1. THE 3 RD INDUSTRIAL REVOLUTION By : Parakrama Dissanayake WILL SHIPPING LINES MANAGE SUPPLY IN RELATION TO DEMAND

2. SHIPPING DEMAND – DERIVED DEMAND Stems From Demand For Goods DEVELOPMENT OF TRADE <> ECONOMIC GROWTH CILT International Conference 2012

3. CHINA’S GROWTH GLOOM  China’s economy slowed for a 7 th straight quarter  Missing governments target CILT International Conference 2012

4. INDIA –  “Hindu rate of growth’’ A decade ago 3 to 4%  Zoomed to approx. 9%  And now down at around 5.4% CILT International Conference 2012 IS IT IN SEARCH OF A DREAM?

5. AMERICA’S FISCAL CLIFF  USA is the largest importer of goods  With effect from Jan. next year US Fed tax increase and spending cut equivalent  This will raise taxation by US$ 3500 per household.  Will result in a fiscal restriction of US$ 600 billion in a single year.  Unless Democrats and Republicans agree would not Consumption decrease? WILL IT AFFECT SHIPPING? CILT International Conference 2012 of 5% GDP will come into force. Would not demand for Trade decline ?

6. EUROZONE SOVEREIGN DEBT CRISIS Are we seeing the light at the end of the tunnel ? CILT International Conference 2012

7. NOW US BUSINESS  Coca Cola moving offices of huge bottler from Greece.  FORD estimated loss 1.5 Billion – Closing 2 plants in UK, 1 Plant in Belgium  Dow Chemicals – Close 4 plants in Europe.  Kimberly Clark – Lay off 1500 jobs in Europe. CILT International Conference 2012 - Lay offs 6200 workers FLEEING SLUMPING EUROPE

8. WORLD ECONOMY  Potential for growth in both advance and emerging economies permanently  People will be poorer and budget deficits more difficult to close IMF PROGNOSIS SEES LONG TERM PAIN CILT International Conference 2012 damaged

9. GLOBAL TRADE  The G20 economies have added 124 new restrictive measures affecting about  Staggering increase in protectionism in recent months with a 25% rise in trade  Mounting trade tension between China and USA.  China telecoms Huawei and ZTE “A Threat to Security” USA. CILT International Conference 2012 PROTECTIONISM IS RAISING ITS UGLY HEAD 3% of global imports and nearly 4% of G20 trade. restrictive measures.

10. “As long as politicians in the worlds big three economies continue to dither another global recession is possible. Judging by politicians behavior – the world economies could slow a lot further. It could even tip into recessions in 2013”. The Economist

11. CONTAINER SHIPPING LINES PROFITS PLUMMETS Loss > US$ 16 Billion 2009 Profit > US$ 16 Billion 2010 Loss > US$ 6.3 Billion 2011 Top 20 Carriers CILT International Conference 2012

12. ASIA-EUROPE / MEDITERRANEAN  Asia – Europe  Asia – Mediterranean STEEP DECLINE IN CONTAINER VOLUMES CILT International Conference 2012 Declined by 10% in August 2012 as against 2011. Minus 20% in August 2012 as against 2011.

13. ASIA – MEDITERRANEAN RATES PLUNGE US$ 1892 Per Teu JUNE 2012 US$ 1204 Per Teu OCT 2012  Shanghai Container Freight Index Spot Rates Fall 36.3% in a single quarter CILT International Conference 2012

14. Terminated AE5 service(8) 6500 TEU Ships Terminated AE9 Service(11) 8000 TEU Ships MAERSK LINE CUTS 19 SHIPS 21 % Capacity Reduced ON ASIA / EUROPE SECTOR

15. HANJIN / EVERGREEN Among 13 voyages scheduled from October to December, CILT International Conference 2012 Lloyd’s Loading List CUT ASIA - EUROPE CAPACITY the companies have decided to skip three, which is a 23% capacity reduction in total.

