SSI - Case for Action (full report)


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SSI - Case for Action (full report)

  1. 1. This report was written and produced by Forum for the Future authors:The Sustainable Shipping Initiative (SSI) Forum for the Future on behalf of the Sam Kimmins, Rupert Fausset, Sustainable Shipping Initiative leaders group. Stephanie Draper.brings together leading companies fromacross the industry and around the The authors would like to thank the SSI Steering Group members for their leadership, Forum for the Future support: Louise Armstrong, James Goodman, Joy Green,world with two leading NGOs, Forum ideas, input and support in making this project happen. For more information on Martin Martinoff, David Mason, Laura Murphy, Chris Sedgwick, Ulrike Stein, Sion Williams.for the Future and WWF, to plan how the SSI member organisations please visit: Special thanks to Polly Simpson for hershipping can contribute to – and thrive sustainable-shipping-initiative/members help with our research and – a sustainable future. Thanks to all those who contributed to project Registered office: interviews for their helpful ideas and feedback: Overseas HouseForum for the Future is a non-profit organisation working globally Ian Adams, IBIA; David Balston, The Chamber 19–23 Ironmonger Rowwith business and government to create a sustainable future. of Shipping; Natalie Bruckner-Menchelli, London, EC1V 3QNWe aim to transform the critical systems that we all depend on, such; Rob Day, BP; United Kingdomas food, energy and finance, to make them fit for the challenges of Angie Farrag, BSR Paris; Alistair Fischbacher,the 21st century. We have 15 years’ experience inspiring new thinking, Rio Tinto; Diane Gilpin, B9 Shipping; Alf Henrik Registered charity number: 1040519building creative partnerships and developing practical innovations Gistren, Fibria; The Rt Hon. John Gummer, Company limited by guarantee: 2959712 Lord Deben, Sancroft International; Peterto change our world. Hinchliffe, International Chamber of Shipping; Date of Mr Tatsuaki Hori, Oshima Shipbuilding Co Ltd; May 2011 Helén Jansson, Royal Sun Alliance; Kristian Jebsen, Gearbulk; Paola Lancellotti, EMEC Contacts: The European Marine Equipment Council; David Menachof, Hull University Business School; Warwick Norman, RightShip; Katharine Twitter: @sustshipping Palmer, BP; Jonathon Porritt, Forum for the Future; Del Redvers, BMT; Tristan Scott, Design by: University College London; Godfrey Souter, UK Department of Transport; Jacob Sterling, Maersk Line; Per Tunell, Wallenius Marine AB; Richard Turner, Royal Sun Alliance; Simon Walmsley, WWF; Martin Watson, Watson Farley and Williams; Steve Waygood, Aviva Investors; Paul Wrobel, University College London; Makoto Yamaguchi, Mitsui OSK Line. Find out more: For more information on the report or the projects/sustainable- Initiative please contact us: shipping-initiative ssi@forumforthefuture.orgContents • 1. Executive Summary • 2. Introduction • 3. Global Trends • 4. Key Challenges • 5. Driving Change • 6. Conclusions
  2. 2. contents1. executive summary p42. introduction p123. the changing context – global trends p17 The global economy: emerging giants? p18 Freedom vs level playing field: ocean governance p20 No secrets: demand for transparency p22 Moving on from oil: the future of energy p25 Demanding higher standards: sustainability regulation p29 Advancing technology: making it pay p31 Adapting to a changing climate p344. three key challenges p36 Navigating a changing economic context p37 Increased scrutiny, higher expectations p38 The future of energy and climate change p395. driving change – a call to industry leaders p406. conclusions p44 © Jeff Nagy / istock
  3. 3. executivesummary © Nikontiger / istock the case for action This Case for Action paper looks ahead to 2040. The Case for Action sets the agenda for the It is based on interviews with experts across second phase of the SSI, which will produce the maritime sector, from business, legislative a vision for an industry in 2040 that is resilient, and regulatory bodies and academia as well socially and environmentally responsible, andThe Sustainable Shipping Initiative (SSI) brings together leading as the experience of our 14 members. It does profitable. In the third phase, members willcompanies from across the industry and around the world with not attempt to predict the future but is intended develop an action plan to future-proof thetwo leading NGOs, Forum for the Future and WWF, to plan how to raise awareness of how the whole environment shipping industry, and guide a series of specific,shipping can contribute to – and thrive in – a sustainable future. in which the industry operates could change. practical innovation projects. This will set out Our intention is also to start a debate on how what key players need to do to achieve thisOur goal is to transform the global shipping industry and the to respond. vision. It may include technical and engineeringwider maritime sector, establishing a new, sustainable approach initiatives, regulatory and policy proposals, andas the norm. We want to help industry leaders to look beyond We identify the global trends – such as new new models of finance and business.their immediate concerns by understanding the long-term patterns of trade, shifting global powers, risingchallenges and opportunities that face them. We hope our initiative fuel costs and changing customer demands – thatwill energise and inspire members and non-members alike. will profoundly affect the maritime sector over the next 30 years. We examine how they interact toThe world faces great challenges: recent decades have seen a present three key challenges for the industry, Globalisation, climate change, and