Around a century ago, on November 2 1920, 25m US citizens cast their vote in the first presidential election of the new decade. Warren G. Harding was elected the 29th President of the United States of America by a landslide. More significant than the outcome of the election was the fact that, for the first time, normal American citizens could hear the results come in through their radio sets, hours before they were published in the newspapers.
Up until that point, radio was used for point to point communication. Beyond applications for the military, shipping and governments, it was seen as nothing more than a novelty for amateur enthusiasts. But Harry P. Davis, an executive for struggling electronics manufacturer Westinghouse, saw an opportunity to transform radio from a novelty to a necessity. By using a radio set to broadcast news and information to the masses, Davis believed he could transform the fortunes of this new technology. It was a bold move and a departure from the traditional operating model of radio manufacturers.
The 1920 presidential election was the first ever broadcast by the newly formed KDKA, one of the world’s first commercial radio stations, and the brainchild of Harry P. Davis. The bold move paid off, by the end of 1922 there were 576 commercial radio stations operating in the US. By 1925 there were 5.5m commercial radio sets in use across the country. Throughout the 1920s, the adoption of new methods of communication including radio, the telephone, and the mass production of motor vehicles created a new wave of global economic growth. Along with this wave of productivity, the 1920s ushered in the spread of communism, the rise of fascism, the explosion of the international oil trade, and in the final months of the decade, the crash that started the great depression. It was a tumultuous decade of rapid change, opportunity, and eventually despair.
As we enter the 2020s we face equally uncertain times; political movements around the world are lurching to the extreme left or right, technology has made it almost impossible to distinguish fiction from fact, and we are staring into the abyss of a climate crisis of our own making. The sulphur cap has been hailed by some as the greatest change the shipping industry has faced in the last century. While that may well be true, the changes we will see in this next decade will make the sulphur cap an insignificant footnote in a historic period of transformation. There are three major forces beginning to converge that will change the direction of the shipping industry for good; decarbonisation, new technology, and global demographics.
The decarbonisation of, not just the shipping industry, but the entire global economy will require massive investment from governments, financial institutions, and corporations. But commitments to that end are already being made. In September 2019, at the UN’s global climate action summit in New York, 65 countries committed to net zero emissions by 2050, 130 banks representing a third of the industry signed up to align their businesses with the Paris Agreement goals, and asset managers with a total of $2trn under management committed to operating carbon neutral portfolios by 2050.
In our own industry, 2019 saw the IMO make a commitment to halve total emissions from ships by 2050. Major financial institutions developed and launched the Poseidon Principles, outlining the maritime finance sector’s framework for promoting decarbonisation through responsible lending. Maersk became the world’s first major carrier to commit to net zero by 2050. Lastly, we saw the launch of the Getting to Zero Coalition, whose membership reads like an industry who’s who, taking aim at building commercially viable zero emission ships by 2030.
The technology that allows full scale commercial ships to sail the oceans with zero emissions does not yet exist, and the investments being made now will be crucial to its development. But technology is having a broader impact on the way the world works, from the way we communicate, to global geopolitics, to the way we trade. Just like the adoption of the radio during the 1920s, the internet has created a new wave of economic growth that has touched all of our lives. It has made it possible to produce new products and services without any need for new physical infrastructure or distribution channels.
There is no doubt there will always be a need for physical goods to move across the oceans, but technology is making services, not goods, the key driver of economic growth. The value added contribution of services to global GDP is 65%, up from 54% in 1995, while the value added contribution of industry (including manufacturing) has declined from 32% in 1995 to 25% today. As the value generated by the manufacture and international trade in goods declines, so too will the value generated by transporting them. Shipping will continue to become increasingly commoditised as we progress into the decade, competing on price alone will be a fast route to bankruptcy.
Shifting the world’s economic dynamics won’t be the only impact technology has on shipping in the next 10 years. Advances in new technologies like additive manufacturing could see the entire supply chain change to a new model. Why ship 1m pairs of trainers from a factory in China to the US, when they could just as easily be 3D printed locally and on demand using a polymer that was imported in bulk? Further, despite the hype of crewless ships, millions of shore based jobs will be affected by the rise of artificial intelligence. It is the world’s white collar workers that are most at risk from AI, not those on the ground who work with their hands. While AI will most likely create more jobs than it takes, millions of people around the world in every industry will need to retrain and learn new skills if they want to continue to contribute to the economy.
A final force to consider is the impact that the world’s changing demographics will have on trade in the next decade. The US and Europe’s political and economic importance in the world is beginning to wane. Africa and Asia will emerge as dominant population centres in the next decade, growing their sphere of influence on the world stage at the same time. While the combined populations of Europe and North America are beginning to stabilise, the already large Asian and African populations will continue to grow at pace. India will overtake China as the world’s most populous country by 2027. Looking further ahead; 52% of the world’s population growth from now until 2050 will come from Sub-Saharan Africa.
While the West has been the world’s consumer for most of the last century, it is now the turn of new giants like China and India. China’s middle class grew from just 39m people in 1995, to 531m people in 2013. It is expected in India meanwhile that 80% of households will be on middle incomes by 2030, driving a 4x increase in consumer spending compared to today.
This presents both an opportunity and a threat to businesses that have grown up serving traditional Western markets. Those who successfully break in to these emerging consumer markets will see high levels of growth, whereas those who don’t will be operating in declining markets. For shipping, this may well mean investing in the routes and infrastructure that can serve new consumption patterns, or even investing in landside infrastructure to better serve massive domestic markets.
The combination of a need to rapidly change the fuels that power our ships, the ever increasing pace of technology development, and the seismic shifts happening in human populations all mean that change is afoot. The standard operating model we have all become used to is coming to an end. As with any major change, the winners will be those who are willing to make bold moves that others won’t. Those that truly understand what business they are actually in have a distinct advantage here. The oil major that understands it is in the business of energy, and not oil, can bet on renewables and battery technology. The container carrier that understands it is in the business of enabling world trade, and not operating ships, can bet on 3D printing and landside logistics.
Harry P. Davis understood this, he understood that Westinghouse was in the business of connecting people, and not in manufacturing electronics. That’s why he was able to bet on broadcasting at a time when very few people owned a radio.
Westinghouse still trades today, though after rebranding in 1995, they became known as CBS Corporation. In the dying days of 2019, CBS merged with Viacom in a deal that created a new media giant worth $26bn. The merger is a bold move, but one that is needed to stave off the existential threat of streaming services that has surrounded traditional media businesses.
As those of us in shipping think about our next decade, we too are surrounded by existential threats and massive opportunities. By seizing the opportunities we can overcome the threats. But it will only be those among us who truly understand what business we are in and are brave enough to make bold moves who will survive and thrive, not just for the next decade, but the next century. Welcome to the roaring ’20s.