How the Shipping Industry has Changed

The immense amount that the shipping industry has changed over time is something that we take for granted in modern society. In the era of free two day shipping and sometimes even 1-day deliveries, it’s important to examine what is different.

Means of Travel

Ships, railroads, and trucks have changed the fundamentals of how we ship items around the world. In fact, prior to the 1800’s, most items were shipped via merchant ships and horseback.

The change to the shipping industry sped up in the 1900’s. This is due to the development of road systems in many major cities. Cars ultimately became more popular, and trucking followed soon after. Nowadays, our complex shipping system relies on a mix of cargo ships, railroads, and trucks, with each playing an important role in deliveries worldwide.

How the shipping industry has changed Dogan Erbek

Tracking Technology and GPS Accuracy

Today we get to enjoy the advanced tracking that shipment companies use. When we order something, we get a pretty accurate estimate on when that delivery will arrive. It’s almost second nature now that we know to use our given tracking number to see any updates about our delivery.

This wasn’t always the case though. While customers had been given a rough estimate on a delivery in the past, the tracking technology wasn’t nearly what it is today. Customers were also left in the dark after an initial estimate.

Additionally, GPS accuracy has also taken a big leap. GPS accuracy has pushed shipping companies to deliver on an increase in productivity and ultimately faster shipments. Gone are the days of needing to write down directions, printing them from your computer, or even asking locals how to get back on the correct route. While advanced GPS technology helps average consumers in our everyday lives, it’s even more important to the shipping industry.

RFID and Smart Devices

While consumer awareness of RFID technology isn’t necessarily as big as tracking or GPS technology, the role that it plays is huge. RFID technology allows for shipping companies to easily keep track of their inventory as it moves from different shipping locations.

RFID uses a chip or a sensor to send out radio waves, essentially transmitting information. Once that information is sent out, it is processed by the company’s computer systems. Shipping companies use RFID technology in a similar manner as barcodes. Although, the superior speed of RFID technology is more beneficial to shipping companies.

Smart devices are changing things for the shipping industry, too. By building sensors into shipping equipment and vehicles, crews can take advantage of real time data and insights related to their shipment. Smart devices connect to the internet, which allows them to transmit data to the crew in charge of the shipment.

Where Things are Going

The future is going to rely heavily on automation. Automation can be a scary subject, because it can replace the need for so many jobs, and we really don’t know how many industries will take advantage of it. One thing that’s for certain though, is that the shipping industry will be fundamentally changed by automation.

Autonomous vehicles are already part of our reality, and autonomous trucks will soon be a part of the shipping industry. While there are still regulatory issues and safety concerns that stand in the way of full implementation, the technology is there. The question now becomes, when will we fully take advantage of it.

Additionally, drones will also become common practice for companies delivering packages. Amazon has led the way in this technological development, announcing Amazon Prime Air. Similar to autonomous vehicles, regulatory hurdles still stand in the way of drone deliveries. There is also still a large associated cost with drone deliveries, making the widespread rollout something that we’ll have to wait a little bit longer for.

No one is safe until we are all safe

US Trade Representative Katherine Tai announced that “these extraordinary times and circumstances call for extraordinary measures.

The US supports the waiver of IP (intellectual property) protections on COVID-19 vaccines to help end the pandemic and we will actively participate in WTO (World Trade Organisation) negotiations to make that happen”.

It is reported that 10-15 billion vaccine doses are needed to stop the spread of the virus; by April 2021, there had only been 1.2 billion doses produced worldwide.

No one is safe until we are all safe Dogan Erbek

The way I see it, US’s stance is circumstantial and in a way symbolic; the WTO negotiations could last for months curtailing to have an immediate impact in ending this present health crisis. Nevertheless, I believe this is very big news.

With this declaration US administration is following India and South Africa, which in early October 2020 issued a proposal for temporary suspension of IP rules in the context of Covid-19. In this regard, EU Commission President Ursula von der Leyen also said she was “ready to discuss any proposal that would tackle the crisis in an effective and pragmatic way.”  WHO Director-General Tedros Adhanom Ghebreyesus and UN Secretary-General Antonio Guterres were overjoyed with the news and congratulated the US on this historic decision.