escalatinghuge growth in economic activity coupled with a massive rise and the risks and opportunities that these present. energy costs are a strategic nightmare forin population. These developments have put the Earth’s finite Finally, we explore how change happens in the shipping companies and they all have oneresources under increasing strain. The UK Government’s Chief shipping industry, and the role of industry leaders thing in common – fossil fuels.Scientist, John Beddington, has warned of a ‘perfect storm’ of in driving future change. Throughout the Case for Martin Stopford, Clarksonsclimate change, insufficient energy resources, food shortages Action, we pose questions designed to stimulateand scarce water, causing major upheavals to the global economy thought and discussion on what action businesseswithin the next 30 years.1 might take on their own and across the industry.This analysis is a call to action for the worldwide shipping industry.We believe that, with far-sighted leadership, businesses can The Case Vision Future Widerweather the storm and emerge stronger and more sustainable. for Action 2040 Innovation ActionAnd we believe that the industry has a vital role to play inhelping create a sustainable, low-carbon economy. 2011 2012 2013Contents • 1. Executive Summary • 2. Introduction • 3. Global Trends • 4. Key Challenges • 5. Driving Change • 6. Conclusions Page 4
  4. 4. three key challengesIt is clear that the shipping industry’s operatingcontext will alter significantly over the next30 years. Cargoes and markets are changing,and there are new challenges in global oceangovernance. Fuel costs are rising, althoughtechnological advances offer the potentialfor radical improvements in efficiency. Andcommercial customers, particularly theglobal brands, are incorporating sustainabilityinto their core business and coming underincreased pressure to address sustainabilityconcerns throughout their supply chains.The changing context in which shipping must Navigating a changingoperate is summarised in seven global trends economic contextthat we believe will profoundly affect the industryover the next 30 years (see diagram). Each ofthese will have direct impacts, but at least asimportant will be how they combine and interactto create significant, game-changing challenges. Increased scrutiny, higher expectations The future of energy and climate change Contents • 1. Executive Summary • 2. Introduction • 3. Global Trends • 4. Key Challenges • 5. Driving Change • 6. Conclusions Page 5
  5. 5. global trends The global economy: emerging giants? Moving on from oil: the future of energy Developing nations are growing in influence and economic activity. The massive expansion in global trade of the past 20 years has been New demands will alter patterns of trade, changing which goods powered by easily available fossil fuels. Major oil institutions are are transported and where. Most people assume that the global now cautioning that the age of easy oil is over, predicting higher and economy and global trade will continue to grow. However, there more volatile pricing and a peak in oil production.2 This, combined are several reasons why trade might decline: the growth of ‘closed- with concerns over energy security and climate change, may drive loop economies’ where resources are reused; greater virtualisation major changes in fuel types and efficiency. Will shipping respond of trade based on information technology (eg sales of CDs being to this threat with a planned transition, a last-minute scramble, or displaced by downloads); and a critical resource crunch such as a disorderly decline? ‘peak oil’ leading to instability, protectionism and reduced demand for transporting goods. Demanding higher standards: sustainability regulation Freedom vs level playing field: ocean governance Increasing pressure on global resources is likely to lead to demands for higher sustainability standards. Shipping regulation has focused National and international management of the oceans has increased on ‘traditional’ issues such as emissions of sulphur and nitrogen significantly in scope, rigour and complexity over the past 30 years. oxides and ballast water. Expect a new focus on workers’ rights How it develops in future will be critical to the industry. A robust and more sophisticated regulatory approaches such as those in International Maritime Organization with rebalanced voting powers China, which promote ‘closed-loop’ economies based on reuse could create a level playing field for all. But weak global governance and recycling. – overlain by an ever more complex patchwork of local regimes, industry codes of conduct and voluntary standards – could create Advancing technology: making it pay confusion and inertia, perhaps even leading to a two-tier industry split between high and low performers. New materials, alternative energy technologies and more fuel-efficient ship designs have the potential to deliver radical No secrets: demand for transparency improvements in the sustainability of shipping. As noted above, technology also makes businesses, their customers and Businesses throughout the supply chains outside the shipping consumers more transparent and networked. industry are already setting stretching social and environmental targets to respond to demands for better performance. They Adapting to a changing climate are also having to navigate the fast-paced, transparent, internet- enabled world of social media. Technological advances make Climate change is likely to increase the frequency and severity of real-time monitoring feasible and affordable, even in the open storms, and has the potential to influence ocean currents. Ports oceans. Businesses will have opportunities to demonstrate and other coastal facilities could be threatened by sea-level rises leadership by giving customers, regulators and NGOs the over the next 30 years. The wider impacts of climate change on opportunity to monitor their performance. This could lead to food production and flooding of major population centres could extremes of transparency by 2040. have huge implications for global trade and shipping. There is a compelling case to take action to prepare for the possible impacts of climate change, as well as to mitigate those impacts by reducing carbon emissions.Contents • 1. Executive Summary • 2. Introduction • 3. Global Trends • 4. Key Challenges • 5. Driving Change • 6. Conclusions Page 6
