Something is happening here…
…but you don’t know what it is.
Shipping feels a bit like that at the moment. Uncertainty is about the only thing that can be relied upon. To get the ball rolling, here’s a piece I wrote earlier this month for my regular BIMCO column.
What will the future of shipping look like?
It’s a bit of a loaded question, but I think the answer is, from the outside at least, pretty much the same as it does now. This side of the looking glass, there is a lot of focus on this question right now, a result of the mire into which the industry has dug itself. It’s prompting plenty of naval gazing, not to mention a glut of articles and brochures as we ponder the future from the perspective of the bottom of the well.
Before going further it’s probably worth asking another question – what is actually changing, for the better or otherwise? Poor supply/demand balance isn’t normally considered to be change, rather a well-known cyclical effect. This time however, it could be structural.
Pre-2008 many people in the industry subscribed to the argument that shipping was taking part in a ‘super-cycle’ of economic growth which meant that the old economic models were obsolete and only opportunity lay ahead of us.
The resounding crash that followed was a potent reminder that predicting the end of history is a dangerous business. Since then the industry has had plenty of time to rue the day when it became possible to order as many ships as one could afford, even if the yard that would construct them had not yet itself been built.
That is the fundamental change and one that the industry has still not got to grips with. It threatens to overshadow any future recovery in ship demand and undermine the process of maintaining shipyard capacity as a healthy long term business rather than a means of speculation.
It begs a further question – can the shipping industry ever show commercial restraint? To all intents and purposes the answer must be no – and no change there. Coming too late to market and being unable to take advantage of an opportunity is different from saying ‘you know, I think I’ll leave the LNG market to someone else – those guys need a clear run at it, plus those ships are pricy…’
Shipping thrives on the vision to spot opportunities and inefficiency in the market. Shipping people see something they think everyone else has missed, they keep it to themselves, they get themselves into a position to benefit. There is plenty of benevolence going on at many companies but it does not happen in the commercial department or on the chartering desk. Shipping would have to develop an alternative to the zero-sum game for that to change.
This also asks whether the banks that are exiting the market – some very quietly, some very quickly, will ever come back in. It has been a feature of this financial crisis and earnings slump that banks have not wanted ships on their books at a time when overcapacity here has coincided with a wider economic downturn.
This suggests that a change has taken place – that banks are prepared to let shipping companies fail rather than be the backer of last resort – and that owners will have to seek consolidation rather than depend on a relationship where the faces and names have changed.
Neither does the promised ‘third way’ of new money looking to take shipping exposure, from private equity and hedge funds, look like riding to the rescue any time soon. More deals fail than succeed and if owners want a new best friend they are likely to find one at Chinese banks rather than in a boutique finance house.
Could the industry self-regulate? I think it has already started. Despite having a dedicated regulator, the upper half of the industry at least has begun to recognise that the lowest common denominator means the same thing if one is talking about regulation or about commercial incentive.
The moves to get ahead of new environmental regulation, the massive increase in vetting, self-reporting, transparency, data-sharing, and white-listing are concrete examples of how the industry can work together effectively on themes of common interest.
This in turn has driven an increase in safety and quality culture far beyond what might have seemed possible in the 1980s or even the 1990s. There are other drivers of course, but there is no doubt that the industry recognises that quality and safety are investments that payback. If they don’t, then one’s customers might be too risky to trade with. What needs to keep happening – and here is a looked-for change – is that port, flag, and coastal states enforce quality and safety rules and regulations consistently and firmly.
Unless there is a premium on good quality and a penalty on poor performance that hits where it hurts, there will always be means and opportunity to work around the issues. I would go further and say that some obviously bogus flag states and ‘recognised organisations’ should be named shamed and shut down but I’ll pause before I raise any ire.
The other driver is of course regulation and here I think we can say that things have changed and will keep changing. The need is for constant vigilance though because post-2008 there appears to be a desire to regulate everything in public life or business, whether it moves or not.
This is particularly true in Europe where some important and far-sighted work is matched with some that feels more like the tail wagging the dog. Around the world, the patchwork approach seems to be taking hold. For pollution controls in particular, there seem to be international, national, regional and even locality-based rules coming in, which don’t just raise the bar, but double the number of bars to clear.
One final thought. Shipping they will tell you, is a people business and as such it’s been home to many a swashbuckler and larger than life personality, taking daring risks for huge rewards. The crash unseated some of these and badly shook the nerve and profile of others and I wonder if it also created a situation whereby the industry of the 21st century and beyond will be dominated instead by more conservative corporate values, expressed with less passion and with more temperance.
In some ways it would be a shame. More than just the media relies on the apposite sound bite or conjunction of foot and mouth for some entertainment. But perhaps the passing of the last tycoons, swept off their feet by forces apparently beyond their control, is the price to pay for living with constant change.