The Future of ShippingCRSL Shipbuilding Club

Martin Stopford

President

Clarkson Research

The Future of Shipping - Stopford 27 Sept 2017

Surviving the present whilst managing for the future

• “Creative destruction” refers to product and process innovations, which radically improve current products and processes. It can be messy for companies whose products or processes become obsolete!

• The term was used by J Schumpeter, who considered it ‘the essential fact about capitalism’ (1).

• Evaluating the “degree of destruction” is important. Some technical new products are quickly available and decisively better (e.g. smartphones). Others take time and the process changes are manageable (e.g. electric cars).

• We need to think how this applies to shipping and shipbuilding today

(1) Joseph A. Schumpeter (1942) Capitalism, Socialism and Democracy, Routledge, p82

J. Schumpeter – great 20th century economist

The Future of Shipping - Stopford 27 Sept 2017

How should you think about the future?

Before an executive can think of tackling the future, he must be able to dispose of the challenges of today.

This needs a systematic approach:-1. The present business must be made

effective

2. Its potential must be identified and realized

3. It must be made into a different business for a different future

Peter F Drucker The Executive in Action p 16

Managing change in coming decades

Four things to focus on:-

1. Manage: the “shipping cycles”.

2. Adapt: to a new regional trade structure.

3. Engage: with the emerging global B2B market place.

4. Evolve: smart shipping management systems.

The Future of Shipping - Stopford 27 Sept 2017

Alexander Onassis “We must free ourselves of the hope that the sea will ever rest. We must learn to sail in high winds”.

1. Manage: the shipping cycles better

The Future of Shipping - Stopford 27 Sept 2017

0.00

5.00

10.00

15.00

20.00

25.00

30.00

19

47

19

52

19

57

19

62

19

67

19

72

19

77

19

82

19

87

19

92

19

97

20

02

20

07

20

12

20

17

frei

ght

$/ba

rrel

M. E

ast –

N. A

tlant

ic

Oil transport cost per barrel;

Linear (Oil transport cost per barrel;)

Note: based on annual average spot freight for shipping oil from Middle East to N Atlantic in average vessel size used at transport date. Tankers increased from 17,000 dwt to 280,000. Freights are at market prices and are not deflated.. Maritime Economics 3rd Ed, page 74

The Future of Shipping - Stopford 27 Sept 2017

Wet shipping cycle – the cost of shipping OIL from M East to N Atlantic over 70 years

1958-67

1973-97 2009-202?

1

2

3

4

5 6X

7

8 9

10

y = 0.1125x + 6.7089

0

5

10

15

20

25

30

35

40

19

47

19

50

19

53

19

56

19

59

19

62

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

20

13

20

16

Coa

l $/to

n A

tlant

ic to

Pac

ific

Coal transport $/Mt

Linear (Coal transport $/Mt)

Note: costs based on spot rates for average size at transport date which increased from about 10,000 to 77,000dwt. The route was Hampton Roads to japan until 1987 when trade disappeared, then Roberts Bank to Japan/China. Freights at market prices and are not deflated. Maritime Economics 3rd Ed, page 74

1958-69

1980-2003

The Future of Shipping - Stopford 27 Sept 2017

Dry shipping cycle – the cost of shipping COAL from Atlantic to Pacific over 70 years

2009 -202?

1

23

45

6X

7

8 9

8

Shipbuilding Investment - the two “super cycles”

0%

5%

10%

15%

20%

25%

30%

35%

1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017

New

bu

ildin

g co

ntr

acts

% f

leet

(d

wt)

Source: data compiled by Martin Stopford from several sources

INVESTMENT SUPER-CYCLE 1 1950-1973 During this cycle newbuilding investment gradually built up from 5% of the fleet to a peak of 30% in 1973. Focus on investment in new ship types.

INVESTMENT SUPER-CYCLE 2 1987-2007 During this cycle newbuilding investment gradually built up from 5% of the fleet to a peak of 30% in 1973. Focus on speculative investment.

The Future of Shipping - Stopford 27 Sept 2017

The bulkers & liners struggle with mature technology

5. The bulk & liner revolutions are over

6. Cargo owners have stepped away

7. Designers struggling to improve ships

8. Very big containerships disappointing

2. Adapt: to new global trade structure

The Future of Shipping - Stopford 27 Sept 2017

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1966 1976 1986 1996 2006 2016

OECD Imports Non-OECD Imports

OECDImports

37%

Non-OECDImports

63%

OECDImports

77%

Non-OECD

Imports23%

1. OECD now imports only 37% of cargo

2. China and Asia driving trade

3. Non-OECD 63% and maybe 75% soon

4. Non-OECD has six times the population

Sea trade growing but OECD losing market share

The future – another revolution desperately needed

9. Shipping investors need a new vision

10. World economy needs new services

Seaborne imports by region (% of world trade)

