Shipping industry collapses following glut

The news for retailers and manufacturers has all been good. Shipping time between China and Europe cut by 10 days. Transshipping insurance costs plunge as goods are diverted away from pirate-infested waters off the horn of Africa. But, with faster turn-around times, the world’s shipping companies are suddenly left with dramatic over-capacity.

“We cut the transit time by 25% on the route from South Korea to the Netherlands,” says Hans Rasmussen of Maersk, a Danish shipping company. “We have a total of 500 ships. After the credit collapse in 2008, we had to mothball 100 of them. Now? I think we’ll be scrapping those and another twenty.”

The fabled Northwest Passage is now finally open for shipping, after global warming has resulted in the smallest extent of sea ice in history. While environmentalists are horrified, economists believe that this may be the best news for the global economy in almost a decade.

“The price of consumer goods has dropped by about 12% over the last six months. Lean manufacturing systems are re-energized now that goods are even closer. We’re estimating a return to growth patterns last seen in 2005,” says Gillian Anderson of Deloitte.

As the North Sea ice retreats, the opportunities for business are immense. Even Greenpeace is happy, as shorter routes mean less carbon emissions. Just don’t forget the pain of the shippers. They are going out of business.

ANALYSIS >> SYNTHESIS: How this scenario came to be

The ‘Little Ice-age’ of the 15th century closed the Northwest Passage to the Vikings and it wouldn’t be until the expedition of Roald Amundsen in 1906, which successfully completed a path from Greenland to Alaska in the Gjøa, that a route through would be found. Since then, only reinforced ships and icebreakers have made it through the Northwest Passage.

2009: Warming the Crisis
In September 2009, two German ships became the first Western commercial vessels to navigate the Northeast Passage; a shipping route which goes from Asia to Europe around the Russian Arctic.

“There was virtually no ice on most of the route. Twenty years ago, when I worked in the eastern part of the Arctic, I couldn’t even imagine something like this. I think it will soon be possible to navigate the Northeast Passage all year round. We were escorted by an ice-breaker but, frankly, we could have done without it. This is great news for our industry,” said Valeriy Durov, captain of The Beluga Foresight.

“This is a very clear signal of how weak the Arctic ice has become,” says Alexei Kokorin of WWF Russia. “The area of really heavy ice in the Arctic is now ten times smaller than 10 or 20 years ago. Global warming is becoming more and more dominant – and it will affect all of us.”

Meanwhile, the Credit Crisis, which started in 2008, is causing shipping companies to leave much of their fleet idle. The biggest ‘ghost fleet’ – of some 750 ships, almost 50 million tons worth – floats derelict off the coast of southern Malaysia.

It’s the clearest indication of how bad the world economy is, and governments and economists are tight-lipped about the consequences. Shipping companies have cancelled orders and the world’s shipbuilders – employers of tens of thousands of people – are slowly closing. By 2011, it is expected that no new ships will be built.

2013: No new ships; one new route
Captain Georg Danmar is welcomed into the Port of Bergen, in Norway, like a conquering hero. Aboard his 400,000-ton ship are containers of goods from China. This is the first purely commercial voyage via the now-open Northwest Passage from Hong Kong to Denmark, around northern Canada.

Canada is still pursuing its objective of claiming the northern waters as Canadian territory, but even they had no intention of stopping the voyage.

“We congratulate Captain Danmar on his achievement and invite the nations of the world to use Canadian waters for transit,” says Hillary Franks, Canadian ambassador to Norway.

At the UN, the negotiations continue, but it is looking less likely that the Canadians will get their way. Too many nations want to use the passage and none wish to pay transit duties.

The celebrations in Bergen are tempered by the knowledge that the port is also the home of Norway’s largest ship builders. The route now dooms the builders to closure. “Who needs new ships when so many are idle, and we just shortened transit times by 25%?” asks one old builder.

2015: Floods, politics and new ways to trade
The floods in Bangladesh are very bad in 2015. Global warming is blamed for a disastrous wet season. Up to two million people are affected as rising flood waters push higher into residential areas than ever before.

The African Union, meeting in Abuja, the capital of Nigeria, is especially incensed. Shipping around the African coast has fallen by over 50% as first the 2008 Credit Crunch and then the redirection of shipping via the Northwest Passage changed trade routes. While few of the ships landed, various ports around the coast did a good business transshipping supplies out to sea. Worse, though, is that distribution costs to Africa have risen. Africa is only 2% of world trade. While ships were navigating that route anyway, it didn’t hurt to stop and drop off the small quantities of trade goods that were required. Now that there is little passing trade, direct shipping is required. The cost of piracy, as well as the low value of the goods, has led to huge inflation.

“It is an opportunity for African nations to start manufacturing, but they are doing so off a low base and with few skilled people necessary to set up factories, or artisans to work in them. Many small traders are losing their livelihoods and – sadly – the only increase in shipping we’re seeing is in aid deliveries of grain and other necessities,” says Ganief Asharaf, of the UN World Food Program, speaking from Mombasa in Kenya.

However, the lower prices for distribution are being passed on to consumers in the US and Europe. And they are – finally – responding to the opportunity. “We’re seeing an increase in turnover,” says Meryl Turner, senior buyer at Target in the US. “Sales are up 15% over the last six months and getting stronger.”

This should be a relief for Barack Obama, the embattled US president, who has struggled to regain his popularity in his second term of office since US unemployment briefly touched 15% in June 2014.

Shipping companies, though, are still in distress. The ghost fleet off southern Malaysia now numbers 1,230 vessels and many are being scrapped. The price of scrap steel on the Chicago Exchange has dropped 27% in 12 months. This has caused declining demand in China’s massive smelters.

“There’s still a lot of pain to work its way out of the system,” says Hans Rasmussen of Maersk, “but I think we’ll all be stronger once it’s done. The world is now a lot smaller and that will be good for everyone.”

Warning: Hazardous thinking at work

Despite appearances to the contrary, Futureworld cannot and does not predict the future. Our Mindbullets scenarios are fictitious and designed purely to explore possible futures, challenge and stimulate strategic thinking. Use these at your own risk. Any reference to actual people, entities or events is entirely allegorical. Copyright Futureworld International Limited. Reproduction or distribution permitted only with recognition of Copyright and the inclusion of this disclaimer.