Shipping: Globalization's Lifeblood

If someone asked you to name one industry that has had perhaps the most impact on the growth of the global economy, what would you say?

Each year, some 86,000 ships move more than 9 billion tons of cargo – more than a ton for each person on the planet – across our seas each year.

Some might include agriculture, manufacturing or energy production. But while those are three good answers, you need to look a little deeper into the mechanics of supply and demand to get the right one: shipping.

From refrigerated freighters and container ships to car carriers and supertankers, the world’s shipping industry has played an incredibly key role in transporting 90% of the world’s food, products and energy while helping to transform the global economy along the way. Each year, some 86,000 ships move more than 9 billion tons of cargo – more than a ton for each person on the planet – across our seas each year.

These facts are brought home in entertaining detail in a new book by Lori Ann LaRocco called Dynasties of the Sea: The Shipowners and Financiers Who Expanded the Era of Free Trade.

LaRocco, who is the Senior Talent Producer at CNBC, teams up with Matthew McCleery, Martin Stopford, and Lawrence Lindsey – all veterans of the industry – to pull together some fascinating insight into the impact that shipping has on all of our lives. As a whole, the shipping business has lifted a billion people out of poverty over the past 15 years alone, has fed half the world and kept the other half warm, and has, “raised the standard of living virtually everywhere by shuttling products and commodities from where they’re most efficiently produced to where they’re most profitably consumed.”

And while the authors paint a picture of the long history of mankind and sea craft – from the Greeks and Vikings to the British merchants who created the East India Trading Company – they make it clear that shipping is a specialized and increasingly competitive business. As McCleery writes in his preface to the book:

In a “perfect market” like shipping, in which brutal competition, chronic overcapacity and a reliable flow of destabilizing events conspire to give the industry the lowest cycle-to-cycle financial returns with the highest inter-cycle volatility of any asset-intensive industry, one might be tempted to conclude that the business would do nothing but destroy capital… But the fact is that shipping has contributed to more fortunes than any other business except technology.

To shed light on this industry – where the ships themselves can cost upwards of $100 million a piece – that may not get the full credit it’s due for the economic impact that it continues to have, LaRocco takes a somewhat unique approach in her book by interviewing and profiling some 21 shipping entrepreneurs from all over the world, including ship owners, logistics specialists, and the financiers who provide the capital to make it all run smoothly.

For example, LaRocco writes about Nicholas Pappadakis, Chairman of the International Association of Dry Cargo Shipowners (Intercargo), a native Greek whose family ties to the sea go back centuries. Pappadakis watched the recent shipping boom begin in 2003, as shipping rates rose from $8,000 a ship to more than $100,000, and then crash in 2007 – caused not just by the recession, but also the rise in the number of Chinese-owned ships. Between 2009 and 2010, some 1,500 new ship owners entered the market, resulting in a glut and a drop in prices. “My grandmother had a simple saying about the cycles: 98 ships and 101 cargoes equals boom; 101 ships and 98 cargoes equals bust,” Pappadakis says in the book.

As the global economy struggles to regain its momentum following the recession, it’s clear that shipping entrepreneurs like Pappadakis will be instrumental in making it happen. “World trade, world finance and the health of the world economy are all inter-related with shipping,” he says.

Also consider that Gerry Wang, CEO of Seaspan Corp., a $6 billion public company, considers container shipping “the ocean highway” which connects manufacturers to consumers. Wang says one way to measure the health of a nation’s economy is through the items shipped to it – via dry bulk, tanker or containers. Shipping containers alone transport 200 times the volume that parcel carriers like FedEx, DHL or UPS do while some 99% of all the goods you see at Walmart are shipped via container. “Without the effective container-shipping network, you can forget about Walmart, forget about globalization, and you can also forget about China being the global manufacturing center,” Wang says.

In other words, it is the entrepreneurs and financiers profiled within this book that might truly hold the keys to the global economy’s eventual recovery or collapse. Those are stories worth reading. As LaRocco writes: “I hope the next time you see a tanker, you will see much more than just a tanker.”

Forbes.com