Dry bulk owners waiting for China to wake from its slumber could be waiting a very long time if the country continues to follow Europe’s and Japan’s tried and tested development path
“There’s a sort of logic to what’s going on in China” is not a statement that a dry bulk owner haemorrhaging money likely wants to hear right now.
But it’s a statement that Clarkson Research Services non-executive president Martin Stopford believes has merit. Speaking at London International Shipping Week, Dr Stopford said if the industry steps back far enough it will see that China has reached the peak of its trade development cycle, following a path already forged by Europe and Japan.
“China has reached a normal stage in its development,” he said. “If you put this into perspective, we are down to about 6% growth which is normal – I don’t feel uncomfortable with this. The position in China is that the economy is in a transitional stage, with some growing pains.”
What does worry him, however, is how skewed the business is towards iron ore: between 1999 and 2014, there was an 877m tonnes increase in iron ore imports into China. And with the latest Asian wobble, it looks like physical tonnage of imports will go down this year for the first time.
“The position in China is that the economy is in a transitional stage, with some growing pains”
That said, Dr Stopford points out that not everything revolves around China: “As far as the shipping industry is concerned we have benefitted enormously from China, but China is not the whole world economy by any means.”
OECD countries import about 3.5bn tonnes of cargo, while non-OECD countries import about 6.4bn tonnes of cargo, revealing an enormous imbalance between the two. “This suggests an awful lot of growth but also an awful lot of pressure on resources. This leaves us in a very difficult position of predicting sea trade scenarios.” Dr Stopford’s predicts per annum sea trade growth of between 1.1%-2.8% through to 2065.
Affinity managing partner, research Mark Williams acknowledges the shipping industry’s reliance on statistics, which, while adequate for macro views, become cluttered in the detail.
Mr Williams joined Dr Stopford in the Institute of Chartered Shipbrokers’ London & South East Branch organised seminar on ‘Changing Tides – the future of shipping’ as part of London International Shipping Week. He pointed out that while ships today are, comparatively, as cheap as they were 30 years ago, earnings are lower. “The freight market does not increase at the same rate, if at all, against the asset market. This is a real challenge for the shipping market,” he said.
He raised a pressing concern of how the outcomes of the annual United Nations Climate Change Conference in December could affect shipping. “There’s a strong chance that a carbon tax will come out of the COP21/CMP11 meeting to de-carbonise the global economy. The decisions made at this conference will directly affect how shipping operates over the next 20 years. We should expect these regulations will change the way our industry is fuelled.”
Dr Stopford pointed to Chinese leader’s Xi Jinping ‘One Belt, One Road’ initiative as another potential game-changer for the future of shipping. Known as OBOR, the initiative is a development strategy and framework focused on connecting and engendering co-operation between Eurasian countries.
“The economic belt will lop thousands of kilometres off the traditional sea routes for Chinese exports,” said Dr Stopford. “Through it you have China competing with Russia for control of Central Asia – if OBOR can get incomes up and stimulate industrial growth that’s a good thing.” China has a big incentive to get involved in these kinds of projects given its surplus construction capacity.
Mr Williams looked into the future to highlight other disruptive forces on the shipping horizon: by 2020, the Internet of Things will have risen in importance and while most ships will still be using current propulsion technology, LNG/dual fuel will be starting to take off as a bunker fuel for container ships and ferries. Carbon tax, he predicts, will have been implemented regionally, if not nationally by 2020 which will make life more difficult for shipowners.
By 2025, the watchwords for the shipping industry will be telemetry and efficiency, he continued. “Many newbuilds will be ordered with LNG/dual fuel engines by 2025, while there will be many IFO/MGO ships, some methanol, gas turbines and prototype hydrogen ships and some lively debate about nuclear powered non-military ships.”
Energy saving devices such as solar and wind generators will top up traditional hydrocarbon power and GPS will have evolved into two-way telemetry with a much greater input over ship performance. By 2025, he predicts that the ship’s engineer may be an individual in a white shirt working ashore.
By 2030, global LNG bunkering infrastructure will be well established; GPS/two way telemetry bandwidth will mean that most voyages are automated; pilotage will be shore based; the last generation of fuel oil ships will be under notice of phase-out; and the first generation of hydrogen powered ships will be in service.
“The way we run the shipping industry will change enormously,” said Mr Williams.
This shifting world order could also have an impact on shipping clusters and whether they will survive in a globally connected world. While mature shipping clusters – such as -London, Hamburg, Monaco, Athens, Hong Kong and Tokyo – will find that regulatory and tax regimes affect growth prospects, demographics and technology will increasingly influence the growth of clusters, he said. “The US Gulf, Dubai, Mumbai, Singapore and Shanghai are full of well-educated, English-speaking, relatively cheap people. Maybe the future clusters will be Montevideo or Zanzibar? Shipping services are going to move south and we have to be cognisant of that.”