Global Trends in Shipping and Impact on Port CitiesMND Auditorium, Singapore 19 February 2014

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Contents

2 Transcript and Video Links

2 Post Event Summary Report

6 Highlights from Q&As 8 About the Speakers

9 About the CLC Lecture Series

Co-organized with:

MPA Academy

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The Centre for Liveable Cities, in conjunction with the Maritime and Port Authority of Singapore (MPA) and the MPA Academy, invited Dr Martin Stopford to discuss mega-trends affecting the global shipping industry today. Dr Stopford is President of Clarkson Research and a Lifetime Award recipient of Lloyd’s List Global Awards, a foremost shipping industry honour. Mr Andrew Tan, Chief Executive of the MPA, moderated the Q&A session.

Global Trends in Shipping and Impact on Port CitiesMND Auditorium, Singapore 19 February 2014

Click here to read the transcripts

Click here to view the full lecture video

Click the links in this document to view video excerpts of the lecture.

From left: Mr Martin Stopford, Mr Andrew Tan (moderator)

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In examining how the shipping industry could improve, Dr Stopford outlined four mega-trends that will determine its future: globalisation; challenges facing fossil fuels; mechanisation of cargo handling; and information management.

On shipping’s globalisation, Dr Stopford described the historical movement of the “Westline”, the imaginary line tracking the movement of commercial cargo. From the North Indian Ocean (Mesopotamia and Babylon) around 5,000 years ago to Rome, Athens, Corinth, then Venice and Genoa, the industry had established a maritime code very early on. After WWII, Bretton Woods sought a new “dynamic world economy”, essentially a step away from what was previously controlled by European powers. Instruments and organs like the World Bank, the International Monetary Fund and the General Agreement on Tariffs and Trade (GATT) were formed. Oil came from the Middle East and a new generation of specialised ships grew. Between 1950 and 2005, sea trade grew from 500 million to 7 billion tonnes.

Today, there are three main centres to shipping: “old” Europe to North America for the North Atlantic trading bloc, and from there to the Asian trading bloc. The balance of global trade is also more proportionate today between the Atlantic and the Pacific, with the latter on the rise.

Since WWII, fossil fuels have been cheap and plentiful. Dr Stopford explained how the use of fossil fuels (apart from mechanisation, discussed later) have brought major innovations to shipping, allowing cargo to travel longer distances for less. The evidence can be seen from the pricing of freight rates, which have fallen over the decades; between 1945 and 1986, even after adjustments for inflation, real freight rates have declined significantly.

Dr Stopford noted that in the last 20 years, however, unit price of freight has been on the rise, increasing by almost 66% due to oil prices and diminishing returns from bigger ships. Not only have oil prices increased, their estimates are also becoming unreliable; more often than not, forecasts

Globalisation: Greater balance of trade between East and West

Four Mega-trends Affecting Shipping Today

Fossil fuels: Freight costs and carbon footprints

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for energy pricing have been off track, affecting oil hedging. Apart from growing oil prices, carbon emission is also a major challenge.

Considering the future demand for cargo trade — estimated at around 20–25 billion tonnes by 2050 (almost a 75% increase) — several issues come to the fore, such as resources, the need to reduce shipping’s carbon footprint by 15%, pollution issues as well as the development of “clean” ships.

Turning to mechanisation, Dr Stopford explained that cargo owners did not in fact drive the revolution; mechanisation only came when containerisation came about at around 1956 with the introduction of international container services. This became “big business in the 1990s,” he said.

Today, however, mechanisation has become the “low-hanging fruit” that has been fully exploited. Dr Stopford showed a chart on diminishing cost-savings, where larger ships are in fact not saving much more money. He concludes that mechanisation is therefore “running

out of steam and the next area of unexploited technology is information.”

While analysts in the 1950s saw the future of shipping in “big ships, hubs and East-West trade”, Dr Stopford suggests the next major development will be the advent of “shipping super cities”. For him, this next phase will focus on “smart ships, smart terminals and smart cities”.

From cables in the 1880s to cloud computing today, information management has much value to be unlocked for shipping. Some examples include on-board sensors and satellite information to big data and 4G, etc. Clarkson Research, for one, puts offices in the cloud, which has helped change its vision to a global one.

In this regard, he described a number of technologies in which companies are investing:• Creatingtoolstofine-tunetechnology,waste-heatreduction,e.g.,Maersk has an extensive programme in this area• Improvingon-boardtechnicalskillsandprocedures• Adoptingcleanerliquefiednaturalgas(LNG)• Reviewinglogisticalefficienciesandbenchmarks

Mechanisation: Fully exploited “low-hanging fruit”

Information management: Smart ships, terminals and cities

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• Establishingspeedoptimisationprogrammes(andthereforeenergyoptimisation) to vary the speed of ships• Advancingfuel-savingtechnologywherenuclearandfuelcellsmaysoon become viable

Henotedthatsomeoftheseinnovationsaredifficulttoquantifyintermsofsavings,whileothersrequireglobalco-operationthatwillnodoubtbedifficult. (Given that shipping is essentially an “offshore business” — 72% of merchant fleet are registered offshore, up from 42% some 20 years ago — there may also be little national interest in aggressively pursuing such innovations.)