  6. 6. challenge 1: The global economynavigating a changing Ocean governance Navigating a changingeconomic context economic context Changing climateOver the next 30 years there is likely to be rapid and significantchanges in the direction of trade and the type of goodstransported. An industry that is highly mobile by its verynature should be well equipped to deal with this. But the key Sustainability regulationquestions will be whether global trade grows or declines andhow the industry is governed.Continued growth of free trade, clarity on the aims and influenceof rapidly growing economies such as China, within the contextof a strong, more directive ocean and maritime governance regimewould provide regulatory and economic certainty. This wouldenable industry leaders to invest for the long-term and preparefor the more disruptive possible futures identified in this report.However, there are several reasons why trade might decline.Economic contraction, leading to ferocious competition for trade,would further squeeze already tight margins and magnify anycompetitive advantage – or disadvantage. Against a backdrop Risks Opportunitiesof weak international ocean and maritime governance, and apatchwork of local and regional legislation, it would become • Insufficient preparation for rapid change in • In a contracting market, competitive advantagesharder to plan and invest for the long-term. Although the routes and markets. could make the difference between successshipping industry might recognise the need to evolve, it would • A patchwork of regulation that makes shipping and failure. Fuel efficiency will lower operatinglack clear direction and resources for investment. overly complex and reduces margins. costs, for example, so businesses that meet • A contraction of trade or a preference for high standards could win preferential accessIn describing the risks and opportunities below, we acknowledge national manufacturing/service operators to high-performing markets.that risk for one part of the industry may well be an opportunity that reduces the overall demand for • A coordinated group of leaders could supportfor another. For example, rising workers’ expectations present shipping and cuts out less efficient and the IMO to develop progressive new regulatoryan opportunity for organisations with good labour relations to flexible ship operators. levers that anticipate future skilled staff whose expectations cannot be met by less • Workers’ rising expectations in developing • Shipping logistics could be at the centre ofconscientious operators. economies make it harder and more coordinating more closed-loop economies expensive to recruit. – either regionally or globally. • The emergence of new routes and markets.Contents • 1. Executive Summary • 2. Introduction • 3. Global Trends • 4. Key Challenges • 5. Driving Change • 6. Conclusions Page 7
  7. 7. challenge 2:increased scrutiny, Ocean governancehigher expectations Changing climateIn a highly networked, social media-savvy world, the shippingindustry is likely to come under increased scrutiny. Greatertransparency will encourage customers and other stakeholdersto favour strong performers. Sustainability regulationExpect the shipping customer of the future to be interested inprice, security and speed, but also in wider performance factorssuch as working conditions, vessel efficiency, emissions, Increased scrutiny,biodiversity and environmental/labour rights prosecutions. higherThis is a strong trend already seen in the land-side supply expectationschain, with companies such as Walmart demanding thatsuppliers perform against a sustainability scorecard.We anticipate rapid proliferation of voluntary standards andcodes of conduct for shipping, together with raised expectations Demand for transparencyfrom ports, financiers, insurers and others. These demandsare also likely to be accompanied by increasingly stringentinternational, national, regional and city-based regulations. Risks OpportunitiesSophisticated remote monitoring technology already enables • A complex patchwork of standards creates • Leaders who embrace transparency tounprecedented transparency, and we anticipate a huge a compliance burden. demonstrate good performance could gainexpansion of its application within shipping. • Ad hoc social media campaigns focus on preferential access to finance, insurance the infrequent abuses of workers’ rights that and markets. tarnish the whole industry. • Improved transparency reduces opportunities • Poor performers or those who fail to for poor performers to undercut the market. demonstrate improvements may be excluded • Collaborating with other parts of the supply from the more demanding markets. chain in the development of new standards • Technology enables a new ease of inspection offers the opportunity to shape them and and enforcement, forcing expensive, reactive respond ahead of the competition. improvements at the bottom of the market. • Failure to work with parties developing standards can lead to poor standards that are overly expensive or bureaucratic.Contents • 1. Executive Summary • 2. Introduction • 3. Global Trends • 4. Key Challenges • 5. Driving Change • 6. Conclusions Page 8