The Future of Shipping - Stopford 27 Sept 2017

3. Engage: with the emerging global B2B market place

1.37

0.90

1.5

1.65

3.55

6.42

0 1 2 3 4 5 6 7 8 9 10 11 12

Sea imports per person a year in 2015

Japan

Europe

N. America

China

ROW

World 2015

Average 3.5 tonnes/capita1 billion OECD import 3.5 billion

tonnes of cargo

Average 1.0 tonne/capita6 billion Non-OECD countries import 6.4

billion tonnes of cargo

World Average 1.4 tonne/capita

guys like these WANT TO go global

The Future of Shipping - Stopford 27 Sept 2017

Submarine CABLE NETWORK now links the world’s towns & cities

B2B trade: will be boosted by Road and Belt Initiative?

Russia

Turkmenistan

Mongolia

Kazakhstan

China

India

Pakistan

Afghanistan

KyrgyzstanTajikistan

Uzbekistan

Nepal

Bangladesh

Bhutan

Sri Lanka

Thailand

Cambodia

Laos

Malaysia

Vietnam

Indonesia

Philippines

Taiwan

Papua New Guinea

Japan

Myanmar

S’pore

Central AsiaKazakhstanKyrgyzstanTajikistanTurkmenistanUzbekistan

Eastern AsiaChinaChina, Hong KongChina, Macao SARN KoreaJapanMongoliaRepublic of KoreaOther non-specified areas

Southern AsiaAfghanistanBangladeshBhutanIndiaIranMaldivesNepalPakistanSri Lanka

S. E. AsiaBruneiCambodiaIndonesiaLao People's Democratic RepublicMalaysiaMyanmarPhilippinesSingaporeThailandTimor-LesteVietnam

Western AsiaArmeniaAzerbaijanBahrainCyprusGeorgiaIraqIsraelJordanKuwaitLebanonOmanQatarSaudi ArabiaState of PalestineSyrian Arab RepublicTurkeyUnited Arab EmiratesYemen

Iran

S Korea

64

The Future of Shipping - Stopford 27 Sept 2017

4. Evolve: smart shipping management systems

The Future of Shipping - Stopford 27 Sept 2017

Maritime information & communications take a BIG step forward

E-mail

Fax

Telex

Telephone

Telegraph

Cable 20 trn+ bps bandwidth

1860 1930s 1960s 1990s

Smart Sh

ipp

ing revo

lutio

n 2

01

6-2

05

6

3. The cloud

2. internet of things (IOT)

4. Smart apps

1. satellite communications

5. Deep Learning

2. Submarine cables

5. Micro services etc

2000s

appserver

the cloud

mobile

database

MainframeComputer

Terminal Terminal

Databases

1860s

Source: The Broker's Role in the Future World of Information and Communications Technology“ Martin Stopford, BIMCO Conference Venice, Sept 1991, Updated Sept 25th 2016

The Future of Shipping - Martin Stopford04/10/2017

The Future of Shipping - Martin Stopford Source: Martin Stopford 2016

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

TRA

NSP

OR

T FA

CTO

RY

Warehouse(on cloud?)

Company Systems:-1. Process management2. STQ monitoring2. Messaging system3. Intranet & dashboards3. Phone system4. LPWAN & APIs

3. SYSTEM

S. TEAM

S

1. Support systems2. Process data3. Automation4. Apps, FPGAs etc5. Manage stats

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

4. TEC

HN

ICA

L TEAM

S

2. M

AN

AG

EMEN

T

LOCATION AN ISSUE

Volume, Velocity, Variety

2: Smart Fleet – use technology to run a sea transport factory

04/10/2017

Conclusions for the coming decades

• Slower growth as trade patterns change

• Changing world economy with Non OECD growth focus

• More focus on general cargo, and specialised logistic related transport, especially in short sea tades

• Shipyards must re-think total ship design and production

• Shipping companies managed as “transport factories”

• “Click and collect” B2B services become focus of global transport

• The future, like the past, is about people working together to improve things

The Future of Shipping - Martin Stopford04/10/2017

This REVOLUTION is needed to respond to FOUR challenges: -

1. Integrated B2B transport systems.

2. A zero Carbon response to climate change.

3. A new human relations and personnel regime.

4. The need to transport two or three times more (and different?) cargo.

The Future of Shipping - Stopford 27 Sept 2017

The long range vision is:

1. Seamless “click & collect” cargo transport between all parts of the world

2. Fast, accessible, reliable, flexible services with seamless tracking information.

3. Personnel teams operating across the fleet as an “integrated transport service”

4. Operational efficiency supported by deep learning systems & robotics

5. Economies of scale: as companies develop competitive advantage from systems

6. Unmanned & semi-manned ships: used in suitable trades

The Future of Shipping - Stopford 27 Sept 2017

The End

The future is not about ships, it’s about improving global transport