Adam Smith and the shipowner

I would like to offer you a short quotation from Adam Smith’s masterwork, An Enquiry into the Wealth of Nations, published in 1776. This is from Chapter One:

“The division of labour, however, so far as it can be introduced, occasions, in every art, a proportionable increase of the productive powers of labour. The separation of different trades and employments from one another, seems to have taken place, in consequence of this advantage. This separation too is generally carried furthest in those countries which enjoy the highest degree of industry and improvement; what is the work of one man in a rude state of society, being generally that of several in an improved one.”

It seems that this notion has finally taken root in merchant shipping.

Not so very long ago, and well within living memory, tramp shipowners made a point of manning and operating their own ships and of being able to do a voyage estimate on the back of a bus ticket in a couple of minutes – indeed I know one very successful Greek owner who used to make a point of doing at least thirty paper voyage estimates for each fixture.

It is very different now, and the changes are in part due to the rise of Asian shipowners, many of whom prefer to time charter and to leave the messy business of PDAs, bunkers, stevedoring and (above all) laytime to the charterer, who for his part prefers to avoid the messy business of Port State Control, class, insurance, manning and (above all) stores spares and victualling to the shipowner.

We have also seen the rise of the container shipowner who has no interest at all in containers, and the containerline, as opposed to the NVOCC, with no interest in owning or managing ships.

One might say that this ‘division of labour’ increases efficiency, and indeed it surely does.

Very few shipowners who operate their own ships can honestly say that, when comparing apples with apples, their daily operating costs are on a level with or below those of any of the big managers.

There are many good reasons for keeping your technical management in house – not the least of which is to have a pool of honest up to date know how available to you when you choose to buy a ship or to build one – when selling ships I have always made a point of leaving ample stores and spares onboard, knowing that an inspector from a manager will see that his chances of staying under budget ae better, regardless of the state of the machinery and the tanks – but the big managers, with their advanced IT systems for purchasing and inventory control, will almost always do better in terms of day to day operating costs over the near- or medium-term. Over the long-term, the advantage lies the other way, but that only matters to the long-term owner.

The increase in efficiency due to specialisation does come at a cost – more than one cost, in fact. There is the crashing boredom of the ‘production line worker’ in shipmanagement, tied to a computer screen and endlessly repeating the same tasks, there is the unhappiness of crews, and perhaps above all there are the risks associated with the silo mentality, where, as so often happens, the chartering department don’t understand what the operating department and/or the technical department are telling them. This can easily become very expensive indeed.

But there is no doubt about the direction our business is heading in. Less fun, more employee dissatisfaction, more IT and more productivity.

Right now, we need more productivity like a hole in the head, and we need people who can understand the impact of new challenges, such as the environmental impact of merchant shipping – and the only people who can do that are the handful of people with an all-round knowledge of the business of shipping.