  8. 8. challenge 3: The global economythe future of energyand climate change Changing climateLeaders of the energy establishment are warning that the ageof easy oil is over. Many believe we will reach ‘peak oil’ as earlyas 2020. Over the past two years we have already seen oilprices span almost the entire range that the US government Sustainability regulationprojected for the next 15 years. Volatile prices and insecuresupply are likely to present a significant challenge to shippingand the wider economy.At the same time floods, heatwaves and other extreme weather The future of energyevents offer increasingly alarming evidence of global warming.This will increase pressure for shipping to be included in regional The future ofand global regimes to reduce greenhouse gas emissions. Making it pay energy and climate changeShipping companies and their partners recognise the need toinvest in energy efficiency and in the transition to new fuels,exploring new financial models to enable this to happen. Thisis challenging but necessary: companies that fail to act will bevulnerable to competition in an increasingly uncertain market. Risks OpportunitiesThere is uncertainty, however, over how to invest. Short-term price • Ships built today could swiftly become obsolete • Shipping is the most efficient mode of transport, andfluctuations in different fuel types are a factor in this uncertainty, because of significant changes in the type rising oil prices could see it benefit from a shift awayalong with the need for coordinated action to develop supply and price of fuels, in shipping regulations, from competing transport providers.infrastructure and the competing performance demands made or in customer expectations. • Rising oil prices could give a competitiveby strictures such as the sulphur regulations. Strong leadership • Oversupply of available vessels is already a advantage to operators who have alreadyis required to prevent uncertainty resulting in inaction. concern. Future innovation could be stifled in invested in energy efficiency. a market flooded with obsolete designs sold • Shipyards may have an opportunity to retrofit the at knock-down prices. >100,000 commercial ships currently in operation. • Investment in new technology is constrained • State support for adopting new technology at scale by ‘split incentives’, which separate key could create a paradigm shift in the market. Chinese decisions from their financial consequences, ship builders already benefit from subsidised steel: and by short investment horizons. This presents what might happen if states subsidise highly efficient an opportunity for new entrants to shipping to ships or a new fuel infrastructure, as parts of a wider out-manoeuvre incumbents. energy security strategy?Contents • 1. Executive Summary • 2. Introduction • 3. Global Trends • 4. Key Challenges • 5. Driving Change • 6. Conclusions Page 9
  9. 9. key questions Precedents for change Shipping is a dynamic, entrepreneurial industry. New businessThroughout the Case for Action we have presented questions designed and financing models could mean that the industry looks veryto stimulate thought and debate on how the industry needs to change. different in the coming years.Here are nine key questions: Containerisation, described in more detail in the full Case for Action, is a prime example of this. Early protagonists found it impossible to consolidate cargoes in large boxes, when ports and ships were designed for manual handling. It wasn’t until McLean Trucking (later Sea-Land) looked • Most long-term planning is based on • How is the industry preparing for the beyond the ship and the port to the wider logistics system assumptions of continued growth. What combined impact of sulphur limits, oil that a new business model was developed to overcome the key decisions would be different under shortages and climate regulation? barriers to containerisation. This broader view led to the highly an assumption of reduced growth and successful container shipping industry we know today. tighter competition? • What changes would the industry need to make if its emissions, pollution incidents, Consolidation in global shipping could challenge fundamental • How can industry leaders coordinate action working conditions and other actions were assumptions in a similar way. With the exception of a small and speak with one voice that influences completely open to scrutiny by customers, number of industry giants, the shipping industry is made up the future of global governance and policy insurers, regulators and other stakeholders? of a number of small privately owned companies. All of these in a progressive way? have a high degree of autonomy but are often limited in their • Who would be the winners and losers? ability to invest in change. McKinsey predicts that global • Uptake of new technology is slow. How do mega-corporations will start to emerge over the next decade,3 we future-proof today’s new ships to prevent • How can the industry ensure that training with continuing consolidation over the next 25 years. Could early obsolescence? How might we fund and working conditions keep pace with mega-corporations, with better access to the finance required and deliver a massive programme to retrofit the changing social and technical needs to invest in new technologies, assets and training, drive ships to achieve low emissions or even of future employees in the shipping sector? ambitious change through the industry? zero emissions? • How can the industry respond to the potential Similarly, change could come from outside. A major change in • What are the commercial opportunities for opportunities of climate change, such as the