This is the first of our new series Chat about Geopolitics and Trade with Guest presenter Punit Oza founder of Maritime NXT. Punit talks with Khalid Hashim managing director of Precious Shipping.
- During this episode listen out for what Khalid sees as the next big force in global geopolitics – it may be different from what you would expect.
- Learn more about the two invisibles most know little about.
- Find out about the impact on trade from the Ukraine war behind the headlines.
Listen to the episode now in the player above or the app of your choice below
Episode transcription
Marcus Hand 00:09
Welcome to the Seatrade Maritime Podcast. This is Marcus Hand editor of Seatrade Maritime News. Today is the first in our new series Chat about Geopolitics and Trade, with guest presenter Punit Oza, founder of Maritime NXT. Punit is going to be talking to Khalid Hashim, Managing Director of Precious Shipping. During this episode, listen out for what Khalid sees as the next big force in global geopolitics. It may be different from what you would expect. Learn more about the two invisibles most know little about and find out about the impact behind the headlines and trade due to the Ukraine war. Now I'd like to hand it over to Punit.
Punit Oza 00:56
Thank you so much, Marcus, and welcome to the first Chat about Geopolitics and Trade podcast. I am super excited. I'm Punit Oza, founder of Maritime NXT, and I'm so thankful to Seatrade Maritime for the opportunity to do these guest podcasts.
In my very first podcast, I have a person who needs no introduction, MD of Precious Shipping ECL Bangkok, Mr Khalid Hashim. Special mention here to the listeners that Precious Shipping is my starting career ground where I actually got my foundational knowledge of shipping. And I'm thankful to Khalid and everybody in Precious for the help they've always given me. So it's great to actually have Khalid on the podcast here.
Mr Khalid, I wanted to first get your views on geopolitics and what has been happening, maybe your perspectives would be fantastic as always I believe.
Khalid Hashim 01:46
Thank you, Punit. Thank you, Marcus, and Seatrade for inviting me to this chat. And to straightaway get into geopolitics, I would begin like this. After World War Two, it was really a bipolar world in which the USSR was slowly, but surely, being painted as the bad actor and the USA with its coalition of the willing were being painted as the good actors, all by a very compliant mainstream media that never questioned the press releases, nor the leaders that made such claims.
And as they say, if you paint a lie for long enough, people will soon believe that it is true. Now keeping that background in view, you must remember that Kissinger, Nixon and two came along, and there was ping-pong diplomacy that was born in the early 1970s.
This brought China into the free world culminating with a seat at the table at the WTO at the turn of the century. And though the bipolar world continued as before, except China started to look like a player that could eventually find a seat at the table that ruled the world.
The collapse of the USSR of course, was engineered by the Reagan administration by the creation in 1978 of the Mujahideen fighters in the USSR to fight the USSR that had invaded Afghanistan.
The Mujahideen did their task brilliantly, with arms, financial aid and training from the USA and fierce warriors recruited from the Arab world, led by Osama bin Laden.
The USSR suffered and bled from 1000 cuts administered by the Mujahideen between 1979 and 1989, who were later welcomed at the White House by Reagan putting his arm around the shoulders, calling them the freedom fighters of the world. In 1992, the communist government in Afghanistan was overthrown, and the Mujahideen and the political arm of the Taliban came to power.
In the meantime, the Berlin Wall came crashing down in 1991. And with it, the collapse of the Union of the Soviet Socialist Republic. USSR took place with Russia remaining as the core system, and all its satellite countries gaining independence. At that time, the North Atlantic Treaty Organisation was formed, and Russia, though asked to be included as a member was denied. Instead, Russia was given global assurances from the USA that there would be no encroachment or induction of these newly independent states from the breakdown of the USSR into NATO.
If you look at any of the memoirs or articles written by the contemporaneous personalities involved, they all confirm that the Russians were led down the proverbial garden path. And as we know now, how that has ended with the Russian invasion of Ukraine. The world had become a unipolar world since the early 1990s with the collapse of the USSR, with the sole superpower, or as they like to be called hyper-power of the world, the USA, left standing alone.
In the meantime, the Mujahideen, who had served their purpose with the collapse of the USSR, were no longer needed. And so were completely neglected by the USA and left to their own devices with their fighters ensconced in Afghanistan, but no financial aid from the masters, the USA. Mujahideen and Osama bin Laden, the leader, plotted against their former betters, the USA. And you had the infamous collapse of the World Trade Towers in Manhattan on 11th September 2001.
