Shipping Outlook Part 1: The Existing Landscape
The shipping industry is currently undergoing rapid regulatory changes while facing the pressures of digitization. It is certainly an interesting and exciting time for shipping innovation, but there are no doubts that this transition also poses huge risks and opportunities for long-standing shipbuilding companies. There are numerous reports today from regulatory bodies, class societies, and consultancies that share their predictions for the future of shipping.
How do they really square with the reality of the industry’s adaption? This series is an exploration of the interesting inflection point that the maritime industry is facing.
An Introduction
The existing ocean landscape is at a very interesting point today, not only because established maritime industries are facing a sustainability inflection point but also because of new emergent ocean-related sectors. The current transition is driven by a triage of uncertain global and socio-political dynamics, climate change, and digitization.
Within the shipping and shipbuilding sector, there are plans to transform conventional ship designs and shipbuilding practices to one that is more sustainable to meet the International Maritime Organization (IMO) 2020 and projected IMO 2050 goals. This transition is complemented by the rising popularity and promised benefits to adapt Industry 4.0 applications. Outside the maritime and shipbuilding sector, new industries are looking at the ocean not only as a medium to facilitate economic activity but as a source of important products, renewable energy, and land expansion. Optimistically, these traditional and emergent economies, under what the European Union (EU) calls “blue growth”, can decide to work together. To put it together, the shipping sector is embrittled to rethink where it stands in the light of the growing microcosm of the “ocean economy”.
This enthusiasm for the future and the ocean economy is captured well by outlooks and forecasts reported by class societies, international organizations, and private consultants. They can also offer information about the maritime industry’s priorities in different global hubs. They were originally reported to (a) raise awareness, (b) market company or class alignment to these changes for stakeholders, or (c) educate the general audience about the industry. Hence, it is quite valuable to be cognizant of the audience these reports were intended for.
Let’s take a closer look at 3 of these outlook reports, with the goal of tabulating the predictions and “drivers” (or what the United Nations (UNCTAD) called “Uncertainty Factors”) that are consistent and that give us a good bet at forecasting what may happen:
- DNV-GL Maritime Outlooks to 2050
- Lloyd’s Register’s Global Marine Technology 2030 and Marine Trends Report
- OECD Ocean Economy to 2030
Unfortunately, similar outlook reports don’t seem to be accessible for Korean, Japanese, or Chinese shipping. Blueprint 2050 and Rainmaking Maritime Trend Report were also referenced but not compared in this series.
Outlook Trends
There are numerous drivers of changes identified in all the outlooks, but the biggest ones are identified to be: Geopolitics and Trade Dynamics, the environment, and Industry 4.0 trends. Although, Industry 4.0 trends are not considered “uncertainty factors” as defined by UNCTAD.
The main inferences from the comparison of these 3 model reports include:
- All 3 reports agree that decarbonization is the biggest driver of change in the maritime industry. Not only will there be changes in the prime-movers and propulsion mechanisms of choice, but there will also be changes in the ways the vessels are operated. According to the DNV-GL’s outlook report, the carbon-robust ship that is designed to be more energy-efficient and have a reduced carbon footprint is also set to be competitive during the later stages of its life cycle. This implies that the move to cleaner vessels can be motivated by external regulations and future cost savings.
- Trends such as automation, IoT, digitization, and improved wireless communication are also forecasted to help increase the overall security, manning, operations, and tracking of vessels today. They have the potential to complement efforts to decarbonize shipping. Integrated digitization and decarbonization efforts in vessels produce what Lloyd’s Register considers Technomax vessels. Aside from impacting commercial shipping, these new technologies are also set to drive innovation in the general ocean economy. This is also predicted by the Lloyd’s Register when describing the dynamic “ocean space” in 2030. These integrated or “synergetic” technologies are likely to be common.