Moreover,makingradicalnewtechnologyworkoftenrequires“creativedestruction” — “you have to take it apart to make it work,” he explained. He cited the example of using a broad computer system in the UK’s national health system, ”if you can’t get the doctors to put the data into the system, then it isn’t going to work.” This is a much bigger challenge for the shipping industry “than building 300,000-tonne tankers.” Nonetheless, advancements in information management can certainly unite, create and add value to the industry, he said.

Concluding, Dr Stopford regarded the above trends from the perspective of port cities. First, port cities need to recognise that mechanisation is running out of steam and that information revolution is the next step forward. Second, shipping being an ultimately offshore business, “super shipping cities” of the future are needed for offshore shipping registrations. In this regard, while geographical position is a keen factor, island states tend to have an advantage. Finally, smart ships, operations and technicians would help port cities save time, effort, energy and resources.

With the prospect of sea cargo volumes doubling in the 30 years, the goals of the shipping industry should be efficient transport, cheaper freight, smaller carbon footprint as well as zero air and seawater pollution.

Implication of Mega-trends for Port Cities

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Mr Andrew Tan, Chief Executive of the MPA, posed a question about the future roles of port cities like Rotterdam, Singapore and Shanghai. Will the rise of port cities resemble those of Europe and the Atlantic, and would ports shape shipping, or vice versa? What are the challenges and advantages facing a port like Singapore,

and how large a port do we need to be a “super shipping city”?

Dr Stopford said that a port’s responsibility is to ensure national cargo requirement, while service ports provide the services and amenities needed for ship and cargo owners. Shanghai and Rotterdam are essentially port cities that service other cargo ports, whereas “shipping centres” may not be ports at all, e.g., London, which provides other services to the shipping industry.

Taking a leaf from the “hub” concept in the container business, it shows the shipping industry as being determined by ports. However, if for instance China decides to build many ports, that in turn would determine the industry due to the sheer magnitude.

For Singapore, Dr Stopford advised that its trade, history and independence are in its favour; also, smaller states do better because they do not have domestic cargo commitments. He said there would certainly be a hub in each of the three time zones, and perhaps Singapore could be one of them. Ultimately, realism pays off, and one needs to convince oneself of what the customer wants and what can be realistically delivered. A lot of trade can be made without a big port. Perhaps Singapore could initiate a regional network of service ports in Southeast Asia, he suggested.

The term “port city” has sort of gone out of fashion and nobody really uses it on the contemporary sense any longer. So, under what circumstances do you think one might be comfortable labelling a city “a port city”?

Dr Stopford said that because ports are essentially “a physical business”, there is the need to find ways to “not burden the city” with its porting facilities. Does Singapore still see itself as a city that has a strong port? Will it be a driver of growth for the city-state? Or is this merely a means to recapturing the maritime history of the past? He also distinguished shipping and port communities as “discreet communities”. The historical lesson is that shipping

Highlights from Q&As

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is a “delicate flower”, said Dr Stopford, which functions best in regimes that appreciate and nurture it. The issue could be ensuring how committed the government is to the shipping industry. He added that ports have higher returns but shipping services also have good business prospects.

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About the Speakers

Dr Martin StopfordPresident, Clarkson Research Services Limited

Prior to his current presidency post, Dr Stopford was the Managing Director of Clarkson Research in 1990 then on the Board of Clarksons PLC in 2004. Before joining Clarkson, Dr Stopford helmed Lloyds Maritime Information Service as Chief Executive, directed Business Development at British Shipbuilders and was a Global Shipping Economist with Chase Manhattan. Dr. Stopford is also the Lifetime Achievement Award Winner of the Lloyd’s List Global Awards 2010.

Mr Andrew TanChief Executive, Maritime and Port Authority of Singapore (MPA)

Mr Tan joined the Singapore Administrative Service in 1991 and has served in several positions, including Principal Private Secretary to Minister Mentor Lee Kuan Yew from 2002-2004; Deputy Secretary (Foreign Affairs), 2004-2009, Chief Executive Officer, National Environment Agency from 2009-2013 and Founding Director, Centre for Liveable Cities from 2008 to 2010. Mr Tan is concurrently a Fellow with the Civil Service College. He is also a Board member of the Agency for Science, Technology & Research (A*STAR) Singapore.

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About the CLC Lecture Series The Centre for Liveable Cities was set up in 2008 by the Ministry of National Develop-ment and the Ministry of the Environment and Water Resources, based on a strategic blueprint developed by Singapore’s Inter-Ministerial Committee on Sustainable Devel-opment. Guided by its mission to distil, create and share knowledge on liveable and sustainable cities, the Centre’s work spans three main areas - Research, Capability Development, and Promotion. The CLC Lecture Series is a platform for urban experts to share their knowledge with other practitioners.

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