With that, the interminable war on terror began with the USA and the coalition of willing acting as a bulwark against the dark forces, of as they called it, the axis of evil. About 15 years ago, the USA stopped wanting to be the policeman of the world and started looking strategically as to who could be the pretender to the hyper-crown. Meanwhile, Deng Xiaoping, who was in charge of China from 1978 to 1989, had set in motion the great economic boom of our times, with China being a nobody in economic terms, becoming the undisputed number two economic superpower in nominal terms by the second decade of this century.
IMF data indicate that China actually overtook the USA as the world's largest economy in 2014, on our purchasing power parity basis. And since then, we've had trade wars with tariffs between these two countries as they continue to battle out for economic supremacy. So, we have now a zero-polar world, with various alliances being formed between the developed countries led by the USA and the developing countries from the global south led by China.
China and the USA are of course, the two potential candidates to form a multipolar world in which India could someday stand shoulder-to-shoulder with them and have a seat at the decision-making table. USA is the militarily dominant power with its armed forces fighting declared and undeclared wars in almost every continent in the world today. They are the only power that has more than 800 military bases spread across the world.
China, on the other hand, has focused its efforts on gaining an economic edge over the USA, seen as its ultimate economic code. Economically speaking, both the USA and China are joined at the hip, and the combined annual creators are the largest in the world, and the envy of every other country that wants a shot at becoming a part of. The European Union of 27 countries is the other largest economy in the world.
So economically speaking, we have a multipolar world. Militarily, it is still a unipolar world, with the USA at the head of the table, with the Pentagon's latest budget, heading towards the annual US dollar 1 trillion number. The Pentagon's budget is larger than the next 10 contending countries put together. And then comes the gigantic tech companies whose individual market caps far exceed the annual GDP of most countries. They have built extraordinary power both economically as well as politically. And with their assistance in Ukraine an extraordinary military influence too. But Starlinks's Low Earth Orbit satellites provide the backbone for the Ukrainian ability to stand up against a former fading superpower like Russia. The tech giants can also silence even the leaders of the free world as they did by banning Trump from social media while he was president of the USA.
China has started to clip the wings of the tech giants that are based in, and it will not be long before the USA does the same with the tech giants that are based in their domain. That could lead to another dimension with the global tech titans forming a sort of digital global power controlled by the tech giants from around the globe. More complications ahead as I see it, especially now that the tech giants have got AI on their side of the road.
So those are my opening comments, I would say on what's happening in the world in terms of geopolitics.
Punit Oza 08:51
Brilliant. Thank you so much. This was a masterclass in synopsis of what geopolitics in terms of history has been. And this is something which is very important to understand that history and culture are obviously interlinked with geopolitics all the time. What I really wanted to also get your views on is how has trade evolved with this. And with your experience, and so many years of experience in shipping, you have seen cycles, you've seen these geopolitical events unfold, how did trade change because of that, and that's something that I would love to hear your views on.
Khalid Hashim 09:22
Okay, so now you've got Russia on one side, in this Ukraine war, and you got America, as I call it “the Coalition of the Willing”, on the other side. Basically, the developed countries, they all sanctioned Russia. They've weaponised the banking system against Russia and have made Swift excluded from all Russian transactions. Therefore, from an international point of view, for the Russians to make any trade negotiations becomes much much much more difficult. But having said that, if you look at the numbers, and these are numbers shouted by the Ukrainians themselves, they say that Russia's trade has actually increased after the war despite the weaponisation of sanctions against them.
So, when you have geopolitics affecting trade, you've to actually drill down further to see whether there's really been an impact against trade or that the trade has still flourished. Because at the end of the day, the world of trade abhors a vacuum. If you create a vacuum, trade will flow in from somewhere else. So, I think trade vacuums or trade tariffs and trade barriers can never ever really stop trade taking place. The only thing that stops trade from taking place, and this happened to us in 1998-1999 when we saw the infamous collapse of all the developing world starting out in Thailand, in July 1998, and then reaching the shores of Brazil and all the rest of the developing world together.
So yeah, geopolitics, whether it is through monetary means, whether it is through military means, or it is through trade means, will always create issues around which most shipping companies will have to navigate themselves.
