Marine’s Digital Revolution
by Marco Annunziata
About 90 percent of the world’s goods are transported over water. The marine industry therefore is an important barometer of the global economy. And in turn, the health of the marine industry is key to global trade and growth.
The marine industry today faces a challenging transition.
In the decade before the global financial crisis global trade boomed and the marine industry prospered. Shipping companies expanded capacity, buying more and bigger ships — the typical ship today carries about 10,000 20-foot equivalent units, five times the capacity of the typical vessel in the 1990s.
Growth in orders remained at a robust 8% even after the 2009 recession, as private equity investors became more involved and offset the decline in traditional bank financing.
Macroeconomic conditions have since turned less favorable. Since 2012, global trade has grown in line with global GDP — in the previous two decades, trade had grown twice as fast as global output. The slowdown in global trade has gone hand in hand with lower commodity prices.
A strong shipbuilding cycle followed by a slowdown in global trade means that the industry is now saddled with overcapacity. This has put pressure on margins, resulting in fiercer price competition as companies struggle to win market share; in a trend towards consolidation; and in tensions between ship builders (focused on low-cost construction) ship owners (focused on asset management) and carriers (focused on improving margins).
Looking forward, three key trends will shape the environment for the marine industry:
- Global economic rebalancing, with Asia playing an increasingly important role in trade flows. Emerging Asia is already home to fifteen of the world’s top 20 containers ports, which account for nearly half of the global container throughput.
- Changes in the energy landscape: as the US becomes self-sufficient, energy exports shift to Asia, contributing to the emergence of new long-haul routes. Meanwhile, natural gas will play a bigger role both as bulk cargo and as fuel for ships
- More stringent environmental regulations, which could increase port access costs and prohibit certain shipping routes to high-polluting vessels.
The industry needs to improve efficiency to navigate this difficult transition. We discussed this challenge with representatives from different parts of the industry in a dedicated session at our recent Minds + Machines event, and in a one-day conference in Tokyo last week. A few key takeaways:
- Reducing “non-productive time” is a top priority. For commercial shipping, non-productive time means lost revenues. For the Navy, it puts at risk operational readiness. Being able to predict equipment failures can help enormously. As a vessel has many interdependent systems, this requires software that can keep track of all equipment and capture the interconnections.
- Energy efficiency needs to be increased. The best way to do this is from the vessel design phase. New technologies can simulate how the propulsion systems on a vessel will perform in different sea conditions. Through these simulations, we can optimize the configuration of the systems to increase energy efficiency in operation. Doing this requires teamwork: you need to get designers, engineers and operators around the same table.
- Standard setting and regulations will need to keep pace. As the systems aboard a ship become digitized, regulatory inspections can also be performed more efficiently. Standard setting agencies will be able to leverage the greater availability of data rather than relying on physical inspections at set intervals.
- Cyber security is paramount. Software systems on board need to be secure, and the transmission of data onshore needs to be secure. There is already a tremendous amount of focus and investment in this area.
The marine industry has a reputation for being conservative, slow to adopt new technologies. But in the discussions I saw an enormous amount of interest for these innovations. And I believe that digital innovation is a great equalizer: it offers huge opportunities to both traditional and cutting-edge industries.
Digital innovations can make the marine industry more efficient, greener, and more profitable. This in turn will contribute to further growth in global trade and output.
In this recent paper that Shlomi Kramer and I wrote with the support of our Marine colleagues you will find more details, including descriptions of the most recent specific innovations and a discussion of what the industry needs to do seize the opportunity.
Marco Annunziata is GE’s Chief Economist