A series of giant (and highly theoretical) leaps
Catching up on my recent pile of back-reading, the Economist’s October 26th issue stands out. With features spanning Brazil’s pre-salt oilfield auction, the emergence of a new generation of low-tax, high-return ‘pass-through’ US corporations and an article on interstellar trade, it was a cracking issue.
The fact that it illustrated the piece on pass-through structures with a cartoon of ships on legs was about as good as we can expect for shipping coverage – though the Economist has been known to cover shipping when the most persuasive PR minds are brought to bear.
What caught my eye was at the back, just ahead of a piece on how mothers’ milk has been shown to protect against HIV infection. ‘Starship Enterprises’ is an excellent and admirably short examination of the theory of interstellar trade. Considering the best known theory, described by its author Paul Krugman in 1978 as a ‘serious analysis of a ridiculous subject’ (thereby inverting the norm in economics) it makes for an engagingly batty read.
You don’t need to be a science fiction fan to realise that there are problems in such ideas, perhaps the biggest being relativity theory which would make time pass at different speeds on ship to those on two planets. That makes the cargo hard to value in transit and makes arbitrage opportunities hard to calculate too.
But that first bit sounds like current crude oil trade where cargoes can be traded many times between loading and discharge. But Krugman goes on to suggest that interest costs on goods in transit must be tied to planet-bound clocks rather than enabling the ‘net present value’ of the cargo onboard ship to be traded too.
That still might mean there could be an FFA market for the average commodity carrier hauling iron ore between distant mining centres and home, assuming the vessel specs, a robust index, inter-planetary clearing and settlement exist too. One presumes that the FFA forward curve will consist entirely of Cal contracts rather than quarters but perhaps that’s getting needlessly fetishistic.
Nerds will remember that the doomed ship in the first Alien film, Nostromo (itself a nod to Joseph Conrad), was an iron ore carrier, but there was no detail on whether she was approved to discharge in Chinese mainland spaceports.
Krugman also proposed that though prices will vary between origin and destination, interest rates would to be at parity because investors on either world could buy or sell to achieve a level playing field.
If that created ship finance terms that were flat between worlds, then presumably either could be a (space)shipbuilding nation because the cost of capital would also be flat, unless one planet was blessed with cheap labour an unquenchable desire to succeed and the other piles of cash and lots of demand.
But perhaps the strongest proof that the more things change, they more they stay the same is provided by fellow space wonk, Tyler Cowan of Virginia’s George Mason University. Cowan suggests that relativity also means that while the voyage the ship’s crew experiences might take a handful of years, hundreds would pass on the respective planets.
This suggests Just in Time Delivery needs to start at some point in the past in order to make the supply available at the right time (or we just get a lot more relaxed about waiting for our stuff). It also suggests a massive newbuilding boom in galaxy-class bulk carriers, oil tankers and containerships to supply a market where time between planets is elongated while passing quickly onboard the ships. It’s kind of slow steaming but in reverse. There is no mention of energy saving devices and some of these ships will presumably be remote-controlled, but don’t tell the Nautical Institute.
And before you get on the phone to Elon Musk and enquire how long it might take to build a Mars-capable cargoship, Cowan says some earth-bound problems will remain. In this universe of interstellar trade, some savers might pay to be taken forward in time to claim accrued interest. Speculation in shipping and commodity markets could therefore increase without strong regulation.
But says Cowan, the biggest single determinant of interest rates would be the price of starship fuel, suggesting that anyone who trades bunker fuel futures is probably on to a good thing – at least until Wartsila or MAN B&W comes out with a prime mover powered by di-lithium crystals.