Change will come, but not unless we make it happen

Rashid Baba, chief commercial officer at Thuraya, writes for Splash on where shipping is today in terms of embracing digital technology.

The consensus view on shipping for 2018 is that, even if the markets do not see a rapid improvement this year, then certainly the industry is finally emerging into a period of better supply/demand balance. After a year in which the opportunity for technological change contrasted with a familiar story of poor financial performance, there is a feeling that improvement is somehow inevitable.

An increase in the cost of money as the global economy returns to growth could potentially support the investments of long term shipping players and even deter fresh investment from purely speculative players. Some kind of return to the concept of industrial shipping based on relationships and even partnerships over competition could follow.

However, this scenario fails to take account of the second factor: the impact of technology and particularly digitalisation on business processes that have enjoyed some insulation from disruption until now. The common narrative of 2017 was that digitalisation offers the best opportunity – if not an imperative – for change in shipping.

The flip side of this argument is that technology disruption presents risks almost as great as those of financial and operational sustainability. We also need to keep its impact in perspective. Digitalisation is not a new phenomenon.

Industrialised economies digitised in a continuous process from the 1970s, 1980s and 1990s until the present day. For sure, the pace and depth of technology development have quickened but the industry needs to understand where the value lies for the maritime industry.

Thuraya believes that it exists in some fundamental concepts: greater automation with better communications focussed on driving efficiency, reducing cost and improving safety. Once these concepts are embedded, the same infrastructure can be used to drive new business models and better working relationships.

Maritime markets in perspective

In reality, most sectors have some way to go to shake out lingering problems. A concerted period of ordering restraint has been good for the dry bulk market and Chinese environmental policy has been driving iron ore imports and the freight market along with it. Welcome relief to be sure but whether a recovery so weighted to one nation’s economy is desirable is another question. The buoyant mood will see plenty of volatility in the year to come.

The tanker sector, having seen its recovery washed away by over-ordering of new tonnage is probably neutral overall in 2018. Optimists can construct an upside scenario of growing oil demand and better seaborne exports, lower fleet growth, stock drawdowns and a firm refining market, but the consensus is for no sustained recovery before 2019.

Containership capacity continues to be a major challenge to liner operator profitability, but the tactical response of further consolidation and the continued upsizing of vessel newbuildings is failing to deliver long-term balance sheet improvements. There are bright spots here too, but the mainstay Asia-Europe trades look likely to see challenging trading conditions.

The offshore market meanwhile, is still mired in over-valuation of assets built at premiums that look optimistic against today’s oil price. That price showed improvement as 2017 ended and many will be hoping that OPEC strategy can continue to support the price for longer than short-term political and technical factors.

Technology first or last?

Shipping’s fundamental challenges are not all about the markets. There are big structural issues, not least continued shipyard overcapacity in Asia, the cost of current and future regulatory compliance and the end of the carbon economy.

While some of these threaten to undermine a recovery – notably the willingness of governments to view shipyards as strategic industries requiring financial support – the demands of regulatory compliance could actually support the market by forcing the hands of owners unwilling to invest in upgrades and preferring to remove tonnage from the market.

But despite a reputation for being too traditional and a laggard in adopting new technology, shipping is in some ways proving itself adaptive to change. It has shown a willingness to embrace new concepts such as alternative fuels and is looking at new ship designs and propulsion concepts as well as autonomous vessels.

It has so far had less success with digital technology – in fact it is only just waking up to the potential impact of global connectedness and is some way from feeling the full benefits. But the adjustment is taking place at an increasing pace, not least because attitudes are changing as a generational shift takes place and technology-phobia recedes.

Even so, the reality is that many owners, operators and managers have yet to appreciate how much of a positive difference can be derived from embracing digital technology. This is perhaps because they are yet to be convinced of a proven return on investment, or, if they have understood the opportunity, then how to grasp it is less obvious.

Despite all the talk of disruption and Uberisation, shipping is for the most part still at the data gathering stage. Some leaders began this process sooner and will benefit faster but there are no magic bullets. Even some of the best-known names are working on ways to generate higher levels of efficiency using data, automation and communications to improve their business processes.

Change for good?

The more fundamental question is whether the business models – and with them the mind-set of the industry – can successfully adapt. This requires people, many of whom got their roles in a different era, to engage more and more with concepts that encourage not just communication but collaboration too.

Should the industry fear companies like Amazon as a competitor or embrace them as a customer and partner? Can the veil of secrecy that has protected profit margins for decades be lifted in the cause of better customer relationships?

Owners and operators need to embrace the change, but they are the ones that need to be convinced before they make the investment decisions.

It makes sense to draw some distinctions. For the most part, comparisons to the aeronautical industry are unhelpful, as they don’t reflect the fragmented nature of vessel design, shipbuilding, shipping or port operations.

It remains a fact that this tech landscape is dominated by a handful of players able to command huge swathes of consolidated internet real estate. Shipping is hugely fragmented and very diverse, but it is still highly effective at its core tasks because it was designed for purpose.

There is a small but growing number of owners and managers who have grasped that greater transparency and better connectivity can be a support to their business. This is recognition of the fact that to being a digital business means behaving in a different way from what went before and that to try and solve new problems with old tools cannot be a successful strategy.

Anecdotal evidence suggests that the owners who fared best over the last 10 years are the ones that were closest to their operations, that know not just their businesses but their people and assets inside out. For them, data, connectivity and greater integration between ship and shore is the new reality of day to day business.

A new course

2018 is likely to be an interesting year for the maritime industry, perhaps a watershed for those owners who are well-positioned. An improvement in market conditions is a convenient way for the naysayers to suggest that shipping can carry on as before. Even the simplest analysis shows that this will not the case.

In 2001, the beginnings of an unprecedented shipping super-cycle came to the rescue of an industry which had seen millions of dollars of value destroyed in the dotcom boom. Today’s digital technology has moved on a long way since then but one thing is clear, the economic cycle will not by itself be enough to save the market this time. New technology might be the missing link after all.


  1. Excellent post by Mr. Baba. Innovation doesn’t happen in a vacuum. It requires active engagement between startup and corporation, coming together at the table and having honest conversations. Corporations need the innovation, agility, and the returns that startups provide. Startups need the funding and pilot opportunities to scale and grow successfully. & Transparency is not going anywhere soon with the “consumerization of SaaS.” Everyone’s seeking full supply chain visibility, and it’s technology that is going to power the next 100 years of maritime innovation.

    (Note: I work for, a modern TOS provider embracing the cloud. We’re tech advocates for the companies we work with, so even though we are biased, we do not advocate the adoption of every technology underneath the sun. There is a time and a place for maritime innovation and far too much hype around the buzzwords we constantly here. Mr. Baba’s analysis is spot on.)

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