THE FUTURE OF SHIPPING

THE FUTURE OF SHIPPING Martin Stopford Non-Exec President, Clarkson Research Breaking waves 2018, Helsinki 3-4- December 2018

20/12/2018 Martin Stopford SMI 22 November 20 th 2018 2 THE FUTURE OF SHIPPING 1. idea 2. Produc t develo pment 3. Marke ting 1. Four re-alignments in maritime business 2. Meeting IMO emissions targets 2050 3. Spec out shipping s long term business strategy 4. Make ships work better 5. Make sea transport systems work better. 6. Develop people & organizations to manage all this 4. GROWTH

1. FOUR RE-ALIGNMENTS IN MARITIME BUSINESS 20/12/2018 Martin Stopford SMI 22 November 20 th 2018 3

Imports million tonnes A. Trade trend re-alignment is 3.2% growth trend sustainable? 40 000 35 000 30 000 25 000 If the trend continues it will be over 30 billion tonnes in 2050. 20 000 15 000 10 000 5 000 Sea Trade grew at 3.2% between 1965 and 2018 Is this trend sustainable? 0 2050 2045 2040 2035 2030 2025 2020 2015 2010 2005 2000 1995 1990 1985 1980 1975 1970 1965 Source: data collected by martin stopford from various sources, mainly United Nations and UNCTAD Dr Martin Stopford, President, Clarkson Research 20/12/2018 Martin Stopford SMI 22 November 20 th 2018 4

B. Regional re-alignment big change in control of sea imports Shows the of OECD & Non-OECD Imports as a % of world seaborne imports 80% 70% Today Non-OECD is 67% imports new cargo matrix 60% 50% 1965: OECD 67% imports 40% 30% 20% Source: United Nations, UNCTAD, compilation by Martin Stopford 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 20/12/2018 Martin Stopford SMI 22 November 20 th 2018 5

C. Country re-alignment who will grow and who might decline? Japan Europe N. America China Other Asia 1,65 1,47 1,006 3,55 6,42 Average 3.5 tonnes/capita 1 billion OECD import 3.5 billion tonnes of cargo China 1.3 billion population, imports 2 bill tonnes cargo Other Asia 1.0 tonne/capita 3 billion population, import 3 bill tonnes cargo World 2015 1,39 0,0 2,0 4,0 6,0 8,0 10,0 12,0 Tonnes imports per capita in 2015 Martin Stopford, September 2018

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $000 PER DAY Bunker cost $ TC rate D. Factor price re-alignment fuel now costs more than the ship Based on Aframax tanker, 1 year TC rate and bunker cost at 50 TPD, 14.5 KTS, Rotterdam 380cst 40 000 35 000 30 000 25 000 20 000 15 000 10 000 5 000 0 Aframax 1 year timecharter rate in $/day 5 098 4 062 4 171 3 337 In 2004 the daily cost of an Aframax tanker was 4X cost of bunkers 4 201 4 796 5 286 4 792 3 381 4 670 6 922 5 872 6 684 7 643 7 763 11 699 14 652 17 253 23 595 17 691 22 411 31 000 31 950 29 700 Bunker cost in $/day 26 650 NOW BUNKERS COST MORE THAN SHIP 13 250 10 650 15 250 18 300

Conclusion: OECD Europe s share of global trade and its influence on the way the industry uses ships is already slipping. What preparations needed?

2: MEETING IMO EMISSIONS TARGETS IN 2050 20/12/2018 Martin Stopford SMI 22 November 20 th 2018 9

Regulation of emissions moving up agenda SHIPPING NEEDS TO THINK THROUGH ITS STRATEGY FOR MEETING THIS APPARENTLY UNACHIEVABLE TARGET NOW IMO s vision is to reduce GHG emissions from international shipping. Emissions should peak as soon as possible and fall by at least 50% by 2050 compared to 2008. At the same time, the industry should pursue efforts towards phasing out GHG emissions entirely".

Million tonnes CO2e emissions Under Do nothing scenario GHG emissions could grow from 970Mt CO2 in 2008 to 3,000 Mt CO2 in 2050 3 500 3 000 2 500 2 000 1 500 Do nothing Scenario based on 3.2% cargo growth, 14 knots, produces 3,000 Mt ofcarbon emissions in 2050 1 000 500 2050 Target - 2048 2044 2040 2036 2032 2028 2024 2020 2016 2012 2008 2004 2000 1996

20/12/2018 Martin Stopford SMI 22 November 20 th 2018 13 Four ways to CO2 emissions in 2050 from 3,000 Mt to 470 Mt Step 1: Transport less cargo by changing trading patterns, transport policies, pricing and better information systems (38% saving) Step 2: Cut carbon emissions/ship km by slowing down to 10.1 knots; using bigger small ships; designs; retrofitting for safe operation at slow speeds etc (40% saving) Step 3: Develop zero carbon propulsion systems. Electric fuel cells look the best bet for volume and performance (8.5% saving) Step 4: Finally make solutions 1-4 effective by a complete re-think of the industry s organization and personnel structures

