COVID-19 is accelerating waves of change in global maritime shipping

The COVID-19 pandemic is accelerating demand for the technology-enabled transformation of the global maritime shipping industry, says Paul Cuatrecasas, CEO of Aquaa Partners and Author of Go Tech or Go Extinct.

Representing a value of some $12 trillion, 90 per cent of the world's trade is carried by sea.

And yet, despite the industry's dominance the coronavirus pandemic has exposed the frailties of the global supply network and, in so doing, hastened the need for technology-enabled change.

To bolster resilience to future shocks, over the course of the next decade we will see a shift to shorter supply lines and greater regionalisation. As well as reducing risk of disruption, such a shift offers manufacturers cost savings, greater agility in output and closer proximity to centres of demand. This redrawing of the global distribution network will rest upon technological innovation in key areas and be delivered through the acquisition of tech disruptors in many cases by established industry players.

3D Printing, Robotics and FoodTech

Burgeoning industries, including 3D printing, FoodTech and advanced robotics are revolutionising the manufacture and production of goods. Slashing labour costs and pushing down demand for long-distance maritime shipping, 3D printing and robotics offer producers greater capacity to make goods cheaply, efficiently, and much closer to market. They represent the prospect of major service-led economies, including the United Kingdom and Unites States reclaiming their manufacturing base.

Even before recent news reports of armies of 3D printers being recalibrated to churn out equipment to aid in the war on coronavirus the sector was booming. Last year, the global additive manufacturing market grew to over $10.4 billion for the first time.

Another shift, this time in the robotics industry is already underway. Falling prices and longer lifespans of robots are driving the use of robotic systems, both in terms of manufacturing but also logistics. The International Federation of Robotics (IFR) expects the number of robots shipped globally to increase on average by 12 per cent per year from 2020 to 2022.

Similarly, pioneering innovation in the field of laboratory grown consumable produce also presents major implications for the global food and agricultural industry. It holds open the possibility that consumer demand for meat and other products can be supplied via cultured meat grown in laboratories rather than sourcing products from overseas. Five-year-old start-up and a pioneer in the field, Memphis Meats, announced in January that it had raised a further $161 million in a new round of financing. The latest round of fundraising is led by SoftBank Group, Norwest and Temasek, but also includes big name investors like Bill Gates and Richard Branson, as well as established meat companies, such as Tyson (TSN) and Cargill.

Headquartered in San Francisco, food manufacturer JUST, for example, is a frontrunner in the field and continues to gain funding from investors across the globe. The company has raised over $220 million since its launch and has been valued at $1.1 billion.

FreightTech

Beyond the decentralisation of manufacturing hubs, all areas of the supply chain are facing efforts to reduce susceptibility to sudden shocks and to become more resilient and efficient. Collectively known as FreightTech, the applications of big data, Advanced Intelligence (AI), warehouse robotics, and advanced software are transforming the field of logistics.

The complex nature of supply chains, for example, offer significant opportunity for optimized data-driven decision-making, which has led to software developments intended to create, transfer and better analyse that data.

The last three years have already seen significant investment in these technologies, but the strains placed on the global supply chain mean investment is likely to grow faster.

Drone Technology

Advancements in drone technology are also helping to deliver this resilient, cost-effective and regionalised supply chain ecosystem.

To take one example, ARK Investment Management estimate parcel drones have the capacity to deliver packages profitably in under 30 minutes for as little as $0.25 compared to over $7 for traditional domestic shipping. The study also estimates that as a result of frictionless and inexpensive delivery consumers are likely to purchase significantly more goods online, growing ecommerce's share of retail sales from 14 per cent in 2019 to an estimated 60 per cent in 2030 with drones delivering more than half of the ecommerce volumes.

There is also significant progress in the field of autonomous cargo drone technology ranging from established aerospace giants, such as Boeing to new entrants. California-based Natilus, for example, has recently secured approval to test a 30-foot prototype autonomous drone aircraft with a 60-metre-long wingspan. They are currently deploying the aircraft on 30-hour test runs at 20,000 feet with 700 pounds of cargo between Los Angeles and Hawaii. The entrant sees the prototype as a precursor to 60m-long drone with a 100-ton capacity. Cargo drones have the allure of operating at commercial rates well below those of traditional air freight.

While cargo drone technology poses more of an immediate threat to the traditional air freight industry, over time and with economies of scale we are likely to see continued cost savings, which, over time, is likely to see cargo drone technology competing with maritime freight.

Long-term trend

There can be little doubt COVID-19 represents the greatest single disruption to the global economy since the Second World War. But perhaps its greatest role will be to amplify waves of change that were already begun.

Logistics and shipping giant, Maersk, is a parable for the industry as a whole. Like the majority of publicly listed companies its share price in recent weeks has seen a rapid decline. But in Maersk's case this decline is long-running and pre-dates the shock coronavirus has delivered to global markets. The company's share price peaked five years ago at 16,030 in March 2015. Today, it sits at 5,800 representing a decline of some 67 per cent over the period. MSC and other rivals have seen a similar trend.

Profound change is coming to the maritime shipping sector. Coronovirus has merely accelerated that change. The key challenge now falls on incumbents, such as Maersk to embrace that change and to adapt to it.