David Osler | LLOYD’S LIST
Futurology simultaneously fascinates and infuriates, and any attempt to predict how shipping will fare between now and the mid-point of this century must inevitably be a speculative exercise.
But Lloyd’s List is going to make an attempt anyway, based as far as possible on trends that can be observed concretely in the present.
In particular, this article will explore the ‘three Ps’ – population growth, piracy and peak oil – and suggest ways in which the shipping industry of today might best prepare as it becomes the shipping industry of tomorrow.
Let’s start with population growth. In 2004, the United Nations issued a document entitled ‘World Population to 2300’, a project that must surely count as monumentally ambitious in scope. The estimates are widely regarded by futurologists as authoritative.
The number of people on planet Earth is set to grow from the 6.1bn seen in 2001 to 8.9bn in 2050, an increase of 47%. Thereafter, it will peak at 9.22bn in 2075, and tail off slightly in the 22nd and 23rd centuries.
Growth of megacities
Most of humanity will live in megacities of the kind shown on the two-page spread on Page 16-17 in this magazine, such as Mumbai, Mexico City, New Delhi, Shanghai, Calcutta, Karachi, Cairo, Manila, Lagos and Jakarta. More than 100 cities in China will have more than 1m inhabitants.
Those 4bn extra people should in principle mean a vast expansion in demand for shipping services. Research conducted on behalf of the International Maritime Organization two years ago projects that overall maritime tonne-miles will grow in the region of 30%-46% by 2020 and anywhere between 150%-300% by 2050.
The outlook for the container sector is even more spectacular, with the calculations suggesting that boxship tonne-miles will rise between 65%-95% by 2020 and 425%-800% by 2050.
However, any number of things could complicate such calculations. The underlying assumption of forecasts of this kind is that the developing world is indeed developing, and that these additional people will be additional consumers, with the purchasing power to match.
That is not, on the face of it, automatically unreasonable. After all, barring a climate change catastrophe, global economic output is likely to rise by the secular trend rate of 2%-3% a year for the next four decades, which is more than the projected rate of population growth – so the average standard of living should be better than it is now.
Yet this expansion is not happening evenly, and it will in the future be distributed rather differently than it is at present. Economic historian Andrew Maddison calculates that Europe and North America collectively accounted for 68% of world GDP in 1950, but only 47% in 2003.
If changes in per capita u income, adjusted for purchasing power parity, continue at those rates then Europe and North America can expect to see output roughly double by 2050. For the rest of the world, it will grow by a factor of five.
An ageing new first world
One recent consideration of global demographics, written by academic Jack Goldstone and published in the journal Foreign Affairs earlier this year, suggests that what we are likely to get is the emergence of an ageing new first world of North America and Europe joined by parts of the Pacific Rim, including Japan and the Asian Tigers.
Elsewhere we will witness the arrival of a new second world of fast-growing and economically dynamic countries with a relatively youthful population including Brazil, Iran, Mexico, Thailand, Turkey and Vietnam. China is likely to form part of this camp until 2030, when the impact of its one child policy will alter the demographic balance unfavourably.
This is where the global middle classes – the people that buy cars and consumer electronics – will live, and naturally these are the countries that the shipping industry will increasingly find itself serving.
Finally and most dangerously, the new third world will be made up of fast-growing, very young and increasingly urbanised countries with poor economies and, typically at least, weak governments. That is a recipe for trouble, with the megacities providing a breeding ground for the spread of criminality, gangsterism and localised rebellions.
‘The Coming Anarchy’
One of the grimmest prognoses on offer in the relatively recent past has been ‘The Coming Anarchy’, a classic 1994 article in the Atlantic Monthly magazine, written by US journalist Robert Kaplan.
As you can guess from the title, Kaplan is a pessimist. His essential contention is that population growth will exacerbate desertification, deforestation, water depletion, air pollution, rising sea levels, disease, crime, resource scarcity, large-scale migration, violence, volatility and cultural and racial clashes.
Governments, he observes, are already weak in many places and can be expected to lose control altogether in a number of countries. Failed states will multiply rapidly. One possible corollary he doesn’t explore, largely because it was not so evident at the time he was writing, is a possible generalisation of piracy.