Million tonnes CO2e emissions 20/12/2018 Martin Stopford SMI 22 November 20 th 2018 14 CO2 Emissions by the world cargo fleet -5 ways to cut them 3 500 3 000 2 500 2 000 Key conclusion We must start actively planning for ships to go much slower in future. And introduce hydrogen (e.g. powering fuel cells or internal combustion engines), as soon as possible to finish the job 2.Double ship size from 32,000 dwt to 70,000 dwt 1 500 1 000 500-1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 4. 10.1 knots, 2.2% pa cargo 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2050 IMO target 470 Mt CO2e

20/12/2018 Martin Stopford SMI 22 November 20 th 2018 15 3. SHAPING SHIPPING S 2050 STRATEGY

The central issue re-alignment of regional and global focus in industry strategy S ATLANTIC CLUSTER? EUROPE B2B MARITIME CLUSTER (EMBC) AFRICA/MID EAST CLUSTER ASIA B2B MARITIME BUSINESS CLUSTER (AMBC) Martin Stopford, September 2018

Million tonnes exports (blue line) Million tonnes imports (red line) Europe s seaborne imports & exports static 2000 1800 1600 1400 1200 1000 800 Europe sea imports (right axis) 3 500 3 000 2 500 2 000 1 500 600 Europe sea exports (left axis) 400 500 200 Source: UNCTAD, UN, Martin Stopford 0 0 1949 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017 Martin Stopford, November 2018 1 000

Million TEU container lifts Europe Container lifts 1973 to 2018 Where does the deep sea container trade go next? 180 160 140 y = 6,0488e 0,0718x 120 100 80 60 40 20 0 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018 Martin Stopford, November 2018 Source: Clarkson Research

20/12/2018 Martin Stopford SMI 22 November 20 th 2018 20 PART 4: MAKING SHIPS WORK BETTER BY 2050

20-Dec-18 21 1967 BMW (source: History of cars.com) 2017 BMW (source: Autocar) It s the inside that changed 50 Years change in car technology Modern BMW is a computer on wheels (The Economist 17 th Oct 2018) Climate change: four responses to IMO's maritime challenge

20/12/2018 Martin Stopford SMI 22 November 20 th 2018 22 How do you develop products for use on the next generation of digital ships? Design in digital integration at process level, mirroring the auto manufacturing strategy 1. Propulsion plant management 2 Auxiliary power management 3. Auxiliary machinery operation 4. Ballast & trim management 5. Navigation & manoeuvring CONNECTIVITY+ SEMI- AUTOMATION+DASHBOARDS etc 6. Cargo handling operations 7. IT & comms systems 8. Spares and maintenance. On board communications

Example 1: Seamless - voyage management systems Terminal scheduling team Data exchange to & from ships Voyage monitoring and weather planning system Shipping office voyage analysis team Terminal management dashboard Ship managers Fleet liaison manager Martin Stopford, November 2018 Fleet management dashboard

Example 2: Improved - mooring systems Moormaster 400 units, each have two suction cup panels of twenty tons power. Combined whole system delivers a mooring force of 160 tons. Hawser mooring is dangerous and labour intensive For example officer on Zara (top left) suffered severe head injuries when he was struck by a parted HMPE mooring rope Big ships needs to carry five or six people to manage the mooring Dynamic magnetic and suction cup systems are in operation for bunkering and mooring deep sea vessels. Martin Stopford, November 2018

Example 3: autonomous cargo handling - 25,600 dwt LNG self-discharging bulk carrier Haaga and Viikki are first bulkers with autonomous self-discharging cranes. This function should be operative in the next few months. Using sensor technology, cameras and laser scanners, the cranes analyse the topography of each cargo hold and determine the optimal lifting points. An 'intelligent' self-learning algorithm ensures the bucket is not overloaded and compensates for heeling to ensure even unloading. The algorithm also calculates which shoreside hopper to discharge into. Some of the technology, such as the grab s learning capability, will be adapted for use with other systems such as small container ships

Example 4: Drone Tank Inspections Martin Stopford, November 2018

Example 5 Condition based maintenance a real winner but difficult to implement 20/12/2018 Martin Stopford SMI 22 November 20 th 2018 27

Example 6: Yara autonomous electric containership The vessel will operate in Norway, in a cargo transit between Yara's fertiliser plant in Porsgrunn to ports in Brevik and Larvik. Delivery 2020, length 80 metres; beam 15 metres; cargo capacity of 120 TEU. It will replace 40,000 truck journeys a year. An interesting niche es Martin Stopford, November 2018

