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THE 3RD INDUSTRIAL REVOLUTION WILL SHIPPING LINES MANAGE SUPPLY IN RELATION TO DEMAND By : Parakrama Dissanayake SHIPPING DEMAND – DERIVED DEMAND Stems From Demand For Goods DEVELOPMENT OF TRADE <> ECONOMIC GROWTH CILT International Conference 2012 CHINA’S GROWTH GLOOM China’s economy slowed for a 7th straight quarter Missing governments target CILT International Conference 2012 INDIA – IS IT IN SEARCH OF A DREAM? “Hindu rate of growth’’ A decade ago 3 to 4% Zoomed to approx. 9% And now down at around 5.4% CILT International Conference 2012 AMERICA’S FISCAL CLIFF WILL IT AFFECT SHIPPING? USA is the largest importer of goods With effect from Jan. next year US Fed tax increase and spending cut equivalent of 5% GDP will come into force. This will raise taxation by US$ 3500 per household. Will result in a fiscal restriction of US$ 600 billion in a single year. Unless Democrats and Republicans agree would not Consumption decrease? Would not demand for Trade decline ? CILT International Conference 2012 EUROZONE SOVEREIGN DEBT CRISIS Are we seeing the light at the end of the tunnel ? CILT International Conference 2012 NOW US BUSINESS FLEEING SLUMPING EUROPE Coca Cola moving offices of huge bottler from Greece. FORD estimated loss 1.5 Billion – Closing 2 plants in UK , 1 Plant in Belgium - Lay offs 6200 workers Dow Chemicals – Close 4 plants in Europe. Kimberly Clark – Lay off 1500 jobs in Europe. CILT International Conference 2012 WORLD ECONOMY IMF PROGNOSIS SEES LONG TERM PAIN Potential for growth in both advance and emerging economies permanently damaged People will be poorer and budget deficits more difficult to close CILT International Conference 2012 GLOBAL TRADE PROTECTIONISM IS RAISING ITS UGLY HEAD The G20 economies have added 124 new restrictive measures affecting about 3% of global imports and nearly 4% of G20 trade. Staggering increase in protectionism in recent months with a 25% rise in trade restrictive measures. Mounting trade tension between China and USA. China telecoms Huawei and ZTE “A Threat to Security” USA. CILT International Conference 2012 “As long as politicians in the worlds big three economies continue to dither another global recession is possible. Judging by politicians behavior – the world economies could slow a lot further. It could even tip into recessions in 2013”. The Economist CONTAINER SHIPPING LINES PROFITS PLUMMETS Top 20 Carriers 2009 2010 2011 CILT International Conference 2012 •Loss > US$ 16 Billion •Profit > US$ 16 Billion • Loss > US$ 6.3 Billion ASIA-EUROPE / MEDITERRANEAN STEEP DECLINE IN CONTAINER VOLUMES Asia – Europe Declined by 10% in August 2012 as against 2011. Asia – Mediterranean Minus 20% in August 2012 as against 2011. CILT International Conference 2012 ASIA – MEDITERRANEAN RATES PLUNGE JUNE 2012 US$ 1892 Per Teu OCT 2012 US$ 1204 Per Teu Fall 36.3% in a single quarter Shanghai Container Freight Index Spot Rates CILT International Conference 2012 MAERSK LINE CUTS 19 SHIPS ON ASIA / EUROPE SECTOR Terminated AE5 service(8) 6500 TEU Ships Terminated AE9 Service(11) 8000 TEU Ships 21 % Capacity Reduced HANJIN / EVERGREEN CUT ASIA - EUROPE CAPACITY Among 13 voyages scheduled from October to December, the companies have decided to skip three, which is a 23% capacity reduction in total. Lloyd’s Loading List CILT International Conference 2012 CONTAINER CHARTER PRICES SLIDE 2012 August 2011 August 1000 Teu Vessel 2000 Teu Vessel • (- 37%) • (- 49%) 1600 Teu Vessel 3500 Teu Vessel • (- 41%) • (- 41%) CILT International Conference 2012 JOBLESS – ARMADA OF SHIPS No. of idle vessels as at Sep 2012 is 290 ships / 550,000 Teus Biggest vessel without work is 7200 Teu ``SVENDBORG MAERSK” CILT International Conference 2012 MIS – MATCH CONTAINER DEMAND AND CAPACITY Round the World 2012 2011 Westbound TEU Eastbound TEU 25,416,000 24,635,000 25,598,000 24,046,000 Total Trade 50,051,000 49,644,000 1% 781,000 3% 1,552,000 Growth Imbalance TEU CILT International Conference 2012 ULTRA LARGE CONTAINER SHIPS (ULCS) April 2012 – Operating - Ordered Average Size - > 13,200 Teus No. of Ships - 274 Total Teus – 3,628,100 95% deployed in Asia to Europe Sector 7 Ports of calls Will South Asia be part of it ? CILT International Conference 2012 MAERSK LINES TRIPLE E 18,300 TEU ULTIMATE CONTAINER CARRIERS Maersk Challenge to Port Operators 6000 Containers per port call 24 Hrs 250 Berth moves per/hr with 8 cranes Container Shipping DEMAND Consumption USA / EUROPE CILT International Conference 2012 SUPPLY Production ASIA / CHINA OUTSOURCING MODEL - CHALLENGED Increase in costs in Asia Loss of jobs in USA / Europe Politicians no choice but create jobs in the developed world CILT International Conference 2012 WORLDS FACTORY - CHINA Costs soaring by increase in Land, taxes, labor costs Southern China labor cost up by 20% a year since 2008 Nike shifts from China to Vietnam American Chesapeake Scented Candles shifts from China - > Vietnam - > Maryland USA Rising labor costs Increase shipping charges Supply chain duration – high inventory cost Respond to trends faster. CILT International Conference 2012 LABOR COSTS – LESS IMPORTANT Slicing the Apple I Pad Assembled in China Total Labour Cost Worldwide $ 33 China $ 8 Source : University of California Cannot I Pad relocate assembling in America even at double the cost ? CILT International Conference 2012 LESS WORKERS Nissan British Factory in Sunderland 1999 271,157 Cars with 4594 people (1 person - > 59 Cars) 2011 480,485 Cars with 5462 people (1 Person - > 87 Cars) CILT International Conference 2012 PRODUCTION Vs. COSTS Despite China’s rapid rise Americas manufacturing output in Dollar terms same as China America achieves this with only 10% of workforce deployed by China Source : Massachusetts Institutes of Technology CILT International Conference 2012 THIRD INDUSTRY REVOLUTION 1st 2nd 3rd • 18th century mechanization of textile industry • 20th Century Henry Ford mastered the moving assembly line – Age of Mass Production • Manufacturing going digital through 3 D printers CILT International Conference 2012 3-D PRINTER Old way was taking lots parts and screwing or welding Now product can be designed on a computer and printed on a 3-D printer Designed with software and a cartridge with material in plastic , metal , ceramic in fine powder or gel Already high tech parts of military jets printed using 3-D printer University of Southern California – A giant 3-D printer Lay down concrete foundation Put up walls Inserts wiring and plumbing Construct an entire building CILT International Conference 2012 Will Jobs go back to rich countries ? Will this not change the demand model of Shipping ? CILT International Conference 2012 CONCLUSION Importance of low cost labour in production will diminish. Gradual shift of low cost production from Asia to West. Like with Postal mails to E-mails, 3-D printing will completely alter manufacturing models Shipping Line – Ports have to re-assess development of capacity. Business models of Shipping Line will alter. CILT International Conference 2012 Thank You CILT International Conference 2012