Page 45 - Next Generation 2015 - Digtial Issue

Next Generation Past, present and future
A clearer view of the cycles is
obtained by plotting the difference
between seaborne trade and GDP trend
in a chart. The first phase of expansion
lasted 15 years, starting in around 1956,
and continued to 1973. Then trade moved
into a down phase which started in about
1974 and continued, with a few wobbles,
until 1987. That is another 14-year period. shipowners used contracts from major
Finally the upswing lasted from 1988 to
2006, an 18-year expansion. During these
three periods — two expansion and one
of contraction — the shipping industry
faced very different circumstances in
terms of ship demand.
As the cycles in trade worked
through into shipbuilding demand,
the effect was amplified, producing
shipbuilding cycles closely following
and amplifying the trade cycles.
From a practical point of view
these cycles presented the shipping
market with a structural problem for
two reasons. First, shipyards cannot
just stop and start building ships. Once
there they are likely to build ships
regardless; second, the “footprint”
of the previous cycle is embedded
in the age profile of the merchant
fleet, resulting in large swings in
replacement demand.
For example, the build-up in
deliveries in the last decade shown will
turn up as increasing replacement in 15 to
25 years. But today replacement is driven
by the very low deliveries in the 1980s.
PROGRESS THROUGH THE
SUPER CYCLES 1965-2015
This combination of long cycles in sea
trade and structural inflexibility in
shipbuilding produced a succession of
market phases, each lasting more than
a decade. The cycles are illustrated
from the tanker market (see graph page
44) but the dry bulk market followed a
similar pattern.
The Swinging Sixties (1963-1973): In
the 1960s, sea trade was on an upswing
with plenty demand and the fleet grew
at almost exactly the same rate, so the
market was pretty balanced. During this
decade the spot market did not really
matter because most of the capacity
was booked through time charters,
some up to 15 years. This was the era of
“shikumisen”, the oil majors and the
Japanese trading houses were all keen to
cut their transport costs by outsourcing
shipping. The new generation of
charterers, especially in the oil and steel need to understand the rules and that’s
business, as security on loans. It was a
prosperous decade, with a bonus as the
value of the ships escalated.
The Shaky Seventies leading to
the Awful Eighties (1974-1995): In the
1970s the trade upswing faltered, but
deliveries of new tankers continued.
The tanker fleet grew to 350m dwt in
1977, but demand only reached 250m
dwt, causing a major surplus of tanker
capacity. Things got even worse in
the 1980s, following the 1979 oil crisis
and the collapse in the crude world
trade which it triggered. The recession
bottomed out in 1986.
The Marvellous Millennium (1995-
2008): Things gradually recovered in
the late 1990s and the gap between the
fleet and demand narrowed as surplus
capacity was soaked up in about 1997
and the demand trend finally pulled
ahead of supply, almost 25 years after
the gap first opened in the 1970s. But
the 1990s were plagued by the world
business cycle, with three “crises” in
1991, 1997 and 2001. So it was only in
the first years of the 21st century that
shipowners finally saw a revival of
their fortunes.
The Traumatic 2010s: One way and
another it was another bumpy ride.
So the bottom line is that 50 years
of progress and prosperity in the
world economy did not mean quite the
same thing in shipping. It was a roller
coaster ride.
FOUR QUESTIONS ABOUT
THE NEXT 50 YEARS
So far we have focused on the last 50
years, and the lessons we can learn.
Turning to the future, common sense
www.lloydslist.com | Lloyd’s List Next Generation 2015 | 43
says that making predictions 50 years
ahead is futile. Shipping analysts struggle
to predict 50 weeks ahead and since a
good deal of the future depends on how
the business plays the game, what’s the
point of prediction?
Well, that’s exactly the point. Players
in a high rolling game like shipping really
exactly what analysing the past helps to
do. As Peter Drucker said, “the best way
to predict the future is to create it”.
This happened during the
globalisation boom of the 1960s and
1970s, when the shipping system was
transformed by the positive action by
investors. So thinking about future
pressures and the changes needed to
respond makes sense, there are four
questions that need to be considered.
Question 1: a new global
trade matrix in 2065?
During the last 50 years there was a very
significant realignment of the world
economy away from the OECD countries
to the non-OECD countries. Today, the
OECD countries are mature, still growing
but not very dynamic and two thirds of
imports are controlled by the non-OECD
countries. As China slows down, the
spread of countries around the South
China Sea, South Asia, the North Indian
Ocean; Africa and South America will
grow in importance.
From a shipping perspective this
is a very different mix. Many small
countries; many ports; and possibly
a very different trade dynamic. This
suggests that the great east-west
orientated trade, which dominates the
world today, will merge into a much
broader trade matrix over the next 50
years. A map of the shipping lanes
today shows how little trade there is in
some areas.
Question 2: How much
sea trade in 2065?
This is a very big one — how much cargo
will be shipped in 2065? Trade scenarios
put this fundamental question into