The threat of disruption facing the shipping industry might in practice represent an opportunity to adopt new ways of working, writes John Taxgaard from Ericsson in the latest in our week-long series on shipping in the digital age.
We hear a lot about the challenges that shipping faces, and much about the tools it needs to create solutions. Some issues are structural, others could be categorised as low hanging fruit. Somewhere in between lies an alternative scenario: the threat of disruption and the opportunity of collaboration.
Disruption has been a favourite topic over the last couple of years, though there has been very little clarity on what this might mean in practice.
True, owners and operators are traditionally focussed on debt-funded assets and much of shipping is highly commoditised but its inherent inefficiencies and opaque business relationships create the means to make money. This structure theoretically makes shipping secure from disruption, but has not stopped the conversation about ‘Uberisation’ and the threat from non-industry players.
So if shipowners are transparency averse, what will persuade them to embrace transparency as an alternative? After all it could involve showing and sharing every element of their service and operation and risking their ‘competitive advantage’.
This sounds like a monumental challenge but we believe for companies to prosper in the future, they will need to break the boundary of customer-supplier collaboration, favouring openness over opacity.
The examples we bring to that conversation are often from other industries and there is much that can be learned. This is not just to see shipping as part of a structured supply chain – although this is instructive – it is to understand the implications of the relationship. Once we do that it becomes clear that shipping is a small part of a long value chain.
The most powerful people in shipping are shippers and charterers and for them, there are always ships.
However, shipping’s exceptionalism has enabled it to hold on to its status as a ‘Tier One supplier’. Imagine instead the changed dynamics of an industry operating entirely as a swing supplier because the buyer views it as a low value, low cost resource. That wave has not yet fully hit the shipping industry yet but when it does, the hundreds of owners who will be affected will have to figure out what their place is in that value chain.
What type of relationships do they have? What value do they provide and how can it be delivered in a way someone will pay for? Addressing these questions is likely to result in greater use of joint ventures and closer working with partners.
Only once they do this will their business model move towards the sustainable, but there will still be a lot of work to do. As can be seen by the wave of bankruptcies and consolidation last year, not every operator will reach this point and the total number of tonnage providers and operators in a given sector may decrease further.
The conclusion need not be wholly negative but the need for action is clear.
Shipping is an industry of highly specialised information flow, middlemen arbitrage and asset play, but so much of what happens is either needless duplication or simply inefficient.
The airline industry learnt a long time ago how to become more efficient by taking low value processes out of system. Elements such as invoicing and processing had to be consolidated offshore and where such processes are not a competitive advantage, there is room for collaboration.
Now the shipping industry needs to consider the ways it can constructively consolidate and foster customer and industry collaboration. Very often this process starts by putting the customer – rather than the ship – at the centre of the diagram.
Ultimately it could be that the industry moves to an ‘app culture’ that enables faster and easier access to services, but though we have to think innovatively about the long term, we need to think pragmatically in the short term.
The use of predictive analytics is something that should be encouraged. There is still so much information not captured or used well within shipping.
It is also true that shipping has a strong family heritage. This has served the industry well in the past, but if managers and employees have spent the majority of their careers in shipping, are they able to understand and apply lessons from other sectors?
The industry needs to need a move ‘from anecdote to analysis’ and that means bringing new people and techniques into the mix. The automotive industry, retail and airlines are all using proven technologies, not necessarily talking about unproven future concepts.
In our work in shipping and other industries we base our approach around deep discussions with the business owner to understand what they find interesting and useful and what they want to see on their ‘business dashboard’.
That discussion of what can be captured and how it feeds back to the user, is only just starting in maritime but it is taking place with increasing regularity. What we find is that shipping has a very strong potential platform on which knowledge can be built for short and long term advantage.
What we provide is the data analysis expertise which can give a much better understanding about what can be developed further, so creating visibility and value.
Whether or not we will feel the real threat of disruption from asset-light players remains to be seen but it is true there is a huge amount of capacity at risk if we do. Whether an Amazon or Uber really want to come into shipping when margins are below what can be achieved elsewhere is open to question.
The challenge from the external perspective is not that shipping cannot deliver, simply that there is too much capacity and too little value at present to support all the players.
So do we need to create a maritime Silicon Valley as a driver to technology innovation? Perhaps the better option is for shipping to consider how to embrace collaboration with its customers. Adopting collective action addressing common topics across the supply chain would put shipping in the driving seat of its own disruption.