.....defining the new normal Blog #3

The demise of the corporate model, and rise of regional influence

The world in recession, already. Further contraction is inevitable. Fact. We are not even close to being in the aftermath of Covid.....Governments around the world have already spent $Bns to simply maintain their own economies. The worst is yet to come. This sounds gloomy, and I think no-one can really dispute this, but on a positive note, then take lessons from history.....societies, countries, and industries will bounce back, only for the better.

After the GFC - created by the 'greed is good' generation, everything was supposed to 'get back to normal' but in reality the 'greed is good' attitude effectively amplified everything that was bad. After the 'greed is good' GFC induced economic meltdown, the greed of corporates, the greed of individuals within that system become worse in their excesses, taking advantage of the individual and the vulnerable.

After (or even during) Covid, this will not happen again. The power and influence of the coroporate will fade to an extent that will make these corporates irrelevant.

Why will this happen? Well there are a number of fundamental reasons. So i will go through these one by one:-

Corporates, by their very nature are cumbersome, slow to react, and often unwilling to accept change. Corporates of course are a many varied beast by nature, their are: asset owning corporates, service providing corporates, massive multi-nationals, etc etc. Each of course will have it's own vulnerability. An asset owning corporate for instance, will be very vulnerable to asset stripping- if those assets owned are not returning income - shipping example - the cruise industry - quote here:- from earlier in Covid days: -

Shares of Carnival Corp. rose by 10.8% Tuesday, extending Monday's gains after the Saudi sovereign wealth fund disclosed an 8.2% stake in the cruise operator. The fund's purchase of 43.5 million shares comes as Carnival scrambles for cash as the coronavirus pandemic cripples the global travel industry.

The above is just an example of an asset owning industry. But howabout those non-asset owning corporates? Do they have the cash flow to continue? If so what is the cash burn involved in maintaining a cumbersome infrastructure, with limited staff not involved in revenue generation ? That surely is the slow boiling frog in an evaporating puddle. As many of these corporates are reliant on private equity investment to maintain cashflow, and this will become a serious problem, when the returns are not what the private equity investors have projected....if there are any returns. How many times will these cashed up private equity investors try to catch the falling knife, before they cut their losses and bail out?

So, during the 'Covid Era' I have been in discussions with many companys involved with and, associated with, the shipping industry, and trying to get an understanding of what works, what doesn't, and what will be the future. Overwhelmingly, a strong regional presence, with quality people, seems to be a cornerstone. Existing organisational structures will have to be, at the minimum, modified, or in many cases, rebuilt from the bottom up, on strong foundations, with strong forward planning to be able to adapt to a post-covid era.

Without doubt, post-covid economies will be driven by relational growth, and nation building projects - 'New Deal' Mark II. How will this effect shipping? I imagine that this rise in Nation Building will have a significant effect on shipping patterns, as the traditional supply chains from beginning to end will collapse, and be replaced by a far leaner, meaner and more efficient model. Here is an example Problem and Solution Scenario (from an Australian Perspective):

• Problem 1: Massive Unemployment
• Problem 2: Large Parts of Australia will always be in drought, even though large parts of Australia have plenty of water.
• Problem 3: Australian Government Revenue is underpinned (if not dependant on) by mining royalties.
• Problem 4: Too many layers of Government to 'make things work'.
• Problem 5: Any Government tender goes to the cheapest bidder, often overseas, who get around the 'made local' regulation by registering a subsidiary in Australia.
• Problem 6: Cumbersome and complex supply chains.

So, there are 6 problems, here, there can be a dozen others introduced into this equation: but don't need to go there for now.

At present these problems are not interrelated but in a port-covid world, the interrelation of unrelated problems are in fact....the solution.

So:

Solution: A nation building project to pipeline water from areas that have it to areas that don't. Seems pretty simple? But let's look at it in more detail: If this were pre-covid....

Problem 1 - There is not massive unemployment.

Problem 2 - There is no will to drought proof parts of Australia

Problem 3- Taking royalties, is easy and does not involve much imagination.

Problem 4- Each layer of Government wants some element of control, but often unwilling to bear any burden.

Problem 5- Everything comes down to cost, with no interest in local engagement

Problem 6- Supply chains are what they are, as there is no social, political or economic will to alter them.

By linking the problems together, and developing a single solution, is the without doubt... 'New Deal Mark II'

Problems solved:

Australia has iron ore and coking coal in abundance, the main ingredient of steel.

> Royalties maintained.

Steel is the primary resource requirement for making pipes.

Most of Australian Steel manufacturing has been replaced by imported steel (made, ironically from Australian Ingredients)

> New custom built industries, pipe specific manufacturing.

Federal Government Backed Projects.

>State or local government will have limited input.

Creating new work, new industries.

>Alleviating unemployment

On completion, new areas of potentially arable land.

>Drought proofing.

The whole supply chain is simplified

> Efficiency of operation

...I guess you are getting the drift, now imagine these 'nation building projects' are multiplied dozens of times, many of the previously unrelated problems can be solved. And of course, every nation state will want to follow the same pattern.....some will be very successful, others not so, and there is no timeline on this.

For the shipping industry, well, analysis of declining markets/routes/products and development of new ones is the key to success, coastal shipping will inevitably increase dramatically, whether this be country specific, Australia, USA for instance, regional specific, EU, Middle East for instance, or a micro regional level.

So goodbye to the realm of the industrial corporates, as their own cumbersome infrastructures will be replaced by smaller, regional based 'smart thinking' industries.

So goodbye to the multitude of middle managers who's only function is to reduce costs by 10% per annum.

So goodbye to corporate gobbledegook - 'may your spreadsheets always remain green'

Say Hi to the 'smart thinkers'

Say Hi to the concept 'we did this'

Say Hi to 'doers' and Wave Goodbye to 'unproductive'.