Royal Dutch Shell Plc  .com Rotating Header Image

Lloyds List: Back to the future in Hong Kong

EXTRACT: So it was to Hong Kong, a couple of weeks ago, where delegates to the BIMCO General Meeting were treated to a whole day of presentations of the Shell Global Scenarios, which is a concept devised by the oil company to better inform itself about a range of options for the future. Shell International’s chief political analyst Cho Khong was our mentor and principal seer in this look into the future, assisted by Sarah Ward and Angela Wilkinson who research into the future at the James Martin Institute for Science and Civilisation at Oxford University.

THE ARTICLE

Published: Jun 18, 2007

In what sort of world are you going to be living in 2025? Haven’t a clue? But haven’t you just gone out and ordered half a dozen exceedingly large containerships from a South Korean shipyard that was offering rather attractive terms for a 2011 delivery?

On what sort of basis did you commit your company and your trusting shareholders to not far short of half a billion dollars? Extrapolation of the past 10 years freight rates? Tealeaves? The entrails of a freshly killed goat?

It is a serious question, although it is being asked by somebody who could not give you a sensible answer if you asked me what I was likely to be doing in three weeks time.

But shipping people are called upon to think far into the future and strategically, certainly for longer than the end of the next financial quarter, which seems about standard for the average manager of a public company in other industrial sectors.

The fact is, those six containerships will only be 14 years old in 2025. You really ought to give some thought as to how they are to be employed.

There is a natural suspicion of ‘futurology’‛ in the shipping industry, and with good reason too, as a service industry is usually unable to dictate events in any way, but must merely respond to them.

The best practitioners, it is said, are those with the best antenna, the most acute sense of timing and a high value must be placed upon those who can adapt to unexpected change with the greatest speed. But you cannot neglect the hardware. A ship will last for 20-30 years and will operate throughout a number of freight rate cycles.

Geo-political events‛ like wars, the closing of the Suez Canal, droughts and depressions have shaped the industry over past decades, while endemic optimism has been responsible for the over supply of ships which affected industry thinking and its fortunes for the best part of a quarter century of my working life.

There has got to be something a bit better in the future, if we are not to merely be blown back and forth by the winds of change.

So it was to Hong Kong, a couple of weeks ago, where delegates to the BIMCO General Meeting were treated to a whole day of presentations of the Shell Global Scenarios, which is a concept devised by the oil company to better inform itself about a range of options for the future.

Shell International’s chief political analyst Cho Khong was our mentor and principal seer in this look into the future, assisted by Sarah Ward and Angela Wilkinson who research into the future at the James Martin Institute for Science and Civilisation at Oxford University.

It all seemed a long way, the person sitting next to me confided as we began, from poring over the supply/demand charts issued, with varying degrees of confidence, by eminent shipbroking firms which tend to be the runes we read and which tend to treat a ‘forecast’‛ as a mere six months hence.

Scenarios, we were told, are not ‘forecasts’, or the things we would like to happen. And while the future will depend on decisions made today, it remains a paradox and must always be categorised as ‘fiction’.

Scenarios can provide a set of charts to navigate the future, although, qualified our mentors, maps can be wrong.

California had been charted as an island. Many of us think that, mentally, it has never been part of the US mainland, but that’s just unreasoning prejudice.

Nevertheless, there are certain tools that can be employed to provide a number of plausible scenario options, derived from modelling, technology forecasting, simulation, trend analysis and ‘visioning’. Scenarios, we were told, help us anticipate, because we can rehearse.

They assist, says Dr Cho, in planning for a turbulent and fluid environment in which a huge number of variables and trends swim into the ken of the best informed.

You cannot anticipate the ‘big bangs’ which occur, like the appalling frightfulness of 9/11 or the realisation of large-scale corporate corrosion which emanated from the Enron affair, both of which challenges one’s view of the world.

Unexpected events, said Dr Cho, are always on the cards, but one needs to lay hold of the big picture, and of the wider aspects which drive the pace of the perpetual change that surrounds us.

This was an Asian scenario devised for BIMCO’s Hong Kong meeting, so it was forgivable that Dr Cho focussed primarily on this pulsating part of the world, his scenarios reflecting four clearly identifiable ‘pressure points’.

The major developing economies of China, India and Brazil, the issue of energy security, climate change politics and the markets were the four drivers which needed to be patched into every possible scenario.

It should not surprise us that from an oil company perspective, the problems of energy were so dominant in the construction of alternative scenarios. After many years in which energy efficiency in the developed nations had been a feature, the emergence of China and India as major industrial powers had reversed the trend.

The politics of oil supply become crucial. The requirement for more drastic conservation measures becomes apparent, even compelling. Issues arise between the provision of energy, food and even water, which for the first time, directly conflict with the emergence of bio-energy.

A growing tension between the needs of the world and the demands of the state becomes apparent. The problem of social cohesion becomes a spectre which nobody can ignore. While the markets promise prosperity, states regulate and coerce, and society enforces a degree of conformity.