Punit Oza 11:12
Absolutely. And that central point, I mean, when I talk to students, a lot of them have a bookish understanding of how trade actually takes place. But the geopolitics introduces a complete outside perspective beyond the books, as I call it. And in that sense, I see that most of the headlines, and you mentioned a little bit about the media and how it functions, most of the headlines don't really involve giving a positive view on the trade space at all. They talk about a lot of economic and political aspects, but they hardly talk about the trade aspects, in general. Is that your perception as well?
Khalid Hashim 11:46
Absolutely! Because shipping and trade, I think, are the two invisibles of the world. Most people don't understand much about it. And if you look at the way these superpowers have treated trade, as an example, the WTO today does not have any resolution mechanism left because they don't have a quorum, because the person that needs to be appointed to get that done, is being blocked by the USA.
So you can see clearly how geopolitics even comes into the WTO. And an organisation that was established to resolve difficulties between countries where there were trade barriers put up, again, has no teeth left to get the job done, because the teeth have been yanked from its open mouth by the USA.
So yes, geopolitics does interfere. But unfortunately, the press mainstream media especially does not focus on it. Say, for example, like when the Russia-Ukraine war started, what happened? Russia continues to export quite significant quantities, in fact, it's gone up rather than come down, despite all the sanctions that are there. But Ukraine had a problem. And Ukraine could not export from the 24th of Feb when the war started in 2022, till the 1st of August, when the Turkish Prime Minister, the UN Secretary-General and Vladimir Putin got together and they agreed, for what is known, as the Black Sea Grain initiative.
So that is something that was done by individual actors wanting to get this problem resolved. But the war in Russia and Ukraine, which stopped the grain flow for about say four months, five months, between August and the end of Feb - so five months, there was no trade. And then after that, the trade started out and averaged about 3 to 4 million tons of grain every month.
Now, that is again been put to rest. And again, all the players involved are looking at trying to resurrect it again. But in the meantime, what happened? The western world wanted to encourage the state because it helped their client state Ukraine. Two, it also helped them to gain the cheap grain that they wanted. Three, as our shares pointed out many times, and if you look at even the FAO numbers, the number of cargoes moved to the poorer countries that is West Africa and other countries, which really were in need of grain at a cheaper price, hardly anything, less than 5%, has gone to them. 95% has gone to the developed world.
So again, you know there's a lot of press that doesn't seem to understand what's going on. They never point out these things you know, maybe in the in the shipping press it comes out once in a while. But even then, people want to toe the line by the superpower of the world to purchase American.
So, this is where we are at. Those trade flows then helped us eventually. See, like the first five months it was mad. Any ship caught in the Black Sea or in the Eastern Med would have had a disaster of the time. All the ships that are outside would have benefited because at some point in time trade had started flowing again to all these countries from different parts of the world, which are much further in distance than Ukraine. Then, of course, the Ukrainian trade show started again so we had both trade coming in from there as well.
Now, another good example of geopolitics interfering in trade and actually assisting shipping, and which I think most people have not been able to print or bring out, except maybe in the shipping press, but again, obliquely, not in a very concerted way, is China's political issues with Australia. So, when China got a little upset with the way Australia was fine to, you know, put pressure on them, China decided that they will buy no more coal from Australia. When they stopped buying coal, they also stopped buying some other grains like barley. And what did Australia do, they didn't sit still, they started exporting to other countries. And Australia's total trade on grain and coal remained roughly where it was growing at. So the pace of growth remained there. It didn't change, except that the destination changed.
Now, that destination was helped, of course, by the Ukrainian war. Coal that Ukraine could have exported or rather the gas that Russia was giving almost free to the European Union, which was stopped, now that had to be replaced with something, something to get you energy. And the easiest replenishment point was coal. So, before the European Union could build the tanks needed at the ports to collect the gas, which was coming in and getting their energy security in place, they needed something to keep the energy alive and therefore they started importing coal. And the one country which was not able to export coal to China, and which was their single largest customer, suddenly found a perfect spot to which get the coal to.
Now, this was, if you go back in time when I first started out in shipping, a regular trade when iron ore coming into China, but the ship then going to imbalance to Australia to pick up coal to go to Rotterdam. From Rotterdam, they would again go back to Brazil, to load iron ore to come back to China. Now that trade has been sort of resurrected because of the Ukrainian war, as well as China's political, geopolitical issues with Australia.