Not surprisingly, the pharmaceutical industry took the White House’s decision very badly. They argue that developing countries lack the skills and resources to manufacture COVID vaccines based on new technologies. They also say that it will undermine the pandemic response, risk-taking and innovation in vaccine research. In my view, one thing is clear; this waiver, if can be applied timely on WHO scale, will deprive the big pharma of monopoly profits during this pandemic.

The big pharma prefers the donation of vaccines to patent infringement. There, however, promises have not been kept so far. The COVAX Facility, the global pooled procurement mechanism formulated by WHO for COVID-19 vaccines, was supposed to distribute two billion doses by the end of 2021 to the poorest countries, has not received enough deliveries, being able to provide only 53 million doses so far. Despite this largest vaccination campaign in history, one in four people in developed countries have been vaccinated to date, while in low-income countries it is one in 500. Can we give a better example of inequality?

On the flipside of the coin, there are also geopolitical concerns. Thus far, China and Russia exported their vaccines in quantity and have engaged in significant technology and knowledge transfer, forging partnerships around the world, and helping to speed up the global vaccination effort. This has been clearly an act of benevolent power to the world. The US and the EU are surely taking this perspective into account as well.

In today’s world, I think it is nearly impossible to think outside of the box of Big Data. Generous and benevolent they all seem, these programs will help to gather huge amounts of valuable medical information and records in less developed countries, where privacy and data protection regulations are much more lax compared to developed countries.

Is small beautiful ?

COVID-19 accelerated a major shift in working relations with new and elaborate definitions and notions such as smart working. Smart working stands for an employment relationship agreed between the parties, organised through phases, cycles and goals and without any schedule or place constraints, with the possibility of using technological tools to work.

In its essence it resembles very much already existing Anglo-Saxon start-up and tech employment world, muted labour protection and rights with easy access and very easy exit (voluntary or otherwise).

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After the pandemic, we have seen a sub-category of this concept widely in continental Europe with varied names, remote working, home-working, télé-travail. Thus far, we have generally experienced the part where “without place constraints” and “the possibility of using technological tools to work”.  All the major studies in all developed countries point to the same direction conveying the same message; The Next Great Disruption Is Hybrid Work—Are We Ready? – Microsoft World Trend Index 2021. According to this report, 73% of employees want flexible remote work options. Similar reports also state a positive impact on efficiency and quality from the viewpoint of employees. This all seems and reads very positively. Are we refusing, however, to acknowledge the negatives and risks?

I would like to cite the worrying new mantra: if you can do your job from anywhere, someone anywhere can do your job. With the exponential growth of technological advances, this is now especially true for financial industry with all the related corporate structures and information services. I wonder whether well-paid white collar jobs with substantial social benefits in Europe are still secure. Would not the companies be inclined to hire highly educated and skilled people from developing countries for merely a fraction of the salaries now applicable?
These risks do not concern the employees alone; employers are also facing major challenges. The cross-border employment may imply various bureaucratic, legal and tax consequences with related costs as well as risks. Big companies with their vast resources may cope with this matter. As I see it, the smaller companies will need to come up with more creative ideas and tailor-made solutions to succeed should this trend persist.

Economic recovery from COVID19 is neither green nor sustainable

The International Energy Agency (IEA), which I consider to be the global gold standard for energy data, warns that in 2021 global carbon dioxide emissions are set for their second biggest increase in history.

This huge spike is second to the massive and carbon-intensive rebound after 2008 financial crisis.

Global Energy Report 2021 of IEA predicts a 1.5 billion tonnes rise in global energy related CO2 emissions, driven by a strong rebound in demand for fossil fuels and especially coal in electricity generation.

I would like to summarise the key findings of the report:

