Why shipping is about to get bigger, less opaque and more expensive
In an exclusive series of video interviews, industry leaders set out how they see the future of shipping being defined by increased scale and transparency and requiring new business models and talent
The twin tectonic shifts of digitalisation and decarbonisation will require the next generation of shipping leaders to rewrite the rulebook and redesign many aspects of global maritime supply chain. According to several of today’s leading industry executives, the gravitational pull towards scale and transparency is now an inevitable shift that will define the future of the industry
SHIPPING is small, opaque and cheap.
It is an industry made up of thousands of minor league companies, often offshore, more often than not surviving on small margins.
The average operator controls 4.8 ships and 71% of the world’s shipping companies own no more than two vessels.
But the demographics are shifting, both in terms of the companies and the people that run them.
According to several leading shipowners, charterers and financiers interviewed by Lloyd’s List, the gravitational pull towards scale and transparency is now widely regarded as an inevitable shift that will define the future of the industry — an industry that will ultimately not be run by people like them.
A confluence of financial and regulatory factors has been forcing the industry’s hand when it comes to scale for several years, but the accelerating requirement to decarbonise shipping is now setting a pace of change that will ultimately end the cost-minimisation business model that has not evolved significantly in the past 50 years.
The requirement to collaborate across sectors and invest in efficiency will bring new technology, operating models and a more diverse generation of talent into an industry that is due a fundamental overhaul within the lifespan of the next generation of management and vessels.
When Lloyd’s List asked the industry’s leading executives gathered at the recent Global Maritime Forum what the shipping company of the future looked liked, the response was near unanimous. The consensus response was that in order to survive the zero-carbon transition, shipping companies will have to be bigger and business models will have to adapt to become more transparent and integrated across the whole supply chain.
“What has worked in the past is not necessarily going to get the industry where it needs to be,” explained Jan Dieleman, president of Cargill’s ocean transportation business.
“There are some tough decisions to be made, but I think the reality is the old business models that we had are not going to survive this evolution and I think that a lot of companies will have to figure out how they actually deal with this,” Mr Dieleman told Lloyd’s List as part of a series of interviews exploring the future of shipping.
Much has been made of the trend towards ESG-fuelled capital requirements increasingly favouring the stability, consolidation and corporatisation of long-term cargo interest integration in shipping models.
The natural conclusion of which will increasingly challenge mid-sized private entities that have dominated shipping’s fragmented business models for much of the past century.
Lending to shipping has already begun to hinge on shipowners’ ability to satisfy the banks’ environmental, social and governance criteria and there is now an inevitability to the trajectory that shipping businesses must take in order to meet the funding requirements of the zero carbon energy transition, according to Citi’s shipping and logistics business chairman Michael Parker.
“Shipping will continue to consolidate. It will be become more investment grade through scale because it will need to raise more money, not just from banks but from the capital markets. It will happen and it will happen more quickly because the forces at work are multiple — it’s not just people saying you must do this — it’s not really a choice any more,” said Mr Parker.
The net zero commitments by banks and investors mean that their capital will be directed into the net-zero club of shipping businesses.
Ultimately climate change is becoming the filter through which investment is being considered, so there will be increasingly less capital for those industries and assets exposed to carbon risk.
“I think that companies are going to look bigger, which sounds very over simplistic, but we are going to have to invest a lot in technology, deep technology to be able to measure and manage emissions, we're going to have to invest a lot in retooling and decarbonising the fleet,” said BW Group chairman Andreas Sohmen-Pao.
With size comes access to capital, and given current industry concerns that debt equity for shipping is approaching crisis levels amid the tightening noose of ESG financing, that is a significant consideration for all companies. But transparency is also a factor in the shifting demographics.
Financial regulation has been tightening for several years in the wake of successive financial crises but transparency not only serves to attract capital, but also delivers the means to create better internal processes and economies of scale.
“To live up to these future standards of transparency of ESG, there will be a scale benefit,” said Bo Cerup-Simonsen, head of the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping.
“So I would find it natural if the industry finds new ways of working where larger scale operation becomes one of the common denominators for that future way of doing business.”
The changes afoot do not just affect shipping companies; rather the whole value chain will need to adapt to the changes ahead.
“We’re going to see a big change in the makeup of the industry; it’s going to be a lot more industrial,” said Cargill’s Mr Dieleman.
“I see how supply chains are being run today and it’s not very efficient. We still have a lot of queues, we are still speeding up and then sitting in port for three weeks, so I think we need changes across the whole supply chain, not just the maritime piece. And this is not around just about decarbonisation — it’s about safety, about human rights and the people… so I would, I would encourage people to think more broadly about the talent base that we need as an industry.”
When asked to consider what the shipping companies of the future look like, the one area of consensus among those executives interviewed, other than scale, was change in the make-up of the people who make up the industry. All agreed that the industry had to do better in terms of diversity, but most also argued that new skill sets were required from a technologically more advanced workforce that needed to be recruited and trained as part of the industry’s transition.
“It’s about how we create an inclusive workforce,” explained Karrie Trauth, head of shipping and maritime at Shell.
“It’s how we create an inclusive society where we work, where we operate, and where we live, and more shipping companies need to take that same sort of visible stance, making it part of their strategy, their core bedrock.”
Industry leaders’ thoughts
As part of the Lloyd’s List Future of Shipping series, industry leaders were asked for their thoughts on what the shipping company of tomorrow looks like and what are the qualities shipping requires from those aspiring to lead us through what promises to be a revolutionary epoch shift in business models, regulation, technology and the entire competitive landscape for maritime businesses.
The interviews, which were conducted during a Global Maritime Forum meeting in November, are available to watch here.
Alexander Saverys Chief executive CMB
Andreas Sohmen-Pao Chairman of BW Group
Bo Cerup-Simonsen Head of Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping
Christian Ingerslev Chief executive, Maersk Tankers
Dr Tristan Smith UCL Energy Institute and director of the Research Council UK funded project Shipping in Changing Climates
Hugo De Stoop Chief executive Euronav
Jan Dieleman President of Cargill’s ocean transportation business
Karrie Trauth Head of Shipping and Maritime at Shell
Michael Parker Chairman of Citi’s shipping and logistics business and chairman of the Poseidon Principles Association
Rajesh Unni Founder and CEO of Synergy Marine Group
Steen Lund Chief executive, Rightship
The Lloyd’s List Future of Shipping series gathers industry leaders, policy-makers, investors, financiers and sector experts to offer a unique programme of informed analysis and intelligent debate that will build into an industry playbook for a sustainable and profitable future.
For more information and to register for our webinars, follow this link.