

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Billio

n to

nnes

of t

rade

year 1 AD to 2017 AD

World Sea Trade in 1840 AD – before fossil fuels In 1840, when shipping relied on the wind for power, Sea Trade was about 20 mill tonnes


World Sea Trade 1 AD to 2017 AD

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n to

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year 1 AD to 2017 AD

TODAY TRADE IS 600 TIMES BIGGER THAN IN 1840


Fossil fuel engines made this possible … this is the Emma Maersk’s Engine Thanks to fossil fuel, this engine

generates 109,000 HP (82 MW) It does the work of about 3

million people (working 8 hour shifts) If people powered the Emma

Maersk they would need a town the size of Athens to live in They would eat about 9 billion

calories a day (3,000 tonnes of grain)! Every tonne of bunkers

produces 3.3 tonnes of carbon Where else can we get so much

concentrated energy without the carbon?


How could we realize the IMO’s vision of a 50% cut by 2050?


Straetgy 1: Less cargo: Transport less cargo by changing trading patterns, transport policies, pricing and better information systems.Strategy 2: Slow down: Cut carbon emissions/ship km by slowing down to 10 knots; using bigger ships; better designs; retrofitting for safe operation at slow speeds etc.Strategy 3: Zerp carbon power: develop new propulsion systems. Electric fuel cells look the best bet for volume and performanceStrategy 4: Organization: Make sstrategies 1-3 possible by a complete re-think of the industry’s organization and personnel. -

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Mill

ion

tonn

es C

O2e

em

issio

ns

2050 IMO Target

“Do nothing” Scenario based on 3.2% cargo

growth, 14 knots, produces 3,000 Mt of

emissions in 2050

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1,000

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3,500

1996199820002002200420062008201020122014201620182020202220242026202820302032203420362038204020422044204620482050

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illio

n to

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CO

2


NO

CARBON

SAVING

“Do nothing” Scenario based on 3.2% cargo

growth, 14 knots, produces 3,000 Mt of

emissions in 2050

World cargo fleet CO2 Emissions – 4 steps to a 50% reduction

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3,500

1996199820002002200420062008201020122014201620182020202220242026202820302032203420362038204020422044204620482050

Flee

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issio

ns m

illio

n to

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CO

2


30% CARBO

N SAVIN

GWorld cargo fleet CO2 Emissions – 4 steps to a 50% reduction

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1,000

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3,500

1996199820002002200420062008201020122014201620182020202220242026202820302032203420362038204020422044204620482050

Flee

t em

issio

ns m

illio

n to

nnes

CO

2

Step 3: 10 knots, 2.2% pa cargo


CARBON

SAVING



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3,500

1996199820002002200420062008201020122014201620182020202220242026202820302032203420362038204020422044204620482050

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Step 3: 10 knots, 2.2% pa cargo


50% CARBO

N SAVIN

G

3A: CARGO strategy –reduce growth & improve logistics with better information

Develop better information about cargo

“carbon footprint” and more develop B2B integrated through transport services


Cargo 1: Seaborne trade 3.4% growth trend – cut growth to 2%?

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196319661969197219751978198119841987199019931996199920022005200820112014201720202023202620292032203520382041204420472050

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eabo

rne

impo

rts

Chemicals

Gas

Other Dry

Containers

Minor bulks

Grain

Coal

Iron Ore

Oil Products

Crude Oil

2050 trend

Series13


Sea Trade grew at 3.3% beteen 1965

and 2018

If 3.3% trend continues, shipping

will transport over 30 billion tonnes in 2050.

Cargo shippers must be involved.

Tax on bunkers best method

2.2% growth cuts trade by 10 billion tonnes & carbon

by 1 billion tonnes

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ASIA B2BMARITIME BUSINESS

CLUSTER

ATLANTIC B2BMARITIME BUSINESS

CLUSTER

Develop regional short sea trade, supported by B2B commerce


Cargo companies should develop trading systems which are less reliant on long distance transport using the low carbon transport option (for example short sea shipping in preference to air, road or rail)

3B: The SHIP – slow speed and fine tune and apply available technology

Information and monitoring are key

(MRV)


5,098

4,062

4,171

3,337

4,201

4,796

5,286

4,792

3,381

4,670

6,922

5,872

6,684

7,643

7,763

11,699

14,652

17,253

23,595

17,691

22,411

31,000

31,950 29,700 26,650

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18,300

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$000

PER

DAY

Bun

ker c

ost $

TC

rate

Aframax 1 year timecharter rate in

$/day

Based on Aframax tanker, 1 year TC rate and bunker cost at 50 TPD, 14.5 KTS, Rotterdam 380cst

In 2004 the daily cost of an Aframax tanker was 3X cost of

bunkers

NOW BUNKERS COST MORE THAN SHIP SO SHIPS ARE SLOW STEAMING

1: For the first time the fuel costs more than the ship

Bunker cost in $/day


Ship 2: Surplus capacity and slow steaming raise “market-balance” issues

020406080

100120140160180200220240260280300320340360380400420440460480500

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M dw

t

Shadow surplus Bulkers laid up Tankers laid upShows “Shadow” surplus tonnage and the proportion laid up

“Shadow” surplus is soaked up by slow

steaming today (roughly 25% fleet)

“Shadow” Surplus – tonnage in excess of the dwt of ships needed to carry trade at full

speed

Is this “real” surplus or a new

market variable?