  • Global energy demand is set to increase by 4.6% in 2021, and nearly 70% of this projected increase is in emerging markets and developing economies.
  • Demand for all fossil fuels is set to grow significantly in 2021. Coal demand alone is projected to increase by 60% more than all renewables combined.
  • Despite an expected annual increase of 6.2% in 2021, global oil demand is set to remain around 3% below 2019 levels.
  • Coal demand is on course to rise 4.5% in 2021, with more than 80% of the growth concentrated in Asia.
  • Natural gas demand is set to grow by 3.2% in 2021, driven by increasing demand in Asia, the Middle East and Russia.
  • Electricity demand is due to increase by 4.5% in 2021, or over 1 000 TWh. This is almost five times greater than the decline in 2020, bolstering electricity’s share in final energy demand above 20%.
  • Demand for renewables grew by 3% in 2020 and is set to increase across all key sectors – power, heating, industry and transport – in 2021. Solar PV and wind are expected to contribute two-thirds of renewables’ growth. The share of renewables in electricity generation is projected to increase to almost 30% in 2021.
At the launch of the report Fatih Birol, the IEA Executive Director and a leading authority on energy and climate said “This is a dire warning that the economic recovery from the Covid crisis is currently anything but sustainable for our climate… Emissions need to be cut by 45% this decade, if the world is to limit global heating to 1.5C (2.7F), scientists have warned. That means the 2020s must be the decade when the world changes course, before the level of carbon in the atmosphere rises too high to avoid dangerous levels of heating. But the scale of the current emissions rebound from the Covid-19 crisis means our starting point is definitely not a good one”
In my opinion, the findings of the report are alarming and unsettling. On the one hand, governments around the world declare the climate change their priority, on the other hand they aim a recovery by more investment through fossil fuels. I believe the financial institutions should definitely take this point into account while drawing their medium term strategies.
I would like to conclude with Fatih Birol’s warning “Unless governments around the world move rapidly to start cutting emissions, we are likely to face an even worse situation in 2022. The Leaders Summit on Climate hosted by US President Joe Biden this week is a critical moment to commit to clear and immediate action ahead of COP26 in Glasgow”.

LIBOR replacement

The Libor (London Interbank Offered Rate) is an indispensable instrument for the entire financial sector, the one that gives direction. Published daily in London since 1986, this reference, on which $300 trillion of financial contracts are indexed, will disappear at the end of 2021, along with the other interbank rates (Ibor).

It will be replaced by SOFR (Secured Overnight Financing rate) in the US, SONIA (Sterling Overnight Index Exchange) in the UK, TONA (Tokyo Overnight Average rate) in Japan, ESTER (EURO Short-term rate) in Europe, and SARON (Swiss Average Rate Overnight) in Switzerland.

According to my reading of various opinions on the matter, these new rates are considered to be more transparent and robust.

LIBOR has lost its credibility after the revelation in 2011 of the deliberate manipulations by banks. From my point of view, one of the main weaknesses of LIBOR is that it is calculated on the basis of banks’ estimates of the rates at which they could borrow on the interbank market. This method made large-scale manipulations possible.
I do not consider the new model and rates as miracle solutions. Nevertheless, I believe the substantial involvement of regulators will ensure a more reliable reference for the markets.
Transition to this model is no doubt will be very pricey and very complicated especially for banks. Among the main challenges, I must site the identification and management of their existing instruments benchmarked to former rates and the conversion of existing contracts containing  those rates , so called “tough legacy,”. Also the last but not least, possible shortcomings of new rates.
Swiss financial industry has undergone very significant changes and difficult times since 2008. I believe SARON can offer the sector an opportunity to demonstrate its competitiveness and savoir-faire.

Worried for jobs, but unwilling to return to the office

There are a growing number of articles and reports, which leaves especially small and medium size business owners rather perplexed.

One of the major human resources specialists, Manpower, conducted a recent survey, which I find very interesting and representative in this regards.

According to the survey; while nine out of ten working people consider keeping their job to be the most important thing at the moment, due to an unprecedented and COVID induced economic crisis everyone fears for their jobs. Nevertheless, returning to the office is still a source of restraint for 94% of those surveyed. Interestedly, work/life balance seems to have become an even more important criterion for employees since the start of the Covid-19 pandemic than it was even before it began.

I believe, this will become a major area of conflict between the employers and employees when as the spread of Covid-19 slows or even disappears and the COVID fighting measures are lifted. And when employees currently teleworking will be called back to the office.
Although I understand people desire to work more flexibly and less, I do not see how the same level of incomes can be maintained this way especially at this time of economic contraction.
In my opinion, the society has been undergoing a major transformation regarding its relations with growth, consumption and sustainability over the past decade and that COVID -19 only accelerated this transformation.
Maybe the next survey should ask; are you willing to consent to lower incomes for more flexibility?

Have we learned from history – Current crisis vs. 2008

By far not all the lessons of the 2008 financial crisis have been learned. And those that have been learned have not necessarily been applied. Nevertheless, one of them – drawn and applied – will certainly have been of great help in the current crisis.

