The last leg of your coffee maker’s trip, from the store to your home, represented a tiny portion of a really long voyage, most of it spent at sea. The same is true for your computer, your car, your mobile phone, your sneakers, your jeans, and much of the food you eat. In fact, nine out of ten things we buy typically travel on a ship for weeks or months to reach us.
The International Chamber of Shipping (ICS) estimates, “90% of world trade is carried by the international shipping industry,” a feat accomplished by more than 100,000 merchant ships that transport every kind of cargo. Despite its leading role in international trade fueled by the e-commerce boom of the past decade, the shipping industry faces big economic pressures brought about by the last global recession and a growing demand for more sustainable operations. Industrial shipping is primed for the next transformational wave of innovation. It has been 60-years since the industry’s last disruptive invention: the shipping container.
Your home-brewed latte machine on its way to greet you.
Thinking ‘Inside the Box’ to Transform Commerce
A box that departs a factory as part of a train, crosses the ocean neatly lined alongside thousands of identical boxes, gets unloaded by a crane, and becomes the cargo container of a truck that delivers it to a warehouse. This most consequential of all innovations in commerce started with a simple question 60 years ago: “Wouldn’t it be great, if my trailer could simply be lifted up and placed on the ship?” This query led North Carolina trucking businessman Malcolm McLean to invent the shipping container in 1955, when, according to the PBS documentary, They Made America, “He gambled big on a container venture, buying two oil tankers and securing a bank loan to buy $42 million worth of docking, shipbuilding, and repair facilities. He refitted the ships and designed trailers to stack below or on the decks. In April 1956, his first container ship, the Ideal X, departed Port Newark, New Jersey, headed for Houston.”
Global commerce companies like Amazon would simply not exist if it were not for the humble shipping container. “Containerization,” as this transformative innovation came to be known, revolutionized commerce by allowing ships to eliminate the need to handle individual cargo pieces, standardize and automate loading and unloading, and reduce theft, all of which shortened transportation times and reduced the cost of transporting the goods.
Fueling the Shipping Industry is an Expensive Business
Yet, the industry that transformed the world with the adoption of containerization six decades ago, at present struggles with falling prices, unpredictable energy costs, and expensive clean air and water regulations. In fact, the industry has not fully recovered from the effects of the last global recession, even though commerce is booming.
To boom alongside commerce, the industry needs to innovate to solve the single biggest driver (upwards of 70%) of its costs: fuel. Specifically, marine bunker, or the residual fuel left over from oil refineries containing mercury and heavy metals. Bunker fuel prices rise more quickly than the underlying price of oil due to increased refining. The volatility of fuel prices makes the industry unable to forecast accurately and maximize routing efficiency. Fuel forces a balancing act with a high level of uncertainty for shipping companies all around the world.
For example, a ship may leave Hong Kong with a cargo of mobile phones and game consoles headed to Long Beach, California. The fastest route would be to fuel up in Hong Kong and head northeast in a straight line to Long Beach. However, fuel needs to be cheap so the ship may actually head south and travel for a few days to the Philippines just to get access to cheap (and dirty) bunker fuel for the 7,251-nautical mile voyage to America. Once they unload the cargo in Long Beach, this story of inefficiency and wasted travel time is repeated. The ship may head north to Oakland to buy more cheap bunker fuel before heading back south to Hong Kong. To lower costs even further to gain a decent profit margin, the ship may reduce its use of fuel during the transpacific trip by engaging in what is known as slow steaming, which increases the numbers of days at sea.
Fuel consumption makes the industry responsible for more than 3% of global CO2 emissions—that is more than Germany, for instance, and much of it comes from the dirtiest type of fuel. In fact, the costs required to comply with clean air and water regulations make it difficult for the industry to make the necessary investments in other areas required for their long-term growth and competitiveness, such as technology.
An Unnatural (and Limiting) Balancing Act
The struggle to balance speed, cost, and sustainability is keeping the shipping industry from fully capitalizing on the commerce boom happening around the world. However, their challenges can be eased by introducing new innovative technology to the industry again—this time in the form of affordable and sustainable energy. Hydrogen 2.0, which enables the on-board production of energy for heat and electricity to move ships could provide a transformative way for ship operators to achieve greater economic predictability, reduce fuel costs, and comply with sustainability regulations.
Adding such a fuel alternative to their current energy mix to maximize their efficient use of energy and become more sustainable, could help ship operators move at the speed of e-commerce. More importantly, it could propel a massive transformation in their business model with positive consequences for commerce and sustainability akin to the one that changed the world of commerce 60-years ago in the form of a simple metal box.
As the Hydrogen 2.0 ecosystem gains momentum, we’ll be sharing our views and insights on the new Hydrogen 2.0 Economy. We also update our blog every week with insightful and current knowledge in this growing energy field.