Tuesday, 10 June 2014

HISTORY LESSONS



With the implementation, and enforcement, of the Emission Control Area getting closer we see increasingly worrying predictions of increases in fuel costs for low sulphur options. One estimate predicts MGO consumption will increase by 50m mt, equivalent to 3% of total global middle-distillate consumption. In 2004 and 2010 when there were similar spikes in demand we saw a 20% increase in US highway diesel prices. If the past is any indicator of the future, shipping could face 20% increase in MGO price in response to the hike in demand. Adding this 20% to today’s (May 2014) price averages would see an 83% premium on LS MGO over HSFO in Rotterdam compared to today’s 52% premium. 

Big changes create big impacts. We have yet to see how trade flows may alter.

In 1846 the US owned 640 whaling ships. Whales contributed oil for lighting, perfumes and raw materials. In 1880 it was the fifth largest sector of the US economy contributing $10m to the US economy. Innovations like the faster, larger whaling barques and better harpoon and winch technologies gave US whalers competitive advantage. Then petroleum arrived. Fifty years later whaling in US was all but gone. In 1859 the US produced 2000 barrels; forty years later that was 2000 barrels every 17 mins. The whaling fleet was decimated by the arrival of ‘new’ oil and over hunting causing falling supply. 


 20th Century 3 masted barque.


The parallels to the current status of shipping are plain. The industry faces the twin challenges of rising bunker prices and increasing environmental legislation driven by science-backed societal concerns. 

At the end of this month politicians, industry leaders and NGOs meet in France to address the vulnerability of the world’s estuaries. 90% of EU trade passes through estuaries and their associated ports. 

Recommendations emerging from the summit will look at the impacts of shipping on emissions, wildlife, new structures and climate change which ultimately will lead to further restrictions on the sector. Simultaneously multi-national global brands like Electrolux, Heineken, IKEA, Nike, Marks and Spencer have signed up to the Clean Cargo Index - to improve the environmental performance of their supply chains. 

Innovation is key. What we learn from history is that nothing remains static. Everything has to respond one way or another to external stimuli. Shipping needs to respond positively if it is to profit in our fast changing world.  

Refs:
Whaling story via @james_bg

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