So see, these are the types of things that are very difficult to forecast because you don't know how these things will play out. Because in a matter of weeks, China, from being the single largest importer of coal from Australia, decided that they didn't want any. And it's very difficult to figure these things out. Once that happens, then you have to figure out what is going to happen with China as a country, they also need the coal. What will happen in Australia as a country, which has got the excess coal, and where will it go and how will it be distributed? So, these things add a lot to turmoil. So, this is something again, when geopolitics goes and upsets the balance, which is there, and then you have disruption, and disruption leads to additional turmoil demand.
Punit Oza 13:15
That's fascinating. I mean, this is exactly the kind of stuff which I think senior leaders like you can bring to the table. These are, as I called, the hidden aspects about the things which people don't really highlight. And it's great to actually learn about this and talk about this. But most interestingly you mentioned it's very difficult to forecast these things. But, I feel that the research departments, and even shipbroking firms, tend to play a very reactive role in most of these things. Do you actually see it and how do you see it in Precious, for example, the need to use technology and research to help create better ways of not even forecasting, but managing these geopolitical changes that you mentioned?
Khalid Hashim 18:42
A 100%. For example, like if we look at our latest director on board that we recruited. She's a very young lady at 42, she heads not only Thailand, but all of South-East Asia for Google. So very young, Taiwanese girl, settled down in America, settled down in Thailand. Jackie is on our board. And we are hoping that with her being on our board and with AI making such big inroads into the tech world, we will be able to find a better way of managing and forecasting in some way. What would happen if this took place? What would happen in that place?
For example, like, if you see how we’ve been trying to sort of encourage IMO to look at decarbonisation of shipping. Then you will see what we've been trying to say for a long time. We've said, it's three things to IMO that if they do it, it will make decarbonisation much, much easier for shipping.
So what did we say? This is also like geopolitics in a way. We said first, that IMO must make 2050 the drop dead date when you will have 100% decarbonisation. Now, they come close to it, but they've used the word about 2050. So again, it's not exactly a hard deadline and unless you set hard deadlines, nobody will do anything. Two, we said that at the same time as this hard deadline is taken, they should have put a carbon tax of $100 per ton starting on the 1st of January 2024.
Now $100 on carbon is $320 per ton of fuel oil. If you multiply that by the total amount of fuel that has been burned in the world today by ships, you've come to somewhere between $90 and $100 billion. And that could be a pot available to the IMO, which struggles for money anyway, IMO struggles for money every day. So they would have their own pot with which they could help decarbonisation of shipping in many, many different ways. Like simple ways.
One, the first movers who were going for ships, which are much, much more expensive and not being paid by the clients, even a single cent extra, they could be subsidised in some way for the green fuels that they use. So, this is one way they could have straightaway supplement. Two, they could use that for research and development into the new fuels of the future. Like right now the debate is so potent, that there is no one thing that you can think of that this will be the fuel of the future.
As Precious Shipping, because we are in drive out because we're a small player and we have not got this type of cash available. Say, for example, with the container liners of the world, they have a lot of cash because, in the last two years, they made more money than you can say since 1953, since Mr. McClean got containers into the world. Since that time, they've not made this type of money put it all together. Therefore, they have the cash and they are experimenting. And sometimes experiments go wrong. Say, for example, like when you look at LNG ships, this is the big issue. Maintaining slips - they're from all the engines, methane slips - they're from the production of LNG. So, if you see from well to wake, it's not a great fuel to have on board. Plus, anyway, it's a carbon molecule at the end of it. So, it's still not a great fuel.
Now, we've been speaking with different ship owners to see what it is that they're trying to do with, why this LNG push. And the answer I got, which is quite enlightening, is that it's a transition fuel. Yes, there are problems with it: point 1, point 2, we are spending money to try to stop that problem, to reduce the methane slip. We, hopefully the rest of the governments of the world, decide and take action in their own countries, that stops methane slips from taking place. Then from well to wake, it will still be a reasonable fuel. It will be, first of all, free of any form of SOx, free of any form of NOx. So, it will be just carbon molecules that will give off. From that point of view, it's a good transition fuel.
And then this very enlightened person that you're speaking with on this issue said that those ships, if you design a ship for LNG from day one and you put in just a little bit of extra money, you could make it equivalent for ammonia, which is the fuel of the future, according to them. So, they say that in the transition period, how do you control this, is to go in for LNG ships and then convert them into ammonia but have the thing that at newbuilding stage. So, you have it on board and then whenever ammonia is available in large enough quantities as E ammonia, that is clean green ammonia, you can definitely go in for that. That is where the argument is shifting towards.
