Agency Problems in the Shipping Industry

According to a 2019 risk report from Lloyds of London, there are massive gaps in the insurance coverage for the economic fallout of a cyber attack on Asian Pacific ports. Shen Attack: Cyber risk in Asia Pacific ports supposes the ramifications of a virus stemming from a ship management company and the cascading financial impacts that would be felt by adjacent industries, companies, and nations.

90% of the worlds goods are still transported by international shipping, 55,000 cargo ships are in transit at any given time, and 1,500,000 crew members are employed aboard them. The global supply chain is pinned up by the cargo ships and ports of the world. The Shen Attack Report demonstrates the shocks that a cyber attack in could send through a host of seemingly unrelated nations and industries. The report makes an obvious case for the necessity of insurance to protect from the impending loss. What is less obvious is the best way to undertake making the shipping industry safe from cyber attack.

The shipping industry already has a vested interest and responsibility in guarding itself against the cyber threats occurring with increasing frequency. As the insurance industry continues to increase its underwriting of cyber risks, it also incurs this interest. According to Lloyds, only 8% to 9% of the $109.8 billion total economic loss felt by the worst-case cyber attack would be insured. 50%, the largest portion of the uninsured billions, would be felt by port owners and managers. On the lower end of the financial backlash would be the ship owners and the ship managers. These will only be responsible for 1% and 3% of the total economic loss, respectively. This does not seem particularly odd, until the following section that states that "technology has improved the shipping industry" but "aging ships are a problem." The report continues on to say that "many vessels at sea are over thirty years old and were not designed with cyber in mind." The disparity between where the report explicitly states that risk occurs and who is financially liable causes an agency problem in the prevention of cyber attacks. How can insurance companies and ports incentivize the sophistication of the cyber capabilities of privately owned ships in order to prevent the financial loss that accompanies the current vulnerability of many ships on the sea?

Edmund Burke, G.K. Chesterton, and Car Bombs

How much does the quality of life of future human beings drive present day decisions? Tyler Cowen tries to discern this question in his book Stubborn Attachments. Cowen argues that society should quantify the value that it places on a future human life. This, Cowen says, will help that society determine the sacrifices that it is willing to accept for technological progress with the ultimate end of increasing the quality of life for future generations. Cowen’s argument is reminiscent of the Irish statesman Edmund Burke’s Reflections on the Revolution in France when he asserted that “[Society] is a partnership in all science, a partnership in all art, a partnership in every virtue and in all perfection. As the ends of such a partnership cannot be obtained in many generations, it becomes a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born.” Cowen emphasizes the importance of “those who are yet to be born” in Burke’s societal equation. Stubborn Attachments places the technological and financial advancement for the sake of future humans as a great moral imperative. Cowen’s argument helps to quantify, or at least inform the reader that he or she should take the time to quantify, the value of future humans lives and steps that we should take in light of their value. How then do societies think about the other third of Burke’s societal equation: “those who are dead,” and what does this value mean for the decision making process of individuals, governments, companies, and militaries?

The value of future generations is different from the way the past is valued. Cowen’s argument is that society should take steps to ensure scientific advancement to improve life in the future, whereas the value of the past is based on how the experience of the dead exerts itself in the current. The value of the future is about the individuals who will live it. The value of the past hinges on the duty we feel to those who have already lived, and the extent they shaped the present to the extent it prospers or suffers.

Michael Brendan Dougherty is a journalist born in America. He was raised by a single mother who had a brief relationship with his father while she travelled through Europe. She returned to America, unaware that she was pregnant with Michael. Michael’s father remained in his home country, Ireland. In his book My Father Left Me Ireland, Dougherty describes the challenges resulting from the lack of a present father.  One of the solutions to these challenges that Dougherty’s mother employed was telling Michael stories about Irish rebels. Through stories, Dougherty’s mother connected her son to archetypal Irishmen who exhibited many of the values that a parent tries to instill in their young: devotion, bravery, honor, and patriotism. Dougherty expresses the change in his attitude towards these stories over time. Dougherty is proud of his heritage and the rebel stories and songs. This was not always the case. For many years Dougherty did his best to repudiate his heritage, but in 200 pages, he explains how he cannot ignore the stories he was told of Irish rebels. The sacrifice of his long dead countrymen meant something important and Dougherty has found that the stories and songs he was taught in his youth bear repeating to his newborn daughter. Dougherty argues that stories matter, and that an admiration for the sacrifices of human beings past is a powerful thing.