land transport infrastructure or port practices could challenge shipping in supporting a closed-loop opening of the arctic, in a sustainable way? fundamental assumptions. economy, in which materials are recycled and reused locally and regionally? • What are the risks of climate change, the Resisting change could leave incumbents vulnerable to economic implications of increased storm competition from ‘gatecrashers’ in the same way that Google • What are the opportunities for competitive risk, rising sea level and a changing is entering the renewable energy market, and Tesco the advantage if oil prices spiral upwards? navigational environment? banking sector. Just as Easyjet and other low-cost operators revolutionised the airline industry, so one of the most profound transformations of shipping in the 20th century – containerisation – was led by a trucking company. Download the full report from: Contents • 1. Executive Summary • 2. Introduction • 3. Global Trends • 4. Key Challenges • 5. Driving Change • 6. Conclusions Page 10
  10. 10. next steps – a call to industry leaders Winners and losers Differing attitudes to sustainability have helped to produceOur Case for Action looks at the some clear winners and losers, both within and outside theglobal trends that will shape the In responding to the Case for shipping industry:future of the shipping industry. We Action, we believe that industryalso consider how the market and leaders need to: • General Electric anticipated customers’ demands forregulation force reactive change. energy-efficient products, and developed more than 80But change can also come from new products under the ‘ecomagination’ banner. These • Create a shared vision of how generated revenue of more than $17 billion in 2008.within the industry, and there is the industry should developa need for leaders to step forward over the next 30 years. • Maersk initiated ‘slow steaming’ in 2007, yielding costand take the initiative in addressing savings of £300 million and a 7% reduction in CO2the challenges it faces. • Develop innovative business emissions. The experience gained allowed the company models that encourage long- to define a new generation of vessels (see case studyLeadership is not only about responding to term investment, and take page 27), with 50% lower costs than the industry average.the areas where there is a clear business case into account social andtoday but also anticipating and shaping the environmental obligations. • The US auto industry, already encumbered by pensionindustry of tomorrow. Successful companies debt, came close to collapse in 2008 when sales of thewill be those that not only recognise the • Prepare for greater scrutiny and large, inefficient vehicles it produced plummeted inchallenges and opportunities ahead but are demands from customers and response to rising oil prices. A government bailout ofalso able to develop appropriate business society with regard to social $25 billion was approved on condition that the industrymodels, practices and policies that will define and environmental performance. fast-tracked fuel economy standards of 35mpg.4the future operating environment. • Build and convert ships to the • In the 1990s, B&Q, part of the Kingfisher Group, went intoThe leaders who are signed up to the SSI highest standards of energy partnership with WWF to deal with the emerging consumerunderstand this. They are pioneering new efficiency in anticipation of concern over wood product sourcing. This led to B&Qpractice and creating a vision for the industry high and volatile fuel prices becoming a founder member of the Forest Stewardshipto work towards. This is because they and demands for low-carbon Council, which certifies sustainable timber. As an earlyunderstand the imperative for a sustainable performance. mover, B&Q secured its reputation, protected its supplyindustry and want to profit from it. chain and helped define sustainable forestry. • Support the developmentThe second phase of the SSI will continue of coordinated, progressive • In 2008, airlines that had based their business model onthis process, producing a shared vision of an legislation that rewards historic fuel prices failed in large numbers. Companiesindustry in 2040 that is resilient, socially and sustainability. went under at the rate of one a week in the US, and Europeenvironmentally responsible, and profitable. lost premium services such as Silverjet and Maxjet. More established players were forced to merge, cut services and endure heavy losses. British Airways’ CEO stated that profits would be wiped out if oil remained above For more information visit: $120/barrel. Contents • 1. Executive Summary • 2. Introduction • 3. Global Trends • 4. Key Challenges • 5. Driving Change • 6. Conclusions Page 11
  11. 11. introduction how we would like the industry to respond the current operating context for shipping Shipping plays a critical role in the global When reading this report we would like you economy. Over 100,000 commercial ships as leaders to ask yourselves what the most transport 90% of global trade.5 This means sustainable outcome of each trend, or that the vast majority of the goods and energy scenario, would be. By sustainable, we most of us use depend on shipping to get to us. mean delivering profit but also benefiting the environment and society, now and in Shipping is a barometer of world trade, and it the future. In other words, what are your has seen unprecedented expansion in the past aspirations for the future of shipping? two decades. Tonne-miles of cargo doubled between 1990 and 2008. The industry’s impacts If you are not a leader but someone who and responsibilities have grown along with wants to advocate change, then use the its cargoes, from Safety on Board in the