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Pokémon GO and the world of container shipping as we knew it

Rahul Kapoor, head of Drewry Financial Research Services, tries to decipher the effects of the evolving consumer psyche and how the traditional GDP to container trade model is so last century.

“Dad, have you heard of Pokémon Go, can kids play it, when can I download it?”, “Dad, for this birthday can you download for me the Lego Marvel’s Avengers game?”, “ Mom, can you please download this character for me?”. That is my nine-year-old son asking for his reward after he has done his homework. A portion of his pocket money is now spent on the iTunes app store, that is the share lost by traditional retailers. He does love Lego and buys an odd football or a board game once in a while but has newer avenues to spend his paltry pocket money, which I did not have 10-15 years back. He is the consumer of tomorrow, much more connected and intertwined in a globalised world.

What I want to illustrate through this post is how our spending patterns are undergoing a massive change and it is happening within a very short period of time. These spending avenues did not exist a few years back. The consumption landscape for western/developed economies looks quite different today than it did even ten years ago. Not only the way consumers make purchasing decisions has been dramatically altered but also where and what we spend on. The consumer’s share of the wallet is undergoing massive disruptions that will pose a great threat to traditional consumerism as we have known it in years to come, this has a direct impact on the global merchandised trade and demand for container shipping. Will the rise of the sharing-and-experience economy substitute the demand for goods as we have known it, a food for thought maybe.

Pokémon Go

Let’s look at the Pokémon Go, what a fascinating story. Pokémon Go is a free-to-play location-based augmented reality mobile game developed by Niantic. The game requires players to get out of the house and hunt characters in the real world. It uses augmented reality (AR) to overlay, or place characters, in real settings when viewed through the app. The mobile device’s camera acts as the viewer and as the Pokémon appear on the screen, players can interact with them. Some have said that “Pokémon Go is taking over the world.” To me it is globalisation at its best, globalisation is not only about trade anymore.

What happens when hundreds of people are gathered at the edge of Central Park to play Pokemon Go at 11pm in the night and a Vaporeon shows up in the park? Well….this!

I don’t remember last time a mob gathered to buy a retail product, gone are the days of long queues for Apple products.

The explosive success of Pokémon Go shows where the young consumer’s mindshare and money is going. Looking around us gives us enough evidence that consumer patterns are changing faster by the day and “must have” products of yesteryears are being replaced by “must have” experiences/services. The commonality is the desire to spend the higher share of increasingly stagnant incomes on travel, dining out and social experiences, products are being replaced. In an increasingly knowledge based and services driven global economic expansion, the trade expansion is stagnating. The global manufacturing engines, world trade, credit driven GDP growth model is being increasingly challenged and world trade seems to stuck in a time warp, barely growing.

The early investor behaviour for Nintendo also signifies that any green shoots of growth are seeing monstrous valuation upticks, these are primarily coming from new age businesses in technology. It’s also visible in valuations that market accords to Uber, Facebook, Didi Chuxing, Airbnb etc etc. Some may call it a bubble and I am not a technology analyst and competent enough to take a call on that sector’s valuation. But the traditional businesses of old economy are seeing structural downshifts in valuation as investors chase growth and growth is definitely expensive today than it has ever been.

A large part of today’s customers have different spending priorities and certainly the young customers are prioritizing the purchase of new technology/experiences over other goods.

It’s important to decipher the effects of the evolving consumer psyche after the Global Financial Crisis (GFC) on demand for goods. The GFC has certainly dented the consumer confidence as challenging job market and stagnant income levels does not bode well to inspire purchasing decisions. Has the “sharing economy” played a role in to delaying/abandoning purchases of large ticket items. i.e. cars, as in case of emergence of Uber and houses of Airbnb. Both started in the depths of the GFC and have emerged as leading-age companies of the world.

Is it that the consumers prefer access to goods over ownership of goods? A recent study by the McKinsey Global Institute finds that changes in the world economy have left many people worse of. The real incomes of about two-thirds of households in 25 advanced economies were flat or fell between 2005 and 2014. Without action, this phenomenon could have corrosive economic and social consequences.

The report titled “Poorer Than Their Parents? Flat or Falling Incomes in Advanced Economies” finds that prospects for income growth have deteriorated significantly since the financial crisis.

Are we seeing a ripple effect on the global consumption demand or will it only accentuate ? Does Pokémon Go fulfil little pleasures of life without the need to spend excessively on material goods.

There are several other factors in play on why the global trade demand is definitely subdued, capital goods and investment spending are on structural declines, rising protectionism, currency wars, near shoring, miniaturisation, saturation of container penetration, consumer spending hasn’t recovered to support economic growth etc etc. Consumer spending, if not only but still, is the biggest driver of the container shipping demand and will remain for foreseeable futures.

Having said that, hopefully, the above helps in solving the puzzle why the traditional GDP to container trade model is an archaic way to determine demand and newer methodologies will need to evolve. The market forces are complex and beyond the direct control and apparently beyond the capability of linear forecasting models. These shifts in consumer psyche and purchasing patterns will need much nuance readings and the industry will change more in the next five years than it has over the past two decades. This is bound to have an impact on the demand side equation of the container shipping as we buy less physical products even if incomes levels inch higher moderately, the golden era of container shipping and the consumption boom seems over.

By no means the above arguments capture all the knowns and unknowns. The above might not be reflective of the universe but certainly is a food for thought. It’s not all gloom and doom, the rise of consumer middle class in major emerging markets over the next decade will be supportive but will it be enough to compensate for the consumption decline in developed economies, too early to tell.

Pokémon Go will fade away with time as all things do but the insights it gives on the changing landscape will remain pertinent. “We Overestimate the Next Two Years and Underestimate the Next Ten”, one of my favourite quotes comes from the Microsoft co-founder Bill Gates signifying how we miss the big-picture.

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