So, the difference between LNG and ammonia of course is energy density. LNG is not as dense as fuel oil. Fuel oil is the densest fuel that we've ever had in shipping, but it is denser than ammonia. So, you need say maybe a 30% uplift of tank capacity to make an LNG ship also able to handle ammonia in terms of volume. So, he says that this is something which we are already building into our ships. I think the enlightened companies who have the money and who have the research capability, which we just spoke about, are headed in that direction. So, yes, there are companies that are forward with it.
So like this is what we call a resource-based product. So okay, do this put the carbon tax, it will equalise the cost of ammonia versus fuel. The $100 level is almost there, $200 level - it is a better fuel to burn than to burn fuel. So that was the thing that we told them. Of course, this was not even discussed. They said “we'll discuss it in 2025 and maybe the tax will come into being in 2027”. So again, it’s sliding in limbo. This was the first thing that we told them: have a 2050 deadline, and have these two taxes in place. Of course, both of them are not done. One was done, almost, but not quite. And the other one was done nothing about it.
Then you said that you know, you need to also put a deadline on when fuel-burning ships must stop being produced. So, I said that, why don't you put a deadline of say 2035 that no more fuel-burning ships from that date on 1st January 2035. If the ship is delivered on 1st January 2035, scrap it. If it's fuel-burning, if it's not fuel-burning, then it's okay. So then that will allow shipyards to start research and development, and engine makers to start research and development to make and create ships, which will be ready for the future. You have a 2050 deadline, you have 2030 when you start doing all of this. You have 20 years. You’ve got 100,000 ships to replace with the current trade. If you go to a trade level, which is going to be two and a half times that, you need two and a half times the number of ships. From 250,000 ships. And if you have that many ships, it's going to be a real issue.
Punit Oza 26:11
Absolutely. And then that's really is the challenge that you need to start much much earlier. It's like basically stopping a ship as well, that you need to actually stop it much earlier than you actually have to stop it.
Khalid Hashim 26:27
Exactly, as we spoke, nothing will happen. So, this was the second thing that we said that they should put a deadline on. And then we said, at the same time, we should put a third deadline that 20-year-old ships should be scrapped also, after when he verified no more 20-year-olds. Why? Because you will, first of all, reduce the greenhouse gas impact because these 20-year-old-plus ships, they're not able to be converted, the costs are just too great. Whatever fuel you use on them, they will have a much higher footprint, and there are more economical, electronic engine ships that are coming out. So why have these ships around? They are just creating a problem for us, so we should get that off the table.
Punit Oza 27:03
Absolutely. I mean, there is, of course, a trade through application of less fossil fuels being transported around the world at some point of time as well. But that's a long thing. But I just wanted the listeners who for the first time I think we in the Seatrade Maritime Podcast will have a lot of students listening in, so one of the passions for me, of course, is to try and tell the students very early in their careers that they need to start looking at these things beyond the books. I think subconsciously, even consciously, you and other leaders are doing this study in your mind all the time about geopolitics and how it's changing trade flows. So if you have any words for what the students should do to try and inculcate this mindset of trying to analyse and do more, some words of wisdom, that would be really useful for them.
Khalid Hashim 27:43
As I said at the end of my initial remarks, the tech giants would become a force by themselves, they would be a separate power in the world. Now, in the pull of power, AI will make the maximum difference. So, if I were a student today and I was looking at geopolitics and how it could impact the world, I think AI will have the largest impact that you can think of, more than wars, more than superpowers, more than anyone else. So, if I were a student today, I would be focusing on AI and how it can change things. See, because AI is the building block from where you can get the knowledge to run shipping companies better, to run any company better, any industry better. So, if you have AI with you and you understand it, well, you will do fantastically well. So, as a student coming out into a new career, if I were looking at it, I would be focusing very strongly on AI, to the exclusion of all else.
Punit Oza 28:43
Wow. That's a strong statement. Perfect. Thank you so very much. I think we have to end it here with the time running out. But it was always a pleasure to talk to you and learn from you, sir. I have done this for 30 years and I can't stop, so it's really really amazing every time I speak to you and meet up with you as well. So thank you so much for your time. And thanks for your thoughts so much.