Imagine a world in which your ships are liable to be hijacked not just in Somalia, but perhaps a dozen nations without anything much resembling a central government.
It is already pretty much evident that the scale of the problem has already stretched the naval resources of the West – augmented by some of its more dependable friends in emerging countries – pretty much close to breaking point.
International relations experts also recommend keeping an eye on Yemen, at imminent risk of becoming a failed state. It seems that there is already a degree of Yemeni involvement in some ostensibly Somali ventures.
Thanks to under-reporting, the situation in Nigeria is worse than commonly appreciated and piracy in the Gulf of Guinea is already spreading to neighbouring countries including Cameroon, Benin and even Ghana and Côte d’Ivoire.
Piracy continues to occur in the Malacca Strait and the South China Sea. Things may not be as bad as they once were, but it does seem that the trend is upwards.
Watch out, too, for future problems in Latin America, some security professionals warn. Poverty will be the driver here, as the have-nots take in the media reports of what is happening elsewhere in the world and figure that they can do it too.
Among the resources that will be scarce is, of course, oil. Competition between the u major economies for access to the remaining supplies has become ever more apparent since the turn of the millennium, and will be exacerbated as the remaining supplies being to dwindle.
The notion of peak oil, developed by M King Hubbert in the 1950s, refers to the point at which global oil extraction reaches its maximum and commences inexorable decline thereafter.
Scientific American magazine famously predicted that we will get there at some point around 2020 or shortly thereafter. Since then, the arguments have raged between geologists who have advanced widely different ideas about oil reserves and potential output.
Point of ‘peak oil’ nears
The prosaic truth is that given the suspicion that Saudi Arabia is keeping its best guesses about the extent of its remaining oil close to its chest, we cannot know the date with any real precision. But reputable bodies such as the International Energy Agency and the US Energy Information Administration expect to see the crunch reached at some point.
Unless there is progress in finding alternative means of propulsion for shipping, operators can expect a substantial increase in fuel costs, as even low-grade bunkers suddenly become more costly.
While it is impossible to predict what technology will be available in the years ahead, Japan’s NYK Line has publicly stated its belief that a combination of solar power, wind, cold ironing and other environmental power sources means that it is technically feasible to develop an emission-free vessel by 2050.
The optimistic scenario is that demand for oil will fall faster than the supply contracts, especially if Asia does not emulate Western patterns of energy use and the West itself switches substantially to renewable sources.
Industrialised countries use less oil now than they did 30 years ago, for example, and oil intensity – a measure of oil used per unit of output – has just about halved.
Another unknown variable is the eventual outcome of the political deliberations surrounding climate change. While last year’s Copenhagen summit produced a declaration regarded by many as unsatisfactory, there is no reason in principle to suppose that the deadlock will remain in place indefinitely.
One recent study commissioned by Norwegian classification society Det Norske Veritas suggests that demand for tankers between 2020 and 2050 will be largely flat.
At present, the movement of energy commodities accounts for 43% of seaborne trade, it found. But this is a statistic that has been declining for several years, in contrast to the strong upward growth in dry bulk and containers, at least until the recent economic downturn.
Jarle Hammer, the former chief economist at Oslo broker Fearnleys, pointed out that the world tanker fleet currently stands at just over 400m dwt, roughly the same as it was in 1976.
In his high case outcome, oil tanker demand was put at 423m dwt in 2020 and 497m dwt in 2050. The low case showed an estimated demand of 393m dwt in 2020 and 386m dwt in 2050.
Hammer also suggests that increased output in northern and Pacific Russia, and increased use of pipelines, will make for far shorter sea distances to China, Japan, South Korea and Taiwan, which will substantially dampen demand. Other recent finds, such as those in Brazil and in the tar sands of Canada, are notably close to the US, still the world’s largest market.
Gas, being cleaner than oil, will be in more demand for both propulsion and electricity generation purposes.
One interesting possibility he canvasses is that redundant tanker tonnage could find alternative uses, not least in the transportation of fresh water to parts of the world suffering shortages.
Rising sea levels, he also notes, might be good news for dry bulk owners. The demand for construction materials to build dikes and other infrastructure, as well as new housing in safer locations, is likely to be considerable.