Creative destruction

“The history of shipping is full of innovations that have raised some shipping companies and brought others down.”

The maritime industry has undergone several revolutions over the centuries. Steam replaced wind as the main power source for ships a century ago, and internal combustion engines followed. Container shipping has been a huge revolution, speeding up port operations many times over as goods were pre-packaged into large units.

Recent major revolutions have included the significant increase in the size of ocean-going ships, which has reduced transportation costs per unit, and digitalization, which enables continuous monitoring and optimization of navigation data and ship hulls and machinery from shore.

What about the next revolutions? Reducing the use of fossil fuels has not yet become widespread, but pioneers are already taking it into account in their investments and operations. However, shipping companies’ reporting obligations on fuel, cargo and nautical miles have increased. In July, we heard that the EU intends to extend the maritime emissions trading scheme to ships over 400 GT, up from the previous limit of 5,000 GT.

As environmental regulations tighten, more and more shipping companies, already operating in increasingly tight markets, will have to invest in emission-reducing technology and the accounting systems required by authorities. The more profitable an operator already is, the more opportunities it has to follow changing technology and increase its required reporting to authorities. On the other hand, many smaller or less profitable shipping companies will have to spend an increasing share of their administrative resources on environmental accounting.

As a result, companies that are already doing well will benefit from having the resources to invest in new technology and new systems. And above all, because they are larger companies, they often have the opportunity to engage in more multidimensional strategic thinking. Will this eventually lead to a world in which there is no longer room for small companies?

Schumpeter and creative destruction

Let’s see if economic theories can provide answers. Joseph Schumpeter (1883–1950) was originally an Austrian, then American economist who is considered one of the most influential researchers in his field. Schumpeter’s innovation theory is based on entrepreneurs who develop new innovations to displace their predecessors from the market. Innovation here does not only mean technology, but also organizational reforms and the opening of new markets were part of the Schumpeterian concept of innovation.

A constant flood of innovation renews the economy by weeding out old inventions. Schumpeter called it “creative destruction.” During a recession, inefficient companies die out of the market, while productive companies remain in the market. As less productive companies are replaced by more productive ones, the overall productivity of the national economy also increases and the nation becomes more prosperous. When changes occur, traditional companies must adapt quickly or they will die. One example of such creative destruction is the internet, which has practically killed the delivery of letters and traditional print media, and transformed social interaction. The growth in the size of container ships brought down the Hanjin shipping company in 2016.

Schumpeter himself later believed that because large companies have better opportunities for innovation and risk-taking, according to his theory of creative destruction, there would gradually be only mammoth companies on the market. On the other hand, more recent innovation theories have shown that large companies are rarely capable of major changes – large sailing ship companies were mostly replaced by steam-powered shipping companies, instead of existing companies being able to renew themselves.

Innovation policy

However, society supports small companies in the early stages with innovation policy, so that all companies have the opportunity to renew themselves and stay in international competition. Such innovation policy includes, for example, public support for research and development or public procurement that introduces new technology.

Public support is particularly important when there is a desire to influence the development of society, such as reducing greenhouse gas emissions. In this case, society’s support for innovations such as wind turbines, carbon dioxide capture and artificial intelligence-supported navigation is part of the desired development towards low-carbon shipping. Society’s support also enables small innovative companies to have the opportunity to survive in competition with large companies.

Society is also needed to reduce the human suffering caused by creative destruction. When companies have to renew themselves, layoffs and even bankruptcies occur, in which case society’s task is to help people, for example during periods of unemployment and in finding new jobs. Instead, society’s task is not to support companies that are not renewing themselves.

The history of shipping is full of innovations that have raised shipping companies and brought others down. Sailing ships no longer sail the seas, and small packages are no longer lifted individually over the bow of the ship. Development does not stop here, but continues forward. On the one hand, society has a duty to support development, especially in small companies that would otherwise not have the resources for development activities. Instead, society must avoid preventing the creative destruction of companies by its support measures when companies are not renewing themselves. After all, creative destruction, and even bankruptcies, are a necessary part of the renewal of a market economy and the increase in well-being.

The article was previously published in the online magazine for maritime professionals Navigator Magazine on 14.8.2026