first report to engage with those who can make convention of 1914 to an increasing realisation a difference with regard to these issues. of its fundamental role in managing climate and energy resources a century later. The industry We would also like readers to think about what is heavily dependent on increasingly insecure they might do to make a better future happen. oil supplies, and its CO2 emissions are around When reading the section on change, test and 3% of the global total. challenge the initial assumptions that we have made, and think about what role you or your The spotlight has fallen on heavy industry, organisation might play in doing things differently. energy producers, automobiles and aviation Are you creating or adopting new technologies in turn, as it now has on shipping, resulting that will be game changing, or influencing your in a cascade of social and environmental suppliers to do more sustainable things? improvement. While earlier changes tended How are you ensuring that the good things you to be imposed by regulation, globalised do as a company or organisation have maximum businesses are now taking action independently. impact not only for you and your employees They know that if they do not work to achieve but also for your industry? optimal change on their own terms, they are likely to be subject to piecemeal local and This is a work in progress. The SSI aims to regional measures or left behind by a changing create change for the better. Throughout market (as with the US automobile industry). the report we will pose questions to get you engaged and encourage you to think through what happens next. And we hope that you will join us in a journey towards a good future for shipping. Without the shipping industry, half of the world would freeze and the other half would starve. Efthimios Mitropoulos, IMO Secretary-GeneralContents • 1. Executive Summary • 2. Introduction • 3. Global Trends • 4. Key Challenges • 5. Driving Change • 6. Conclusions Page 12
  12. 12. progress on Complexity and the need for leadershipsustainability Shipping is a complex business. Notorious ‘split incentives’ separate key decisions from their financial, environmentalChanges in the shipping industry have been or social consequences. The owner may have decided ondriven by a mixture of legislation (mainly through the design, and the manager on operational practices. Whenthe IMO) and action by industry leaders. The this occurs, the charterer may end up paying the fuel costindustry has responded to global concern over without any say in the investment or operational decisionsoil spills, ballast water, anti-fouling systems and that influence that cost.air pollution, creating new emission control areasand achieving a reduction in oil pollution incidents. The IMO has estimated that 10–50% cost-effective fuelThere is now a raft of regulation in place, and savings may be available from vessel design alone. Butthis is mirrored by industry initiatives, some of changes are not implemented, partly because of structuralwhich are presented as case studies throughout barriers. There are even disincentives built in, such asthis Case for Action. While regulation emanating demurrage 6 – which requires port arrival at a set time,from the IMO is largely environmental in nature, regardless of whether this will enable earlier unloading.there is often mutual benefit between safety andenvironmental protection. Nevertheless, an overt The complexities of the industry undoubtedly present barriersfocus on workers’ rights has lagged behind the to change. Overcoming or eliminating these barriers is asenvironmental agenda. important to long-term competitiveness as developing new technical solutions, regulations and operational practices. Unravelling this complexity requires cooperation and collaboration across the industry, with clear advantages forGHG controlling regulations on ships will those who succeed. The SSI brings together leaders fromsend one of the largest ever shockwaves across key parts of the industry to enable the developmentthrough the industry, with implications of effective solutions to these cross-sectoral challenges.including early scrapping of aged vessels,growing demand for new ships due toslow steaming, and increasing technologycompetition amongst shipbuilders.Aviva Investors, 2010, Review ofShipping and Shipbuilding © David Cannings-Bushell / istock Contents • 1. Executive Summary • 2. Introduction • 3. Global Trends • 4. Key Challenges • 5. Driving Change • 6. Conclusions Page 13
  13. 13. from safety to sustainability: a new global responsibility for shipping This illustration is not intended to be exhaustive. DescriptionsThe scope of sustainability concern has evolved How will the industry respond to, or be affected refer to main sense of measures. All instruments may also have exceptions, derogations etc.from local factory and on-board safety, to the by, the global climate and resource constraints Unless otherwise stated maritime legal measures mentionedfundamental global issues of the 21st century. now taking centre stage? are IMO based, dates refer to entry into force of legal measures, not just adoption.Shipping’s responses have evolved too, from This graphic illustrates some key milestonesthe SOLAS safety convention after the Titanic in sustainability, together with some of thedisaster to the sulphur and nitrogen control major actions taken by shipping so far.measures now being implemented by the IMO.Incidents and action: key milestones Maritime legal framework 2008 Global tonne- miles doubled since 1990.Resources Oil and food price spikes. Bunker fuel price doubles. 