Archives for posts with tag: OECD

As Norway celebrates 50 years of Nor-Shipping, it’s a good time to think about where shipping might be in another 50 years. In 1965 several shipping innovations were becoming reality. The first VLCC was near completion, Malcolm MacLean was finalising arrangements for the first transatlantic container service, Japan was emerging as the leading shipbuilding nation and sea trade was 1.7 billion tonnes.

Amazing Performance

When we look at the growth of sea trade since 1965, two things are apparent. The first is the speed of growth, as sea trade grew faster than the world economy. Between 1950 and 2015 world GDP grew by 3.7% per annum, but sea trade grew by 4.7%. Trade is now almost 11 billion tonnes a year, which works out at around 1.5 tonnes of imports for every man, woman and child in the world.

The second point is the bumpy trajectory (see graph). There was a spell in the 1970s and 1980s when trade did not increase significantly for a decade, thanks to a deep recession in the world economy and a sharp decline in the volume of oil traded by sea. This is a timely reminder that the shipping industry operates in a volatile environment.

The Next 50 Years

Looking ahead, the shipping industry faces a daunting task. One problem is judging how fast trade will grow. If global sea trade just increases in line with growth in population, which is heading for 10 billion in 2065, imports would reach 15 billion tonnes in that year (Scenario 1). But the imports per capita trend trebled from 0.5 tonnes per person in 1965 to an estimated 1.5 tonnes in 2015. If the upward trend continues, imports might reach 2.2 tonnes per capita by 2065 and trade 22 billion tonnes (Scenario 2). But today although the OECD countries import around 4 tonnes per capita, non-OECD imports are around 1t per capita. If they were to reach OECD levels, global sea trade would hit a total of 37 billion tonnes in 2065 (Scenario 3). Bewildering Forecast Range

So in 50 years’ time trade could be anything between 15 and 37 billion tonnes. And there are other scenarios, for example the phasing out of fossil fuels which could radically alter even this wide range. In terms of investment, on a very rough calculation, this means the industry could be spending between $1.5 and $4.5 trillion on new ships over the 50 years at today’s prices. How will shipping handle this? Since 1965 the focus has been on bigger ships, tight overheads, and an aggressive market offering little reward for innovative investment. But as the non-OECD driven world develops, with tougher targets for fuel and emissions, changes will be needed, and maybe a rethink.

Maritime Magic Carpet

So, if shipping is to play as big a part in the global economy in the next 50 years as it did in the last, it needs a new injection of maritime magic. The digital revolution, now global, offers shipping companies a unique opportunity to integrate the management of their high cost assets, improving productivity and offering new ways to manage them that tighten up the whole transport chain. Who knows, maybe that’s just the magic that’s needed. Have a nice day.

SIW1174

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SIW1077“Field of Dreams” is a film about the crazy things sane people do. Kevin Costner plays a farmer who hears a voice telling him to build a baseball field on his farm. “If you build it, they will come”, it says. So he stops farming and builds the field. Initially it’s the bailiffs who come, but then mysteriously the field fills with old-time baseball heroes, so all is well. It’s an inspiring, if fanciful, movie

Field of Faith

There is a parallel between Costner’s single-minded (or mindless?) commitment to his ludicrous dream, and the conviction shipping investors must have. Logic says the chance of a new Capesize making serious money in the near future is about the same as Babe Ruth sauntering out of Kevin’s cornfield. But the whisper “if you build them they will come” is not always ludicrous. A previous Analysis article argued that containership investment makes its own market because, once the ships are there, the cheap transport ‘pump primes’ new trades. So boxships are candidates for shipping’s “Field of Dreams”, and maybe products tankers are too.

Make Ships, Make Money

Oil products are different from most bulks because they are semi manufactures. Refineries churn out vast quantities of many different products, and matching refinery runs to global demand is a challenge in which shipping in-vestors now play a big part, as the trade data shows.

For many years products trade grew slowly. Between 1964 and 1973 it rose by 2.7m bpd, but in the next decade to 1983, there was no growth. By 1993 it had edged up another 1.8 m bpd, but generally owning products tankers was a dull business. Then every-thing changed. Babe Ruth came sauntering out of the cornfield and since then trade has doubled.

New Player, New Game?

Change on this scale demands an explanation, and there are several. One is the growing importance of the non-OECD countries. Thirty years ago the OECD economies, with their 7 oil majors, dominated trade. But today the non-OECD countries dominate and their diversity creates more product imbalances. Another development is the entry of oil traders into the shipowning and chartering business. In the 1990s traders discovered that if they had ships as well as cargo, they could earn a ‘double dip’ margin on the trade. Trading cargo because you’ve got the ship turned conventional logic on its head and expanded the framework of products trade.

Home Run or Just Run?

So there you have it. The trade surge has made products the doyen of the languishing tanker business, as proved by the 290 tankers 10-60,000 dwt on order. It’s an interesting pitch, but the challenge of understanding the subtle movement of diverse oil product cargoes is tough for traders and nearly impossible for analysts. Like Kevin Costner, it’s just a matter of following the voice and hoping that when you build the ships, the new trades will come. Sleep well and have a nice dream.