The Future Role of the Maritime Industries in meeting the Emerging Global Challenges

IMIF Buffet Luncheon

Date: Tuesday 4th December 2012

Host: Mr Harry Theochari

Venue:Norton Rose LLP, 3 More London Riverside, London.  SE1 2AQ

Speaker: Mr Thomas Thune Andersen, Chairman Lloyds Register

Subject: “The Future Role of the Maritime Industries in meeting the Emerging Global Challenges”

Report by James Brewer

buffet-luncheon-4th-december-2012Oil and water – those two life-supporting elements featured strongly in the wide-ranging analysis of global trends presented at this meeting by Thomas Thune Andersen, chairman of Lloyd’s Register. To the mix of those two commodities he added another that would for many of us hardly have figured a few months ago, namely shale oil and gas.

Our business environment is more complex and fast-moving than ever, Mr Andersen reminded his audience. We face a number of emerging global trends that will have a profound impact on the shipping industry in the years ahead – presenting both opportunities and challenges.

Mr Andersen has chaired Lloyd’s Register since early 2011, having spent almost 25 years of his career with the AP Moller-Maersk Group, from shipping trainee to senior executive in various posts.

The Lloyd’s Register chairman began his talk by considering what he saw as the challenges of growing global population. Between 1960 and 2000 the population of the world grew from 3bn to 6bn. It is now more than 7bn and is forecast to reach around 9bn by 2050. “As an absolute minimum, these people will need food and water,” said Mr Andersen. “They will also need somewhere to live. More of them are living in cities – two more every second, according to the United Nations. The world will be 70% urbanised by the year 2050 according to the UN – with some 6.4bn people living in cities around the world.  They want a better life: better food; better clothes; more opportunities. They will need transport and power.”

Despite this growing global population, the availability of skilled workers is shrinking. We could see a ‘demographic divide’ between countries with younger skilled workers and those that face an ageing, shrinking workforce.  Amid the challenges this poses for the global economy, the implications for shipping are positive – in that global demand for fuel, goods and food will continue to rise in line with consumption, said Mr Andersen.

Addressing the issue of water supply, Mr Andersen said that according to the Food and Agriculture Organisation, for the past century water use has been growing at more than twice the rate of the population. By 2025, water withdrawals were predicted to increase by 50% in developing countries, and by 18% in the developed world. At the moment, water is normally priced at a low level that everyone can afford, but this is unlikely to be so in 20 years’ time. This means we need to treat water as a strategically important, non-renewable resource. According to the OECD, “almost half the world population will be living under severe water stress by 2030.”

Increasingly, global thinkers are convinced that water shortages, or to be more precise, distribution, is becoming more of a threat to sustainability than energy resources.

Compounding the demand for clean and safe water for a growing global population, water needs for energy production are set to grow at twice the rate of energy demand, according to the latest World Energy Outlook, published in November 2012 by the International Energy Agency.  Water is essential in power generation, in the extraction, transport and processing of oil, gas and coal; and, increasingly, in crops used to produce bio-fuels.

“We are already seeing the transportation of water as cargo in some parts of the world – and it would not surprise me if water becomes the 21st century blue gold,” Mr Andersen remarked.

Globally, fossil fuels were expected to continue to dominate primary energy demand for the next 30 years although the balance between coal, oil and gas is changing. Renewables and natural gas are set to experience the largest growth. The recent IEA report shows hydroelectricity production could be doubled by 2050, an achievement that could forestall annual emissions of up to 3bn tonnes of CO2 from fossil-fuel plants.

“Rapid advances in computing, robotics, bio- and nanotechnology will affect our industry in a way we cannot possibly comprehend today,” Mr Andersen continued.

Creating a sustainable global food system that would eradicate hunger was one of the greatest challenges facing modern civilisation. Yet the current global food system was one of the greatest emitters of the greenhouse gases that are responsible for warming the Earth.

Air pollution from ships is a global political and regulatory challenge as pollution does not recognise political boundaries, and yet all of society benefits from, and is dependent on, efficient low-cost transportation by ships, emphasised Mr Andersen. With climate change increasingly impacting on extreme weather events and the availability and supply of materials and resources on a global scale, there was ever more need for organisations to adapt to these changes to ensure their sustainability.