1992 1997 2005 2005, 2010 2012 UN Climate Kyoto EU Emissions Hottest years Aviation brought Change protocol. Trading scheme on record. into EU ETS. Convention. (ETS) launched.Climate change 1988 –90 1989 1997 2000 2010 USA & EU UN Montreal MARPOL China, India IMO regulation MARPOL Annex VI on air pollution. regulate land Protocol on Annex VI. apply EU 14 on fuel sulphur based sulphur Ozone Depleting car emissions content, ECAs.Air pollution emissions. Substances. standards. 1983 1989 1990 1991 1996 1998 1999, 2001 2001 2003 2005 2008 MARPOL 73/78 & Annexes. MARPOL Exxon Valdez US: single hull IMO approves IMO new tankers NGO campaigns Erika & Prestige IMO Phase out of EU: single hull IMO phase out IMO AntiMarine CONVENTION ENTERS FORCE. spill. tankers banned from US ports Great Barrier Reef as first PSSA. required to have double hulls, on ship breaking. sinkings. single hull tankers by 2015. tankers banned from EU ports of single hull tankers fouling Systems convention. London Convention on Marine Dumping 1975. Particularly Sensitive Sea Areas (PSSA).pollution by 2010. 1990s single hull phase out by 2010. accelerated to 2010. Ballast Water Management Convention (adopted 2004).& waste by 2026. NGO campaigns Antifouling Systems Convention 2008. on Anti-fouling. Hong Kong Convention on Ship Recycling (adopted 2009). 1912 1974 International Convention on the Safety of Life at Sea (SOLAS) 1974. Titanic disaster. SOLAS Convention (In force 1980)Safety Originated 1914. Contents • 1. Executive Summary • 2. Introduction • 3. Global Trends • 4. Key Challenges • 5. Driving Change • 6. Conclusions Page 14
  14. 14. more pressure and The cost of inaction?potential for change In 2008, the US auto industry came close to collapse, partly because of a failure to adapt to a predicted rise in oil prices.Recent years have seen the rise of fundamentalnew global challenges, driven by the scale and The US auto industry’s ‘big three’ have been notoriouslygrowth of human economic activity against a resistant towards energy-efficient vehicles. Daimler Chrysler,background of increasing resource scarcity. Ford and GM were active lobbyists against climate changeMaterial and social expectations that were once legislation, and famously sued the state of California in 2004limited to a rich minority are becoming universal. over the introduction of low-emissions standards.7Economic and political power is shifting, andshipping cargoes are changing as consumption In 2008, emission standards in the US were stalled at 25mpgpatterns change and as climate change affects (compared with 40mpg in Japan and Europe).8 The UScrop production and water availability. Meanwhile, industry remained focused on profitable but fuel-hungry SUVsoil supplies are harder to find, forcing a potentially and large pickups.9 When petrol prices rose above $4 perstark choice for the global economy: innovate gallon in 2008, sales plummeted as customers sought morefor efficiency, or see consumption and growth cost-efficient vehicles – which the big three were unableconstrained by high fuel prices perhaps well to provide. Encumbered by huge pension and healthcarebeyond those experienced in 2008. commitments, these companies were forced to negotiate a government bailout of $25 billion. In return, the industry wasLooking ahead, it is clear that the operating required to fast-track development of 35mpg vehicles bycontext for the industry will change dramatically 2015 10,11 – a standard achieved in Europe, Japan and Chinaover the next 30 years, bringing new challenges well over a decade earlier.and opportunities. The industry has seen many‘paradigm’ shifts before, and is well capable of While Asian manufacturers also suffered during the economicmanaging future change successfully downturn, Korean companies escaped almost unscathed. Early investment in highly fuel-efficient, low-cost cars isPlanning ahead now, rehearsing strategies and cited as a key factor in this success. It is notable that oneconsidering medium and long-term options of the key challenges faced by Japan’s Toyota was a supplywill allow industry leaders to navigate these shortage of its fuel-efficient Prius and Yaris models, ratherchallenges and opportunities and secure than a slump in demand.12a successful future, while contributing to asustainable world. © ricardoazoury / istock Contents • 1. Executive Summary • 2. Introduction • 3. Global Trends • 4. Key Challenges • 5. Driving Change • 6. Conclusions Page 15
  15. 15. People: skills and standardsThe shipping industry, like any other, relies on a high-calibre Emerging technology will require a moreworkforce with the appropriate skills and experience to deliver technical approach than we have traditionallybusiness success now and in the future. required for mariners, changing the entire demographic profile of seafarers. TheSkills are a crunch issue for shipping. Trends data to industry must foster closer ties with training2015 indicate that attracting skilled, officer-class labour institutions to ensure that tomorrow’swill continue to be a challenge. This is exacerbated by seafarers are properly equipped.short-term commitments to the industry and rapid crew Peter Hinchliffe, Secretary General,turnover, particularly in the US and Europe, where crews are International Chamber of Shippingoften unwilling to spend long periods at sea. As countriesdevelop, they demand higher standards of worker welfare.Dong Baohua, professor of law at East China Universityof Politics and Law, reports that “workers born after the1980s and 1990s are concerned not just about pay butabout safety, rights and respect”. Good working conditions At the far end of the spectrum, labour rights abuses at seawill be of paramount importance in attracting and retaining and in the ship-breaking industry are as shocking asexperienced, skilled staff. sweatshop revelations. At the extremes, abuses include beatings