Permanent ‘shadow surplus’?

020406080

100120140160180200220240260280300320340360380400420440460480500

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t

Shadow surplus Bulkers laid up Tankers laid upShows “Shadow” surplus tonnage and the proportion laid up

“Shadow” surplus is soaked up by slow

steaming today (roughly 25% fleet)

Is this “real” surplus or a new

market variable?


If ships slow down even more how will

the market manage a permanent “shadow

surplus”?

PART 3C: SHIPBUILDING zero carbon propulsion

A radical review in design methods is

needed to integrate on board systems,

achieving more efficient transport, lower

emissions and greater safety


50 Years change in car technology – “Modern BMW is a computer on wheels” (The Economist 17th Oct 2018)


1967 BMW (source: History of cars.com) 2017 BMW (source: Autocar)

It’s the inside that changed

How will ship design and construction develop in future?

How might shipbuilders develop the next generation of ships?

NavigationNavigation on network with ability to view on shore as well as ship (e.g. Sperry system)

Propulsion plant.• Dual fuel diesel• Diesel electric• Battery & fuel cell• Fusion??

Auxiliary power• Common interfaces• Power management

systems

Auxiliary machineryDigital protocols and

direct systems support from suppliers in integrated system

Ballast & trimIntegrated digital

management systems covering all operating

components

Cargo handlingAutonomous cargo

handling systems driven by cargo management

software sharing key data between ship & shore

IT & comms Ship systems managed

across the fleet by company IT department rolling out upgrades &

providing global support

MaintenanceCondition based

systems managed across fleet, with telematics using

standard protocols



The shipbuilding scenario 2018-2050 – mix of diesel & zero carbon ships

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50.0

100.0

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250.0

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ies

Hydrogen power (fuel cell or internal combustion engine)Ships burning oil, gas etc

1. Slowing down to 10 knots boosts shipbuilding demand by about 30%2. Heavy replacement of the 2008 bubble ships3. New demand for hydrogen/electric ships etc

Shipbuilding deliveries scenario

PART 3D: COMPANIES –new information based organizations

A radical review in design methods is

needed to integrate on board systems,

operating as transport factories


Change 2: Transport chain should be integrated using digital technology

Martin Stopford, May 2019 Source: Martin Stopford 2019

DATA READY SHIPS 1. Navigation

2. Operations3. Comms.

Core systems

1. SHIP TEAMS

ship servers managing data, apps & comms

6. SHIPBUILDERS & EQUIPMENT

SUPPLIERS

5.CUSTOMERS WITH CARGO SYSTEMS

7. PORTS & THROUGH

TRANSPORT

Warehouse(on cloud?)

Company Systems:-1. Process management2. STQ monitoring3. Messaging system4. Intranet & dashboards5. Fleet maintenance6. LPWAN & APIs

3. SYSTEMS. TEAM

S

1. Support systems2. Process data3. Automation4. Build apps5. Manage stats

1. Technical support 2. Maintenance systems3. Regulatory reports4. Fleet performance5. Personnel management

4. TECHNICAL TEAM

S

2. SHORE TEAM

S

Fleet management


Conclusions1. We are facing unprecedented change in the

maritime industry.2. The goals are zero carbon shipping and developing

the amazing logistics digital technology is already providing to businesses on land.

3. Cargo interests, shipowners and shipbuilders must all play a part.

4. Financiers will play a crucial part in enabling change.

5. Some of the architects of the next era in shipping are sitting here in this hall.

6. This is a once in a lifetime challenge – we must make it work.

“The statistical, graphical information contained in this paper are drawn from the Clarkson Research Services Limited ("CRSL") database and other sources. CRSL advises that: (i) some information in CRSL's database is derived from estimates or subjective judgments; and (ii) the information in the databases of other maritime data collection agencies may differ from the information in CRSL's database; and (iii) whilst CRSL has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures and may accordingly contain errors; and (iv) CRSL, its agents, officers and employees do not accept liability for any loss suffered in consequence of reliance on such information or in any other manner; and (v) the provision of such information does not obviate any need to make appropriate further enquiries; (vi) the provision of such information is not an endorsement of any commercial policies and/or any conclusions by CRSL; and (vii) shipping is a variable and cyclical business and anyone who thinks they can forecast it needs their head examining. Where views are expressed they are in the context of this general presentation and should not be used or relied on in any other context without appropriate investigation, validation and the written permission of the author

Disclaimer


dr martin stopford non- executive president, clarkson...

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