- It is difficult to predict what scenario is likely to happen in the future. OECD cites that their “business as usual” scenario will not be an option for the future if a cleaner ocean economy is desired. OECD suggests that this can be changed by incentivizing interconnectedness in ocean economy clusters and by providing regulatory support. Lloyd’s Register on the other hand predicts the future will see increased competitiveness and that neither business as usual nor cooperative “global commons scenario are likely to take place. Lloyd’s Register argues that to handle such a competitive global trading climate, the ocean economy will need to undergo a rapid transformation in technology. DNV-GL on the other hands predicts that regulatory support, R&D efforts, and strengthening of the Energy Efficiency Design Index (EEDI) implementation increase the likelihood of shipping’s successful transition from a “dull blue” future, where scrubbers will remain to be the popular solution, to a “bright green” future where a healthy mix of hybridization, LNG, and bio-fuel solutions are around.
- Several new innovations are introduced in these outlooks, with careful delineation of adoption risks and uncertainties. Outside of the shipping space, the OECD also introduces new emergent industries that have a high growth prospect.
It is difficult to assess which ones of these will be embraced in the far future. Of these outlooks, the least foreseeable technologies are those hedged on Industry 4.0 integrations. These include the prediction for completely autonomous ships that are linked by smart ports. Currently, Rolls Royce and Kongsberg Maritime are heavily involved in the design and validation of smart unmanned shipping, but only within a research capacity. These unmanned vessels are yet to be viable and plenty of regulatory constraints have not been figured out.
The likelihood of adaptation becomes narrower when more concurrent or synergetic engineering is involved in production. These technologies may also have limited scalability. Regardless, the majority of what is predicted in these outlooks are not mature enough and would require heavy capital for initial R&D.
Technology Innovation
The shipping industry or sector can be divided into 4 markets:
- Freighting (transport of good based on agreements between charters and brokers)
- Ship Trade (trading of vessels as commodities)
- Shipbuilding (construction of a ship)
- Scrapping (demolition of a ship)
Of these 4 markets, shipbuilding deals directly with the production of the vessel. Despite having the most opportunity for engineering innovation as forecasted in the outlooks, it is the riskiest and most capital-intensive market to disrupt.
Traditionally, shipbuilding lags in technology adoption, as in the case of the late exploration of digital design software into ship construction. There are various reasons why, including high capital costs and labor hours:
- Product complexity: Ships are difficult to build. That makes intuitive sense. But understanding the complexity of ship systems and the risks of poor engineering design can give a better picture as to why ship construction has been streamlined for decades. Construction assemblies like block assembly lines in a shipyard are all designed to meet specific manufacturing needs. Not all shipyards have transferrable equipment, machines, assets, and resources to build different kinds of ships. With these established practices, it can be challenging to incorporate or introduce new functions especially if they do not increase the vessel’s sellability in the long run. Unfortunately, this also leads to a very homogenous class of products. The role played by maritime class societies, for example, shows a high preference for designs aimed at the compliance of conventional manufacturing rules.
- Lack of product and process information: With very few shipbuilding companies sharing most of the assets, there is a general tendency to stick with longstanding construction operation and management procedures which may be dated and difficult to digitally transcribe for evaluation and assessment.
- Risk Appetite: With the industry already challenged to manage boom and busts in short term margins, the demand for new vessels is highly related to customer preferences. Unless there is a specific demand for unique designs at a sizable quantity, taking risks at new construction technology and vessel designs may not be common.
- Lack of external incentives: Shipbuilders’ main concern today is still to maximize profit. That is, shipbuilders have traditionally been conservative in trying new equipment especially at the cost of their capital. Having external incentives can drive rapid vessel construction and diversification as seen during World War 2 in US shipbuilding.
Traditional shipbuilding is uniquely streamlined with a limited number of players and a sizeable diversity of assets. All of these enable shipping to be one of the most cost-effective ways to transport goods overseas — unfortunately, at the expense of new technology adoption incentives. However, that is not to say that the other markets are equally slow in innovation adoption. As both the freight and ship trade markets deal with the transaction of goods, it is less capital-intensive to disrupt these spaces. As the 4 markets are closely related to each other, the innovations in one market can affect the others. Changes in how these 4 markets interact may reflect the shipping industry’s acceptance of the change.
Part 2 explores companies that are driving change in the other shipping markets, outside ship construction. We’ll also explore the risks of immature adoption in shipping operations technology, based on current literature placed available on the web. Note: All curated information is referenced based on the included hyperlinks. Please feel free to let me know of any missed details or information. Thanks for reading through!