and bonded labour, with reports of seafarersChanging demands will inevitably raise costs across the ‘imprisoned’ aboard ships for up to two years. Newsworthyindustry, but could also increase risk for poor performers. examples such as these could open the industry toHuman error lies behind 58% of insurance claims in the reputational risk and increase the imposition of codes ofindustry, so effective training is vital for managing health conduct by customers, similar to the SA8000 standardand safety, asset risk and insurance cost – as well as adopted by Nike. Components in new ships are increasinglyreputation and operational effectiveness. being labelled for end-of-life recycling. This not only facilitates more sustainable ‘closed-loop’ ship building but could bring much needed accountability and traceability to hidden parts of the shipping supply chains, such as the ship-breaking sector in developing economies, in which workers as young as 12 are employed in what is described as ‘the world’s most dangerous job’.13 Managing labour rights is not just about risk, there are also opportunities, and companies, including Unilever and Marks & Spencer, are exploring what a living wage really means and how it might add value through increased productivity. As standards and technological complexity increases, investing in human capital will be vital for companies wishing to keep up. There is a third possible future, in which vessels could become unmanned for all or part of their journeys. In a world where unmanned Predator drones routinely undertake airborne combat and airliners land automatically, this is a feasible next step. © Alfredo Tisi / istockContents • 1. Executive Summary • 2. Introduction • 3. Global Trends • 4. Key Challenges • 5. Driving Change • 6. Conclusions Page 16
  16. 16. the changing the global economy: emerging giants?context – freedom vs level playing field:global trends ocean governance no secrets: demand for transparencyBased on research and interviews, we have identifiedseven global trends that we consider to represent the moving on from oil:key sustainability challenges and opportunities facingthe shipping industry over the next 30 years. the future of energyWe explore these trends in a global context. We then takea closer look at how they might affect the shipping industry.There is inevitably cross-over and interaction between trendsand their impacts. In section 4 we investigate how these demanding higher standards:trends combine to present three key challenges to the industry. sustainability regulation advancing technology: making it pay adapting to a changing climateContents • 1. Executive Summary • 2. Introduction • 3. Global Trends • 4. Key Challenges • 5. Driving Change • 6. Conclusions Page 17
  17. 17. what’s happening now? Globalisation has transformed the way trade transmission rather than shipping coal and oil.19 operates, and continued growth of free trade Emerging techniques for flexible, low-cost could be an unstoppable trend. The phenomenal automated production could remove the costthe global economy: growth of India, China and other fast-developing nations is changing the direction of global trade advantages of locating for low-cost labour – in parallel with a growing middle class inemerging giants? flows, and could herald a seismic shift in the balance of power. fast-developing nations that is changing work expectations. This could have a significant effect on physical trade and global transportation needsShifting trade patterns will change what is being transported Not surprisingly, most experts interviewed as part in the long term, particularly if combined withand to where, as BRIC and other developing nations grow in 14 of our research believe that the locus of power will moves towards ‘closed-loop’ economies such as continue to shift towards China over the next 30 China’s 2009 recycling economy promotion law.20influence and economic activity. Most predictions are based years – although other rapidly developing nationson assumptions of continued growth and expansion of global are also likely to increase their power and influence. The majority of projections sampled assumetrade. But the possibility of contraction, re-localisation or At the same time, the economic might of the small, overall growth of the world economy.21 But thevirtual substitution should not be ignored. ageing-population countries of Europe and North recent downturn has revealed the vulnerability of America is predicted to decline. A multipolar 15 the global economy.22 Trade could be profoundly world is envisaged, with power more evenly affected by challenges such as feeding a distributed between the continents, and emerging population of over eight billion,23 ‘peak oil’ (see mega-cities playing a more significant role as the trend, ‘Beyond oil – the future of energy’), population becomes more urbanised.16,17,18 climate change refugees and extreme events such as a major pandemic or terrorist attack. There are also signs of some virtualisation of Political action – including protectionism by a global commerce. The International declining West, or embargos (covering Russian Electrotechnical Commission is recommending gas supplies to the Ukraine and EU, for example) a shift to trading electricity via long-distance – could also challenge our assumptions of growth. Major oil flows will still be from all the usual production points – but most boats will be pointing east. But as Chinese living standards rise and transport costs increase, we might see a levelling off of globalisation and a move towards more regional trade patterns. Rob Day, BP Shipping © Pgiam / istockContents • 1. Executive Summary • 2. Introduction • 3. Global Trends • 4. Key Challenges • 5. Driving Change • 6. Conclusions Page 18