The Day After

Action Now To Secure Shipping Industry’s Future.

These days our hearts and minds go out to the ones that suffer from the pandemic but also to the doctors and healthcare workers that heroically stave off the danger and protect us all. 

The economic impact of the coronavirus pandemic now has come to accelerate the de-globalization trends that have started some time ago. Over the past century transport and communication costs were slashed by 80% to almost 100% respectively. The question now is what happens next as the globalized economy reaches its peak efficiency? A recession? That’s what happened when the first wave of globalization in the industrial world came to an end in 1910’s (by measure of global export as a % of GDP).

Even before the sudden stop imposed by the virus, the global economy was slowing down, commercial and industrial loan growth was weakening and trends of protectionism were evident, while the pressure was on to minimize the impact of economic growth to the environment. All of the factors above are sowing weakness in global markets. It is well established that shipping is greatly impacted by economic downturns.

As reported by Bloomberg, the Corona Virus crisis could cost the global economy up to $2.7 trillion. A global financial crisis as it unfolds, with manufacturing shutdowns and disruption of supply chains, can have a negative and lasting impact in the shipping industry which can possibly span over a 10-year horizon. The question is how will the EU shipping market react in such a scenario under such market conditions? 

The growing need for digital adaptation is crucial to achieve a competitive advantage in the landscape of the 4th industrial revolution. The convergence of technologies such as robotics, AI, Additive Manufacturing, Quantum computing and IoT create the framework for new trade growth patterns that will also have effects on Industrial production and Transportation.

In a recent poll by the Global Maritime Issues Monitor which measures the preparedness of response in key issues that the shipping industry faces, the failure of climate change adoption and mitigation was an issue many organizations felt that they were unprepared for. Similarly, on a poll which measured what was likely to change in shipping in the future, environmental regulations were voted as the most likely to affect change. 

Market participants can and should do a lot to prepare for this Big Change and adopt their business models to fit new requirements. Technologies are available and the most promising alternative ways of propulsion for commercial vessels seem to be LNG, Wind propulsion, Solar energy, Hydrogen fuel cells and Methane fuel cells. While some are readily available today others are still in experimental phase.

In this journey companies are not alone. Shipowners are creating alliances to promote environmentally friendly solutions and promote alternative ways of compliance (i.e. Clean Shipping Alliance). Financial alliances are being created in the wider shipping market in order to incentivize owners to re-align their business strategies (i.e. Poseidon Principles, to which I am proudly one of the first signatories). Shareholder Activism is also a key point on pressuring global conglomerates to pursue decarbonization initiatives (i.e. Climate Action 100+, Green America, Follow This etc.)

Shipping companies could and should invest in quality dry-docking maintenance, consider retrofitting vessels with more efficient technologies and explore investment options in experimental technologies.  In banking and finance, a wave of divestments from polluting and unsustainable assets, will be countered by a growth in “Green” investments and development of sustainability policies.

Can we fund this transition? Yes we can. We just need to put human ingenuity to work! There is strong demand for responsible and sustainable ways to grow and develop the shipping industry, as well as increased demand for alternative forms of finance from investors that struggle to obtain debt from conventional sources. Ample opportunity for new players to enter the market and fill the void.

However, while focussing in the future Regulators and Banks will do well to adjust policies and prevent unnecessary accelerations and defaults of facilities that would under normal circumstances be performing exposures.

Success in this endeavor is particularly important for Europe, as the EU controlled fleet represents 40% of the global fleet. There are more than two million people employed including land based related jobs, and about EUR150billion contribution to the GDP. For every EUR1 million of GDP the shipping industry creates, another EUR1.8 million is created elsewhere in the EU economy. 

If the public sector and the private industry can work together, then there is no limit on what can be achieved. Act together to emerge stronger from this crisis

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