It was a shocking sight. The steel arch of the Francis Scott Key Bridge in the Baltimore Harbour, in Maryland, United States, crumpled and fell onto the container ship that collided with one of its supports. The crash claimed six lives and destroyed a vital piece of transportation infrastructure. Damage is estimated at a staggering US$4 billion (S$5.4 billion).The Singapore-flagged vessel, the Dali, is
over three times larger than cargo ships were when the Baltimore bridge was opened in 1977.
The incident, similar to the Ever Given which
got stuck in the Suez canal in 2021, is a reflection of the general trend towards mega ships over the past 26 years and the complexities and challenges that comes with it.
These trends were the subject of the
IPS-Nathan Lecture, "Mega Maritime Movements: Adjustments in Orbit" given by Mr Tan Chong Meng, former Group CEO of PSA International (PSA), a leading global port operator and partner to cargo stakeholders.
He shared an insider’s view of the rapid changes in the world of shipping and how Singapore managed to maintain its ranking as number one for five consecutive years on the
Xinhua-Baltic International Shipping Centre Development (ISCD) Index.
Mega trends bring mega ships
The percentage of world trade to Gross Domestic Product (GDP)
trended upward for decades after the 1970s until the global financial crisis of 2008 and 2009. This initial growth coincided with technological innovations like
the shipping container and the
rise of emerging markets — a shift in global economic power that also saw countries like China and India become more influential.
As trade volumes grew, the industry began to turn to larger ships, but it was the 2008-2009 financial crisis that spurred the era of the mega ship.
"The global financial crisis meant that freight and charter rates were plunging leading to huge job cuts, and ships were being idle for months at a time," said Mr Tan.
Prior to the financial crisis, the maritime trade intensity — which is the relationship between GDP growth and global container port throughput growth — was high, with an average GDP multiplier of 2.6.
After the crisis, maritime trade intensity decreased, with an average GDP multiplier of 1.1. "You could argue that the 2.6 was rather souped up and the 1.1 is a bit more normal," said Mr Tan, "but it's also a reflection of the fact that GDP now has another engine called ‘services’."
The shipping industry reacted to this new economic reality by investing in larger vessels, leading to an increase in ship sizes of up to 24,000 TEUs (twenty-foot equivalent units). Mr Tan likened this to "an arms race - when one company starts to order, another company wants to make sure that they don't miss out”.
Mega trends reshaped the shipping industry
The upscaling of size of ships plus the upsizing of fleets in general led to overcapacity.
This resulted in significant losses and low freight rates. The profitability of shipping companies plummeted, bottoming out between 2015 and 2017.
The response was a wave of consolidation within the industry. In 2015 Singapore
sold Neptune Orient Lines to France’s CMA CGM for S$3.4 billion and China's
Cosco merged with China Shipping to become the fourth-largest container shipper at that time. Industry profitability did not improve. In 2016 Korean shipping line
Hanjin declared bankruptcy with US$5.4 billion (S$ 7.3 billion) in debt.
The industry coalesced into three major alliances — 2M, Ocean, and The Alliance — that make up 81 per cent of total capacity.
Singapore ports adapt
"Ships double in size about every 10 or 15 years." said Mr Tan, adding, "It's a huge problem for ports because ports are built for a 25 to 30-year life cycle." The ports, such as those in Singapore, were forced to adapt by expanding and upgrading their facilities to accommodate the larger vessels and the increased volume of containers that came with them.
For example, if you were to unload the MSC Oscar, part of the 2M alliance, and line the containers up end to end it would be nearly 140 kilometres long. "Finding a container along that line is like finding a needle in a proverbial haystack," said Mr Tan.
Beyond increasing the number of cranes, the depth of the water, and boosting scale and efficiency, PSA recognised this new business environment necessitated a change in business model from transactional to strategic partnership.
One way they did this was by forming joint ventures with Costco, CMA and ONE, on top of the joint venture with MSE that was already there. "These are shipping lines who are players in the new suites of alliances. And so, by working closely with them, we are effectively working closely with all the members and partners of that particular alliance," said Mr Tan.
Internally, PSA initiated a "from node to network" approach, expressing the fact that ports were formed under an old economic model and now require greater connectivity. Mr Tan said it was time to challenge assumptions and look for ways to remain relevant. This is a crucial goal for Singapore, whose port is among the busiest and remains a focal point for some 200 shipping lines with links to more than 600 ports worldwide.
Initiatives like the
digitalPORT@SG were put in place to unify traditional separate port processes with the support of a single platform, increasing efficiency levels.
Singapore also developed its
International Maritime Centre 2030 plan to strengthen the entire shipping ecosystem. This includes strategies such as expanding sources of financing, encouraging inter-linkages between Singapore’s maritime cluster and industries like logistics and commodity trading, as well as aligning the innovation and R&D efforts between public and private sectors.
Finally, there is the development of
Tuas Port, where Singapore aims to implement all its ideas for the future. Supposedly, upon completion, it will be the largest fully automated and most connected port in the world.
Implemented in four phases, Mr Tan said Tuas Port must, "learn to harness the information that it has from its operations as well as the cargo flow, identify those patterns and use those patterns to help resolve the problems of beneficial cargo owners." But he admits that by the time it is fully operational it may "already be outmoded, superseded, by the challenges of the time".
Current triumphs no guarantee of future success
Singapore's maritime industry holds itself up as a case study on coping with the mega trends that impact the economy. But proactive diligence is necessary to avoid future pitfalls. Disruptions related to the Covid-19 pandemic highlighted the vulnerabilities in the supply chain, with manufacturers and distributors experiencing pain points and calling for more resilience.
As Professor and Dean of the Lee Kuan Yew School of Public Policy,
Danny Quah pointed out in
Expanding and rebalancing global trade, recent trends towards deglobalisation threaten to eat away at the benefits gained from global trade over the years. Indeed, the maritime industry needs far sighted leadership now more than ever.