Captain Anil Sharma from Tata Consultancy Services warns container carriers need to be aware of disruptive thinking coming their way.
Is the way container liners are operating today sustainable? Let’s look at this holistically. Shipping lines are saddled with overcapacity; many newbuilding ships in the pipeline will not make the situation better in the short term. Lay up of ships is happening at a fast pace and that is going to severely reduce the valuation of these costly assets.
Shipping lines’ IT systems are based on previous generation systems while every other industry is embracing new technologies which keeps upgrading on a real-time basis.
The space for liners is so fragmented that the top player has only a 16% market share. Each carrier is looking at how they can increase their market share. Mergers have to happen but with historically low valuations. Banks are not supporting them anymore. Freights are at record lows though the only saving grace is the price of fuel is low as well thus ensuring that at present these companies are just about even-steven their on balance sheet. Will this situation change for better or worse?
Now let’s look at how the world around us is evolving. The new tech savvy generation is powered by the internet and driven by young minds who want to disrupt the conventional and in doing so create billion dollar unicorns.
Look at what Tesla is doing to the car industry; although the number of cars being shipped by them pales in comparison to conventional carmakers, their valuation (at least in the minds of today’s generation) is mind boggling. The market place economics of ecommerce giants is disrupting brick and mortar stores thus creating a huge industry which is powered by the analytics and insights of each and every click of a customer. Most of the business is built on putting the manufacturer and the customer in one ecosystem of technology which is getting upgraded almost every minute. These companies are looking at how we can be invisible to customers with only technology creating a constant interface with the end customer removing any middleman but the information of each click is tracked meticulously almost minute to minute and relayed to the supplier and buyer. Now here is the catch. Almost every sale needs to come from a supplier who is constantly looking at the world market and sourcing the right products. He still has to depend on conventional shipping which is running in yesterday’s world, fragmented and riddled with middle men like freight forwarders and 3PL players. Shipping liners are focusing on mammoth ships when the need of the hour is to milk their current assets more efficiently.
Is the focus of a shipping line a bit myopic and internal so that they are only looking inside their own industry to consolidate? Are they overlooking that shipping is not immune to the disruption? The Amazons and Alibabas are growing in valuation, the technology driving dars can automate shipping, the segment which connects port to port (read shipping) is going to suddenly wake up one day to find itself challenged. The ship’s valuation is dirt cheap, the technology platforms of eretailers is already robust enough to integrate the intricacies of liner shipping and the war chest of cash and valuation is formly on the side of these new gurus of the connected world, it is just a matter of time.
Amazon’s foray into ocean shipping may be just the writing is on the wall. Disrupt yourself or be disrupted.