16. CONTAINER CHARTER PRICES SLIDE 1000 Teu Vessel (- 37%) 1600 Teu Vessel (- 41%) 2000 Teu Vessel (- 49%) 3500 Teu Vessel (- 41%) CILT International Conference 2012

17. JOBLESS – ARMADA OF SHIPS CILT International Conference 2012  No. of idle vessels as at Sep 2012 is 290 ships / 550,000 Teus  Biggest vessel without work is 7200 Teu `` SVENDBORG MAERSK ”

18. MIS – MATCH CONTAINER DEMAND AND CAPACITY Round the World20122011 Westbound TEU25,416,00025,598,000 Eastbound TEU24,635,00024,046,000 Total Trade50,051,00049,644,000 Growth1%3% Imbalance TEU781,0001,552,000 CILT International Conference 2012

19. ULTRA LARGE CONTAINER SHIPS (ULCS)  95% deployed in Asia to Europe Sector  7 Ports of calls  Will South Asia be part of it ? April 2012 – Operating - Ordered Average Size - > 13,200 Teus No. of Ships - 274Total Teus – 3,628,100 CILT International Conference 2012

20.  6000 Containers per port call 24 Hrs  250 Berth moves per/hr with 8 cranes Maersk Challenge to Port Operators MAERSK LINES TRIPLE E 18,300 TEU ULTIMATE CONTAINER CARRIERS

21. CILT International Conference 2012 USA / EUROPEASIA / CHINA DEMAND SUPPLY Consumption Production Container Shipping

22. OUTSOURCING MODEL - CHALLENGED  Increase in costs in Asia  Loss of jobs in USA / Europe  Politicians no choice but create jobs in the developed world CILT International Conference 2012

23. WORLDS FACTORY - CHINA  Costs soaring by increase in Land, taxes, labor costs  Southern China labor cost up by 20% a year since 2008  Nike shifts from China to Vietnam  American Chesapeake Scented Candles shifts from  Rising labor costs  Increase shipping charges  Supply chain duration – high inventory cost  Respond to trends faster. CILT International Conference 2012 China - > Vietnam - > Maryland USA

24. LABOR COSTS – LESS IMPORTANT  Slicing the Apple I Pad  Assembled in China Worldwide $ 33 China $ 8  Cannot I Pad relocate assembling in America even at double the cost ? Source : University of California CILT International Conference 2012 Total Labour Cost

25. LESS WORKERS  Nissan British Factory in Sunderland 271,157 Cars with 4594 people (1 person - > 59 Cars) 1999 480,485 Cars with 5462 people (1 Person - > 87 Cars) 2011 CILT International Conference 2012

26. PRODUCTION Vs. COSTS  Americas manufacturing output in Dollar terms same as China  America achieves this with only 10% of workforce deployed by China Despite China’s rapid rise Source : Massachusetts Institutes of Technology CILT International Conference 2012

27. THIRD INDUSTRY REVOLUTION 18 th century mechanization of textile industry 1st 20 th Century Henry Ford mastered the moving assembly line 2nd Manufacturing going digital through 3 D printers 3rd CILT International Conference 2012 – Age of Mass Production

28. 3-D PRINTER  Old way was taking lots parts and screwing or welding  Now product can be designed on a computer and printed on a 3-D printer  Designed with software and a cartridge with material in plastic, metal, ceramic  Already high tech parts of military jets printed using 3-D printer  University of Southern California – A giant 3-D printer CILT International Conference 2012 in fine powder or gel  Lay down concrete foundation  Put up walls  Inserts wiring and plumbing  Construct an entire building

29.  Will Jobs go back to rich countries ?  Will this not change the demand model of Shipping ? CILT International Conference 2012

30. CONCLUSION  Importance of low cost labour in production will diminish.  Gradual shift of low cost production from Asia to West.  Like with Postal mails to E-mails, 3-D printing will completely alter manufacturing  Shipping Line – Ports have to re-assess development of capacity.  Business models of Shipping Line will alter. CILT International Conference 2012 models

31. NOTE: To change the image on this slide, select the picture and delete it. Then click the Pictures icon in the placeholder to insert your own image. Thank You CILT International Conference 2012