Without doubt, adding any of the above costs money, time, and extra materials (and -thankfully for shipping- 90 percent of these materials are moved around the world on ships). As a result, unless an engineer (with no MBA degree), or a shipowner, is firmly in charge of the project, oftentimes these items are overlooked with the hope that no accident will happen during the system’s economic life.
Up until World War II and for a couple of decades after, our world seemed indeed to be run by engineers, who (helped by the perceived abundance of resources) were proud of the fact that their creations would live forever: houses were built with walls thick-enough to stop barbarians, cars were made to last (though they were certainly less comfortable/safe than today’s) and some 1950s refrigerators are still operational today (although they can certainly not order a couple of cartons of milk for you when you’re on the last drops of it).
Then two things happened: Milton Friedman and the IT revolution. The combined effect of the rise of financial capitalism and technological acceleration was transformational. Why run a country through Detroit, when you can run half the world through Wall Street? What was the point of building a computer that could last for 30 if technological progress meant it would be obsolete in 10?
This was not exclusively a ‘top-down’ issue. The bottom-up version of it was the concept of consumerism coupled with instant gratification: even if an individual owned a product that was still functional, the new one had to be obtained and, ideally, just as it was launched. Increased levels of indebtedness came in handy to address this concern…
It worked fine, until it didn’t…
In 2009, under duress, we all agreed that we had built a financial system too complex for its (and our own) good and that we had stretched the global balance-sheet to unsustainable levels of leverage (debt-to-GDP ratio of 213 percent, in 2008). So, we agreed to simplify the financial system and deleverage the world. Instead, we only simplified the banking system (by outsourcing some of its nastiest business to darker corners of the financial world,) and we didn’t even bother deleveraging (debt-to-GDP ratio increased to 236 percent, in 2017).
And the world continued moving forward happy as a clam… until now.
To be fair, it is very difficult to imagine what the full set of consequences of the current pandemic will be, as no-one has fully grasped what the problem itself is. But one thing looks certain: our undisputed - if not as absolute as thought - success in marginalizing the infectious diseases that mortified the world 60 years ago, led us to take too many things for granted and create a seamless world with no kill-switches and no back-up systems: an engineer’s nightmare…
So, what’s to be expected?
Global leaders will hopefully realize that the world cannot continue moving forward walking on a tightrope. Although avoiding accidents altogether is practically impossible, especially given the growing speed of technological progress, creating buffers and alternatives that will allow increased room for maneuvering or a softer landing when an accident is unavoidable, is not beyond our capabilities, and hopefully not beyond our willingness either.
This redesigning - and subsequent rebuilding - could come in many forms such as increasing stocks, creating alternative channels, introducing larger margins for error, and would probably come at the cost of slowing down a bit our relentless progress.
If rebuilding is the keyword though, further than engineers, a lot of building blocks will need to be moved around. Given how instrumental shipping is for world transportation, this is the silver lining for the industry, in all this turmoil that we are just starting to go through.
Dimitri G. Vassilacos is a Partner at Ship Finance Solutions. He is an engineer by training (with an MBA).