PART 5: MAKING SEA TRANSPORT SYSTEMS WORK BETTER BY 2050 20/12/2018 Martin Stopford SMI 22 November 20 th 2018 29

The Fleet: manage the fleet of ships as an I4 Transport Factory 7. PORTS & THROUGH TRANSPORT 6. SHIPBUILDERS & EQUIPMENT SUPPLIERS ship servers managing data, apps & comms DATA READY SHIPS Warehouse (on cloud?) 5.CUSTOMERS WITH CARGO SYSTEMS 1. SHIP TEAMS Core systems 1. Navigation 2. Operations 3. Comms. Martin Stopford, September 2018 Company Systems:- 1. Process management 2. STQ monitoring 3. Messaging system 4. Intranet & dashboards 5. Fleet maintenance 6. LPWAN & APIs But how do you link all these systems together? 1. Technical support 2. Maintenance systems 3. Regulatory reports 4. Fleet performance 5. Personnel management 4. TECHNICAL TEAMS Fleet management 1. Support systems 2. Process data 3. Automation 4. Build apps 5. Manage stats Source: Martin Stopford 2016 2. SHORE TEAMS 3. SYSTEMS. TEAMS

PART 6: HELPING PEOPLE WORK BETTER BY 2050

S20: Annual Crew Cost Capesize Bulk Carrier $/year Master Chief Officer (1) 2nd Officer 3rd Officer Radio Officer Chief Engineer 1st Asst Engr 2nd Asst Engr Bosun 5AB 3 Oiler Cook/Std Steward Messman - 10 20 30 40 50 60 70 80 90 - Not required 12 18 18 15 29 35 35 46 57 57 73 75 76 Annual crew costs $548k (very old data!) Crew 52 % 4 senior officers 48 % 20-Dec-18 Climate change: four responses to IMO's maritime 32

TRANSPORT FACTORY Better balanced personnel system? Spot the difference! Performance measurement is key!! 7. PORTS & THROUGH TRANSPORT 6. SHIPBUILDERS & EQUIPMENT SUPPLIERS ship servers managing data, apps & comms DATA READY SHIPS Warehouse (on cloud?) 5.CUSTOMERS WITH CARGO SYSTEMS 1. SHIP TEAMS Core systems 1. Navigation 2. Operations 3. Comms. Company Systems:- 1. Process management 2. STQ monitoring 3. Messaging system 4. Intranet & dashboards 5. Fleet maintenance 6. LPWAN & APIs 1. Technical support 2. Maintenance systems 3. Regulatory reports 4. Fleet performance 5. Personnel management 4. TECHNICAL TEAMS Fleet management 1. Support systems 2. Process data 3. Automation 4. Build apps 5. Manage stats 2. SHORE TEAMS 3. SYSTEMS. TEAMS

Conclusions 1. The maritime trade role of the OECD Europe is slipping. 2. B2B maritime logistics and GHG reduction are super strategic goals we can excel in both, so lets go for it!! 3. We need smart trade management to ensure trade adds value in commercial & carbon terms. 4. Also increase ship size, focussing on the smaller end. 5. ASAP cut GHG emissions with a new generation of ships optimised for e.g. 10 knots and low carbon. 6. Replace diesel engines with hydrogen power (e.g. fuel cells/plasma) from the mid-20s onwards. 7. Massively improve performance measurement 8. Re-think of organisation structures for smart management, teamwork and more balanced workforce The trick is to decide where you want to go, get your head down, and GO 20-Dec-18 Climate change: four responses to IMO's maritime challenge 34

THE END 20/12/2018 Martin Stopford SMI 22 November 20 th 2018 35

Disclaimer The statistical, graphical information contained in this paper are drawn from the Clarkson Research Services Limited ("CRSL") database and other sources. CRSL advises that: (i) some information in CRSL's database is derived from estimates or subjective judgments; and (ii) the information in the databases of other maritime data collection agencies may differ from the information in CRSL's database; and (iii) whilst CRSL has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures and may accordingly contain errors; and (iv) CRSL, its agents, officers and employees do not accept liability for any loss suffered in consequence of reliance on such information or in any other manner; and (v) the provision of such information does not obviate any need to make appropriate further enquiries; (vi) the provision of such information is not an endorsement of any commercial policies and/or any conclusions by CRSL; and (vii) shipping is a variable and cyclical business and anyone who thinks they can forecast it needs their head examining. Where views are expressed they are in the context of this general presentation and should not be used or relied on in any other context without appropriate investigation, validation and the written permission of the author 20/12/2018 Martin Stopford SMI 22 November 20 th 2018 36