Northern Ireland during the 20th century, the origin of Dougherty’s childhood heroes, is rife with examples of choices based on the experience of the dead that are brought to bear by the living. In 2019, Patrick Radden Keefe wrote Say Nothing in which he recounts the lives of those raised on stories of the heroism of their ancestors and the exploitative nature of their ancestor’s enemy. Dolours Price was young when she began engaging with the operations of the IRA. Prior to her embarking on a lifelong journey of terrorism, murder, hunger strikes, and activism, Dolours and her sister Marian were raised, similarly to Michael Dougherty, on stories of heroic Irish rebellion. Unlike Dougherty, who was across the Atlantic, unable to join the struggle, Dolours saw the villains in her childhood stories all around her. Belfast, her home, was crawling with loyalist paramilitaries, a police force sympathetic to Unionism, and British soldiers.

To Dolours, the stories told to her by her parents were not figures on a quixotic journey of bravery; they were men whose actions should be replicated and outdone. Dolours, along with her team of fellow IRA operatives, drove multiple car bombs to London in 1982 in order to destroy public property and send an unequivocal message of “get out” to the British government. Dolours, her sister, and the other bombers were arrested in an airport as they tried to flee the country and were ultimately imprisoned. Why is it that a smart, beautiful, young college student would engage in shocking acts of? There are two factors that Keefe shows drove Dolours to violence. The first factor was the stories and values Price was raised on by her parents, two Belfast natives that viewed a violent response to British presence to be the only meaningful methodology. The second was Price’s lived experience with British sympathizers. Price did not start out her early career as an Irish Republican Army (IRA) operant. In fact, Dolours fiercely disagreed with her parents when it came to the means of a useful rebellion. Dolours was a pacifist who believed the road to civil rights in Northern Ireland would be similar to the peaceful protests that Martin Luther King JR organized. On New Year’s Day in 1969, Dolours Price, along with Marian, joined a group of protesters who would march from Belfast to Derry, decrying the plight of Catholics in Northern Ireland, holding signs that read “Civil Rights March.” On the fourth day of the march, the protestors approached the Burntollet Bridge, leading through a crossroads into Derry. Here, the protest began to mimic the American Civil rights movement in the least desirable way. Unionist sympathizers began to attack the protesters with hand propelled missiles, sticks, and fists, all while the police stood by, all but encouraging the aggressors. The protesters were routed, pursued, and beaten, but by all accounts took no reciprocal measures against their attackers above what was defensive.

The Price sisters returned home from their incomplete march as changed women. Their unionist attackers beat the desire for a peaceful resolution from their minds. The memory of rushing into the cold River Faughan to escape the Unionist’s clubs would drive Dolours to join the IRA in 1971. In one blow, her own countrymen convinced her that what she formerly believed to be her parent’s antiquated take on the necessity of violence. Violent rebellion became an essential tool of rebellion for Price.

Whether or not Dolours Price would have resigned her conscience to a bombing attack on London had she never watched her fellow protesters assaulted on a sunken road leading to Derry is a counterfactual that cannot be simulated. The attack was a clearly identifiable catalyst in her thinking, but to what degree was Dolours predisposed to violent reaction to British forces in Belfast? To what extent were the “bombs and the guns” that Price resorted to the only realistic option in her mind due to her being nursed on the stories of women and men who had done the same? Would an 18 year old Michael Dougherty have been equally susceptible to extreme means if he were to find himself in similar circumstances. Keefe writes that Dolours expressed her decision to join the IRA as a realization of her youthful cluelessness of the world and that she had felt that she had “returned” when she took up arms. Her decision to join the IRA was the direct outcome of the Burntollet Bridge incident, but the foundation of her decision was the experience of those dead who had also taken up arms against Britain.