Three scenarios emerge from this analysis, reflecting the very different views of the background to business in 2025.

The first assumes a world of ‘low trust globalisation‛ and a world in which globalisation is tempered with insecurity’, an impersonal world in which the state tightens its grip.

In such a situation social forces are weak, and ‘power defines how a state will behave’.

Oil and its availability is a driving imperative, energy equating to influence. Here, Chinese concerns about the Malacca Strait surface, while an energy thirsty China competes with Japan for Russian resources, and an energy ‘Silk route’ emerges to tap those of central Asia.

Questions about conservation arise, while environmental concerns are centre stage.

The power of states engenders a ‘checkerboard of regulations’, a minefield for international companies.

A second scenario assumes a rather happier world defined by Dr Cho as ‘Open Doors’, and one which is not driven by the pressures of the markets, but one in which social concerns are regarded as important, consensus is valued, and balance, trust, transparency and participation feed into a sense of global community.

International co-operation is writ large and global networks emerge to produce a benign reality of globalisation. And while there is still a dependence upon the Middle East for energy, and a risk that China will consume energy in a profligate fashion, we may see the emergence of a ‘post hydrocarbon‛ economy, reasonable growth rates and a tendency for society to check the power of the state’.

The third scenario ‘Flags’ is perhaps the most alarming one, in which we see the emergence of ‘gated communities’ and the re-emergence of the nation state.

There is distrust of international solutions and outsiders, governments promote national agendas and the process of globalisation is hugely constrained.

Protectionism and other international barriers emerge, while, to put it politely: ‘opportunities that could come from gobal integration are deliberately foregone in the interests of social stability or of national sovereignty’. Growth is a good deal flatter.

The difficulty, as I saw it and many of the people I spoke to during the lunch hour suggested, was in transposing these broad-brush scenarios to the actuality of their particular shipping industry world.

So in the afternoon, we were invited, grouped into syndicates, to do just that, applying them to a range of everyday maritime concerns, which we were asked to identify with the facility of voting machines. Thus three concerns about the environmental footprint of shipping, the availability of seafarers and free and open markets were transposed into the three scenarios.

We were then invited to devise a script which could assess short-, medium- and long-term views of each.

Our syndicate, a powerful combination of shipowning, the law and the media, I have to say, was initially suspicious of the voting system, which seemed to ignore our belief that ‘corporate governance‛ was an over-riding feature that would play into so many of the issues faced by our industry’.

We were invited to conceive of a world in which the ‘flags’ scenario applied with the particular issue of the ‘environmental footprint’.

It was, perhaps the worst of all worlds, in which nationalism and protectionism menaced the operation of internationally trading ships.

Sadly, it is not a situation that can be considered hypothetical, by any means, and we conjured up a shipping industry struggling with a patchwork of environmental regulations implemented by well-meaning governments unconcerned with international implications.

It was a world with which our shipping industry members were already sadly familiar.

In the short term we foresaw operational chaos, leaving shipping company victims unable to comply with the requirement for multiple certification, even multiple equipment items, in its wake.

Technical solutions might possibly be devised by an innovative industry, but in the interim, trade would be harmed and inefficiency from bilateralism flourish.

Born optimists, we envisaged that certain corrective measures would kick in as a result of this brake on trade and the huge burden of illogicality and inefficiency being forced on the industry.

The sheer coercion of these negative factors, we optimistically believed, would lead to mitigating improvements.

Other syndicates considered various scenario combinations, illustrating that it was possible to ‘customise’ the over-arching scenarios to the specific problems faced by a shipping company or the industry as a whole, in light of the prevailing conditions. A scenario, then ‘invokes the future in terms of the present’.

Are you assisted by such an exercise as you grapple with the beguiling sales material for those six container ships you have just finalised and which will be reaching a nice stage of maturity in 2025? And

While it is interesting and informative to consider some of the variables that will affect our business, can we really conceive of the events which can destabilise our world, let alone our industry?

Who foresaw 9/11, and programmed that into their long-term strategies?

And while we rave on about Asian ‘tigers’ what might be the impacts of a Japanese population ‘implosion’ and the demographic collapse in China after two generations of ‘one-child families’? Has Shell International never been confounded?

The concept is surely a good one, in that it forces one to think longer, and a good deal deeper about our future uncertainties.

The future may not be a destination, but depends upon decisions being made today.

This website and sisters royaldutchshellgroup.com, shellnazihistory.com, royaldutchshell.website, johndonovan.website, and shellnews.net, are owned by John Donovan. There is also a Wikipedia segment.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Comment Rules

  • Please show respect to the opinions of others no matter how seemingly far-fetched.
  • Abusive, foul language, and/or divisive comments may be deleted without notice.
  • Each blog member is allowed limited comments, as displayed above the comment box.
  • Comments must be limited to the number of words displayed above the comment box.
  • Please limit one comment after any comment posted per post.