Mr Andersen referred to a new rising middle class in developing countries, changing consumption patterns.  According to the OECD, Asia accounts for less than one-quarter of today’s middle class; by 2020, however, that percentage could double.

What is clear from these emerging global trends is that shipping and shipping-related industries are here to stay and will play an ever more vital role in the global supply chain. Whilst we face a period of over-supply of tonnage and are experiencing a rather painful correction, the long-term opportunities for shipping are vast, said Mr Andersen.

Population growth, urbanisation, emerging new middle-classes, and unrelenting consumption would continue growth in all the traditional shipping trades.  “The challenge for ship owners is to predict the impact of these trends on the mix of vessel types required.  Wet trades have been subdued for some time and the focus is now on gas.  The emergence of US shale gas means that for the first time the US will be a net exporter of energy.    Regardless of whether the trade routes change, liquefied natural gas will have a profound impact on energy supply for many years to come, and the demand for gas carriers will continue to grow.”

Mr Andersen added: “We are all aware of China’s intentions to order up to 40 VLCCs.  This should be a warning to the trade – China has a clear strategy to dominate the trades between the Middle East and China.”

Similarly the impact of shale gas in the US was now firmly assessed by most global economists to have a knock-on impact on manufacturing economies and to change the dynamics of low-cost economy manufacturing – which would have an impact on the container trades.

New commodities would also shape the decisions of ship owners – “will water become the 21st century blue gold and will we see shipping fresh water as the new boom?”

On safety, Mr Andersen underlined that today’s modern ship was largely controlled by computer programmes and systems, from the bridge to the engine room. “Making the time for thorough training in these new technologies is and will be vital for all parties, onshore and off.” He went on to draw a lesson from history: in the original Lloyd’s Register of Ships of 1764, there were two columns that no longer appear: one was the detail of the fitted guns and cannons, and the other was the name of the ship’s captain. The captain was recorded when ships were assessed for risk in the days of Edward Lloyd’s original coffee house because the employment of the right captain with the right experience went a long way to mitigating the risks of a long voyage.

“How have we lost sight of that? Despite the fact that we need a greater focus on the human element, most regulation continues to focus on assets and their control systems. I will leave you with that thought…”

Shipping should not and cannot be viewed in isolation from the emerging global challenges.  “We live in a time where there is huge uncertainty about the future… which makes possibly the best environment for shipping’s risk-takers!”

Mr Andersen’s presentation prompted a lively question and answer session. He predicted that the area of new vessel technologies would show fast growth. Answering a question about the imminent implementation of the ILO Maritime Labour Convention, and the shortage of qualified seafarers, Mr Andersen said there was a real challenge in creating an environment which attracts people to the maritime industry. He repeated that as the world population grew, so did the divide between those who have the skills and do not have the skills. Therefore it was a huge challenge that needed attention at school level with promotion to the young people.

In further discussion, he referred to the impact of newer energy sources. Tar sands needed a lot of energy to exploit them and now they could use gas. There might be exports of gas out of the US, or would that possibility drop off? It was worth considering that Argentina has the world’s fourth largest reserves of shale gas.

One member of the assembly asked whether the shipping industry should trade payment of taxation for greater influence, the right to a stronger voice. Mr Andersen said that in this context, if there were a common denominator it would be in the interest of the shipping sector. “I would love to see something that is more standardised. Would you convert that into the right to have a stronger voice?” he pondered.

Opening the meeting, Harry Theochari had spoken of the “harsh and difficult times the industry has to face.”  He had been in the morning to a forum where it was suggested that as far as the industry was concerned “there is a lot we can do for ourselves.”  It was recognised that the industry needed to come together and one of the organisations that could do that was the IMIF.

Graham Barnes chaired the meeting in the absence of Jim Davis, who sent his apologies because of a family bereavement. Mr Barnes praised Mr Andersen for the way he had handled such a variety of questions, and expressed thanks to Mr Theochari and his colleagues for their splendid hospitality.