Stories about long dead individuals can lay the groundwork for one’s reaction to the most quantifiable and objective subjects. The stories of “those who are dead” have the power to convince the hearer that his or her beliefs have a more democratically agreed upon backing than is actually the case. G.K. Chesterton said that tradition is the democracy of the dead. In addition to tradition, the dead also receive a vote in acts of rebellion and war. This was the case for Dolours Price. Price’s parents sympathized with the IRA and she knew enough IRA operatives to track down a recruiter when her time to fight came, but her perception of the acceptability of violence as a means of rebellion was bolstered by the democracy of the dead in her mind. Not only did her parents and fellow soldiers support and encourage her choice; she had the approval of 60 years-worth of those who believed that the cost of Irish home rule unification was written in blood. Would Price still have joined the IRA had she not been raised in a home that eschewed violence and did not highly regard the dead who partook in it? The outcome seems far less likely under those circumstances.

The influence of the dead is a potent consideration when taking an action. It is unlikely that the Unionist militiamen who set out on New Year’s day to counter and subjugate the protesters considered the long term effects of their actions. They did not assign proper weight to the fact that they were attacking individuals who were already resisting not just British influence in Ireland but the influence of family, friends, and fabled rebels to follow suit and elect violence instead of diplomacy. It is unlikely that the Unionist militiamen considered that their actions might one day drive two young women in the crowd to assist in assassinations of their fellow Unionist militiamen and bombings in London. The protesters were not individuals in stasis. They were members of a society who, as Burke said, were in a partnership with “those who are dead” and “those who are to be born.” Naturally, some of the protesters would react in such a way that reflected their realization that their societal ancestor’s world had never gone away and that they must take measures to change it for the sake of the unborn, whether violent or not. 

Like the protesters at Burntollet Bridge whose attitudes shifted after the incident, most human minds are not in stasis. It is a crucial mistake to consider them to be. In 2015, Malcolm Gladwell wrote that the way mobs gain power over short periods of time is due to “thresholds of violence.” He argues that everyone has a threshold of a certain number of people that he or she must witness taking part in a collective, violent action, before the individual joins. Some individuals have far lower thresholds than others. There are those who can be enticed to engage in mob violence very easily, those who need to see every single person they know doing it before they would relent and join, and most other people distributed between the extremes. Dolours Price may have naturally had a very high threshold of violence, but it wasn’t just those living in Belfast who slowly chipped away at that threshold as they joined the fight against the British, it was also the thousands of Irish who had violently rebelled over the years who would eventually push Price beyond her threshold.

The value of the dead is not just their memory. Their lives are predictive tools that, if studied, provide insight into how those who have followed them will respond to a stimulus. When an action is examined, an important consideration must be the lore, true or otherwise, of the individuals who are chiefly affected. Their lore may be far more predictive of their reaction than the action itself.

Lloyds Banking Group PLC (LLOY.L) Price Change Predictive Model

I'm currently practicing basic ML methods in Python. I'm starting with a very simple model that only relies on the pricing of the London Stock Exchange (LSE) daily high, low, percent change, the 2s10s yield curve sourced from the Bank of England. In sample, the mean absolute error (MAE) of the prediction for the daily percentage change of LLOY.L based on the entire LSE was 0.66. Out of sample, the MAE was about as bad as should have been expected coming in at 2.64.

Over the course of the next few weeks, I'm going to try and sophisticate the model and data inputs to hopefully get the the MAE for my prediction down to 1.00 based on predictive data versus the correlative data points I'm currently relying on. I have no idea how humble of a goal that is. It's possible that I revise that MAE in the coming weeks. All models are viewable on my Github.

Also in need of better predictive data. Market prices are fine for building the model, but are not helpful in actually using the model in a real predictive capacity. Any pointers towards corollary/predictive data of bank stock prices, critiques of the models, or any other thoughts would be helpful and well received.