At least it has helped to limit the economic catastrophe: the need for well-capitalized banks. This is what can be drawn from Bank for International Settlements (BIS) December 2020 report.

BIS, aka central bank of central banks, says that the banks have served as a “reliable first line of defense” and that “backed by swift action by the authorities, banks helped to limit economic stress at the beginning of the pandemic”.

I must stress the fact that the starting point of 2008 crisis is very different than the actual one. Back then, the crisis came from a freewheeling financial sector, overwhelmed by bets on sub-prime mortgages, which have proved to be much more dangerous than expected. Poorly capitalised, many banks that had considered risk management as a trivial activity found themselves on the brink of collapse, with some having to seek state support. In the actual case, the crisis did not initiate from the financial sector and it affects entire global economy.

I would like to provide some numbers from the report at this point: International bank lending to financial and non-financial borrowers fell by 5.2% in 2008. Conversely, these same loans increased by 4.8% in the first half of 2020. This, “even though economic activity has contracted more than during the great financial crisis of 2007-2009”, the authors of the study point out. The decline in global growth was 0.2% in 2008, compared with -9.1% in the first half of this year.
The authors of the study add that “foreign lending to the non-financial private sector – a measure of credit to the ‘real economy’ – has also remained robust”. In the first six months of the year, they fell by only 0.5%, compared to a drop of 11.8% in 2008. Similarly, local loans in local currency also grew at the historically high level of 8.6%.
I believe one must admit that the vast measures and assistance of governments, such as state guarantees for loans, have also helped. Central banks ensuring the supply of liquidity prevented the health crisis from turning into a financial crisis.

UNCTAD warns COVID-19’s economic fallout will long outlive the health crisis

Geneva is not only a global trade finance hub; it is also home to United Nations and many of its agencies. One of the most prominent ones among these agencies is United Nations Conference on Trade and Development (UNCTAD).

Having established in 1964 as a permanent intergovernmental body, UNCTAD is the main authority of the General Assembly in the sphere of trade and development. Its purpose is promotion of trade and development, particularly in developing countries.

UNCTAD released a report in end-November, where it concluded that COVID-19’s economic fallout will long outlive the health crisis. Announcing the report, UNCTAD Secretary -General Mukhisa Kituyi warned also of an increase in extreme poverty.

Let me set-out the forecasts of the report first: UNCTAD estimates 4.3% decline in global GDP in 2020, a figure very close to that of the IMF at 4.4%. The report sounds also rather unconvinced regarding the rapid commercialisation of a vaccine against Covid-19.
Based on these forecasts the agency draws a rather bleak picture.  Since UNCTAD’s main area of interest is developing countries, the report is quite realistic from my point of view. I would like to highlight some excerpts from the report:

  • The crisis could send an additional 130 million people into extreme poverty.
  • It finds that the pandemic’s impact has been asymmetric and tilted towards the most vulnerable, both within and across countries, affecting disproportionately low-income households, migrants, informal workers and women,
  • Global poverty is on the rise for the first time since the 1998 Asian financial crisis. In 1990, the global poverty rate was 35.9%. By 2018 it had been curtailed to 8.6% but has already inched up to 8.8% this year and will likely rise throughout 2021
  • Additionally, COVID-19 has had an excessive effect on two sectors – tourism and micro, small and medium-sized enterprises – which employ many vulnerable groups

These and other setbacks, such as school closures that threaten 20 years of progress in expanding access to education, especially for girls, will have strong negative impacts on the productive capacity of countries well into the future.

The report calls for a more vigorous international assistance, including debt relief to many poorer nations so they can tackle the pandemic’s economic impacts.
Secretary-General of UNCTAD  said “The Covid-19 pandemic has seriously undermined the global economy, with far-reaching consequences for all. The spread of the virus has benefited from the interconnectedness that underpins the global economy and played on its weaknesses, transforming a global health crisis into a global economic shock that hit the most vulnerable hardest. The time has come to address the weaknesses of globalization that have led to the rapid spread of the virus around the world and its uneven economic impact.
The UNCTAD report also highlights the possible positive impact of the health crisis on the organisation of trade and the fight against global warming. The UN agency also sees this as an opportunity to be seized. According to the report, the crisis can “catalyse the emergence of new, more resilient production networks based on shorter, more regional, sustainable and digital value chains”. It is also, according to its editors, an opportunity to make production “greener”.