Forecasting the Future: Lessons from 2024's Shipping Challenges and Global Disruptions

FORECASTING: NAVIGATING THE UNKNOWN

Forecasting has often been perceived as a dull and cumbersome topic, particularly in shipping circles. Yet, it remains an essential discipline for businesses across industries. Historically, forecasting has been a hurdle due to the complexity of predicting variables in a volatile global landscape. Today, with advancements in artificial intelligence and predictive analytics tools, forecasting can yield more accurate and dependable insights. But does it?

Consider recent global disruptions: Were the supply chain shocks in the oil markets caused by the rise of Houthi disruptors anticipated? Were the ongoing conflicts and instabilities involving Syria, Israel, China, Russia, Ukraine, and the Philippines accurately forecasted? These events underscore the inherent challenges of forecasting. While hindsight offers clarity, it also provides valuable lessons for improvement.

A decade ago, a study conducted by the U.S. Intelligence Community as an internal review exercise revealed several key insights into effective forecasting:

• Talented Generalists: Broad-based thinkers often outperform specialists when making forecasts, likely because they can connect diverse perspectives.
• Practical Training: Structured and continuous training can enhance the predictive accuracy of individuals and teams.
• Collaboration: Well-managed teams outperform individuals by pooling knowledge and perspectives.
• Focus on the Present: Understanding gaps in current knowledge is crucial before attempting to forecast future events.

Businesses, including those in shipping, have often struggled with assessing the likelihood of uncertain events. History is replete with examples of poor judgment, such as Microsoft's underestimation of the iPhone's impact. These missteps have significant consequences, reinforcing the need for companies to examine their internal processes and biases critically.

2024: BUILD OR BUST?

The year 2024 has marked the most significant shipbuilding boom since the 1970s. Larger shipyards in China and South Korea have reached full capacity, and newbuild deliveries have been pushed as far out as 2028. The $185 billion spent globally on new construction this year highlights the enduring growth of global trade, even amidst economic slowdowns in China and Europe and rising interest rates.

However, the boom is not without challenges. Over the years, the decline of new shipbuilding yards without sufficient replacement capacity has created bottlenecks. This year, container ships have dominated orders, driven by substantial profits as global supply chains adjust to geopolitical disruptions. As a result, shipyards show limited interest in building bulkers and tankers, which offer significantly lower margins compared to gas carriers and container ships.

The order book may not be as robust as in previous years in the chemical tanker space, where our company supplies advanced tank linings. Korean yards, such as Hyundai Heavy Industries (HHI), prioritize higher-margin projects like gas carriers. In 2024 alone, HHI secured contracts for 180 vessels worth $20 billion, exceeding their annual budget by 52%.

Tanker owners remain conservative in their approach to newbuilds, especially compared to bulk carrier and container ship owners. Gas carriers, supported by future energy demands and national interests (e.g., Qatar's LNG projects), are dominating the shipbuilding pipeline. While some tanker owners have announced ambitious fleet expansions, the lack of global shipyard capacity may constrain these plans unless significant investments are made to expand capacity.

PAPER TIGER: THE IMPACT OF SHIPPING SANCTIONS

As 2024 nears its end, the phrase "shipping sanctions" has been repeatedly echoed. But have these sanctions achieved their goal of weakening the economies and cash flows of targeted nations? While the U.S. and EU hail their strategies as successful, the reality is more nuanced.

For instance, India—a strategic ally of the U.S.—has become the second-largest importer of Russian crude oil, a position forecasted to surpass China's by year-end. India benefits from reduced costs, purchasing Russian crude at a $4 discount compared to Middle Eastern or U.S. sources. Meanwhile, European nations face escalating energy costs due to restricted access to feedstocks for producing refined products and chemicals. This dynamic raises consumer prices across the value chain, disproportionately impacting Europe.

Shipping sanctions highlight the complexities of geopolitics and economics. National strategic interests often overshadow global policing initiatives, resulting in a fragmented and uneven playing field with long-term implications for international trade dynamics.

FINAL THOUGHTS

As we close 2024, the challenges and lessons in forecasting, shipbuilding, and global trade are stark reminders of the volatile landscape businesses must navigate. By embracing a more collaborative, well-informed, and forward-looking approach, companies can position themselves to thrive amidst uncertainty.