When the leading sage of ocean shipping, Martin Stopford, gave a Zoom presentation on Tuesday, it called to mind a classic Grateful Dead concert: extremely long, frequently brilliant, often memorable, improvisational, meandering off on tangents, and rough around the edges in a good way.
Stopford – author of the industry bible, “Maritime Economics,” non-executive president of Clarksons Research Services and visiting professor at Cass Business School – is on lockdown at his rural property, Crumpwood Farm, in Staffordshire, England.
Holding court from his homestead, where cows grazed outside his window, Stopford offered high-level insights on the future of shipping to over 1,000 listeners during a webinar by Capital Link, the Manhattan-based investor relations and advisory firm.
The presentation was scheduled to last 40 minutes, plus 15 minutes for questions and answers. The questions kept coming and Stopford kept answering; he sounded like he would have kept on talking into the night when organizers finally had to pull the plug on him.
Stopford ended up speaking for three straight hours.
Recovery timing
Stopford has long studied, analyzed and taught about the rise and fall of shipping markets through the centuries, comparing the attributes of each crisis to the others.
In a new white paper, he detailed how the worst shipping recessions come in the wake of shipbuilding booms, featuring deep and lasting slumps in vessel values. The silver lining of the coronavirus crisis is that it comes at a time of relatively low ship values after a long period of shipbuilding contraction.
“But what’s worrying about this crisis with COVID-19 is the behavioral factor,” said Stopford. “Oil demand is very vulnerable. Nobody’s flying. Nobody’s driving. I was just invited to go to Korea with all expenses paid in September, but I said I wasn’t sure I want to sit on a plane for 30 hours in September.”
This behavioral “X factor” makes predictions of recovery timing extremely difficult. It could also make people more bearish than conditions warrant, creating a self-fulfilling prophecy.
“We have to be careful that we don’t talk ourselves into a really deep depression,” Stopford warned. “The lockdown has taken a great big bite out of consumer expenditures. But governments could get us out of lockdown and everyone could get back to business and we could just get used to the fact that we have to be more careful when we go outside.”
Given the extreme uncertainty, Stopford developed three ocean-trade scenarios for 2020-2050: the first featuring a mild COVID-19 recession through 2021 followed by a return to the traditional 3.2% annual growth rate, with ocean volumes reaching 28.8 billion tons in 2050; the second based on an extended recession through 2024 and moderate growth after that, with ocean trade reaching 20 billion tons in 2050, around double current levels; and a worst-case scenario involving a severe contraction through 2024 and very slow growth thereafter, in which ocean trade reaches just 11.6 billion tons in 2050, roughly current levels.
Deglobalization
Various commentators have argued that the coronavirus will convince shippers and governments to diversify supply chains, not deglobalize and bring supply chains closer to home. Stopford isn’t convinced.
“We’ve all heard plenty of talk lately about the end of globalization and I don’t think that’s a bad thing. Regional economies are big enough to be largely self-sufficient and we’re learning lessons about supply chain problems. We need to spread the manufacturing jobs around regions and technology does make labor [costs] less important in manufacturing.
He continued, “We might be entering into an era when globalization is no longer the [driving] issue, so we may be looking at more short-sea shipping and more regional clusters.”
The consequence for container shipping would be lower ton-mile demand (vessel demand measured in cargo volume multiplied by distance). He believes there would be less demand for very large container ships and more demand for smaller vessels doing short-sea routes and competing with trucking. From a climate change policy perspective, “substituting short-sea shipping for land-based transport is going to be a winner,” he added.
Stopford speculated, “If you’re going to be building a 24,000 TEU [twenty-foot equivalent unit] or 30,000 TEU ship, you’d be running it on a shuttle service back and forth between very big distribution points, where everything is unloaded and then you’d have Uberesque short-sea services taking containers to local ports. You wouldn’t have this business we have now of 23,000 TEU ships doing 14 different port calls.”
Technology and carbon emissions
Stopford believes it’s a mistake to focus entirely on the coronavirus crisis and forget about the other major issues that ocean shipping faces over the coming decades. These include the normal need to build new ships to replace aging vessels and accommodate trade growth, the use of new technologies that will allow future ships to be more efficient, and efforts to cut shipping greenhouse gas (GHG) emissions by 2050.
“We need to look at all of them together and not lose perspective,” said Stopford. “It’s not just about coronavirus. When you look at shipping as a whole, I believe the changes over the next two decades will parallel the switch from sail to steam in the 19th century.”
FreightWaves asked Stopford whether economic fallout from coronavirus could make countries less inclined to back shipping’s 2050 GHG emissions-reduction goal.
He responded, “We haven’t heard much about little Greta [Thurnburg] lately and I think it’s very difficult for societies to stick to long-term theoretical goals. Climate change is not on our minds, although I can guarantee you that I’ll hear the world ‘coronavirus’ six times in the first two minutes I switch on the radio.
“But I don’t think it really matters too much,” he continued. “We will need to rebuild the fleet and if you’re going to rebuild a fleet of ships in the 2020s and 2030s, logic says you need to do that with new technology. Today, with cloud computing and satellite and 4G and 5G, we’ve got a way of communicating and working as a team between ships that was just never available before.”
Regardless of the economic fallout from the coronavirus, he affirmed that “the world of shipping that comes out of these waves of new technology will be far better able to deal with climate change than the industry of today.”
Shipping events and digitalization
Stopford saw his own Zoom presentation as an example of how the coronavirus could change behavior, as well as evidence of how shipping could embrace digitalization.
“What an amazing thing to be talking to you all from my farm in the country,” he marveled. “Coronavirus is changing a lot of things – it all goes back to behavioral change. Just look at this discussion. I’m getting far better questions now [through Zoom] than I’ve ever had at a conference. I can’t see why I should now go spend $5,000 to fly to the Far East [for a conference] when I can just do it this way and watch the cows at the same time. And [for participants] you don’t have to worry about sending messages from your iPhone in the front row, because nobody can see you. It’s fantastic.
“I think the virus is going to shake us up in all sorts of ways and it’s going to make us appreciate the things we thought were impossible were actually not that difficult. Until a month ago, Capital Link was running big meetings and we were all gathered together. Now, Capital Link is doing virtual meetings.
“In the end, I think the virus will be a stimulus that is going to make us look at our basic business models again and embrace technology,” said Stopford.
The shipping economist also believes China will heavily push digitalization in the years ahead. He recalled how dry bulk shipping was rejuvenated in 2010 after the global financial crisis when China embarked on a massive stimulus program focused on infrastructure, which supercharged steel production.
“From what I hear, even if China does some sort of stimulatory fiscal investment [after the coronavirus], which I think they will, it may be focusing much more on the digital side than the infrastructure side,” said Stopford.
“That’s what I would do if I were them. And even though the digital story is not just about shipping – it’s about everything – I would expect the Chinese to push this very hard in shipping.” Click for more FreightWaves/American Shipper articles by Greg Miller