Is digitisation in shipping disruption or racketeering?

Is digitisation in shipping disruption or racketeering?

Panos Patsadas from DS Multibulk takes issue with the myriad software salespeople knocking at his door.

I have been quietly observing for months now the on-going debate about the digitisation of shipping and reading time after time how this is the future. Be it voyage estimate software, complete integrated software to link operations with chartering and accounting, software to match supply and demand of vessels and cargoes, or even blockchain to tighten cybersecurity. A lot of hype, but where is it all coming from, and is it really disruptive to the model?

Over the years, working in operations and chartering, I have sat across a desk from many software engineers, trying to sell me or the company I have worked for the next big thing in shipping software. No one, without exception, has ever been able to justify the pricing of their product, that is no more than an Excel or access based template with a ‘facelift’, to make it look more user friendly for the old school technophobes. Worse, the majority is developed by software engineers who think they understand the problems of shipping yet try to develop a software suited to a fast-moving consumer goods (FMCG) supply chain. Hours worked in shipping? Zero! This is the very reason why the so-called digitisation revolution has found its biggest appeal to date in container shipping, which funnilyy enough is the closest thing to a FMCG supply chain. I am pretty sure there will be plenty of critics, but the bottom line is, there is a whole new market of ‘digital shoemakers’ out there, who make ‘digital shoes’ size 10, and then try to convince companies to buy that ‘shoe’ whether they need running shoes or hiking boots, whether they are a size 8 or 12.

What I also fail to understand is the sales pitch that often comes with such software. Digital brokerage platforms, for example, promise everything technically relevant or irrelevant to shipping, but make no reference to ‘relationships’, the single most important ingredient of our business. They talk about managing supply and demand and all kinds of information, but this is all like food without spices. Frankly speaking I couldn’t care less if you find a cargo for my ship, because everything can be fixed at a price. The million-dollar question is, “What is the best I can fix at in this particular moment?” No software can give you this answer yet. Only personal relationships, built over years of trading, can provide you with this info. This info is the very added value we are trying to extract day-in, day-out; to get a small advantage over our competitors. Why should we buy into a product that excludes such a vital element? That is ‘efficiency’ coming at a very high price in my opinion.

Still ‘efficiency’ and ‘integration’ are the buzzwords surrounding most digitisation promising software and platforms. And again, I will single out the container industry as being standardised enough to possibly gain benefit from such integration, but what about the rest of shipping? We really need to ask ourselves. If this new technology is supposedly there to help you make more money, why does it not find appeal in some of the world’s most successful nations, such as Greece, Norway, Denmark, Germany, and is still met with a lot of hesitation? Why is the price – up to $100,000 – such a big number to pay, if it will make a business so much better? Digitisation does not yet present a paradigm shift in shipping and how things are done. The model of successful organisations still remains buying low, selling high, and trying not to lose money while waiting for the next cycle peak. Does digitisation change fundamentally what happens between the trough and the peak of a cycle? No! The real value, even in today’s market, is still extracted from the sale and purchase of the asset, and much less from operating it in between.

And the part about integration. This is the biggest paradox. I have had the chance throughout my career to work for some of the most forward-thinking companies and also some very old school companies, where all emails coming in are still being printed. Every department has a distinct role, every employee has a unique function, and it is not everyone’s job to know what happens to their left or to their right. This is how shipping companies traditionally work, this is how principals want it, whether we like it or not. In fact, in the majority of cases the owner himself, or his front man, are the only ones with a real view of the business as a whole.

To cut a long story short, the need for a paradigm shift, is not yet coming from within the industry, but it is due to external hype. Rest assured, when the principals feel the need to change how things are done, they will do so, with the same conviction and ease they changed countries or jurisdictions overnight, (like in the early 2000s from the UK, or following the capital controls in Greece three odd years ago). There is another part where digitisation can contribute, but this is not what the software companies are offering.

The gap that banking has left in ship financing, and the need for private equity, VCs or other funds to bridge the same, does call for more neat reporting procedures which may not be in place. This is an area where digitisation could have a positive and facilitating impact. It would create value by making traditionally introverted companies more accessible and attractive for investments from financial institutions. Such value propositions could find a place in shipping and add value, but creating software products, and then trying to present them as a solution to a problem that may not be there, in my eyes edges closer to racketeering and less towards disruption.

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10 Comments

  1. Diran Majarian
    December 3, 2018 at 6:19 pm

    Very realistic comments. Technology in shipping is an evolutionary project based on practical needs and company working culture. It has already come in many ways with instant communication with the vessels and automatic tracking.

    I do not believe that any of this will be some kind of disruptive game changer for the industry. Bigger threats to be dealt with are punitive regulations like BWT and IMO 2020 and the financing gap from ZIRP policies to finance bankrupt governments and destruction of the traditional banking system innundated with NPL’s, etc.

    Shipping for many years has been a painfully low margin business with very poor return on assets over the long run.

  2. Luis Chavez
    December 3, 2018 at 7:08 pm

    Good day.

    Many thanks for this article. It is always good to see the garden from the other side. I am a big believer on good data analysis can save a lot of money and make our life in shipping a lot easier.

    The usage of sensors on our vessels are already implemented. Just need to put together on a system that compile them and send it to shore for monitoring and analysis.

    The only big restriction I see is the limited bandwith that we have onboard at the moment.

    Once the data steaming can be increase. Is when we will see the IoT taking over the maritime industry.

  3. Efthymios Chaldeakis
    December 3, 2018 at 7:20 pm

    Digitisation is without dispute the future for all industries. The history of traditional industrial evolution shows evidently that this is the truth. Automation and integrated monitoring and reporting systems are of high value and no one can claim otherwise. Maritime industry is still well behind due to well known reasons (mainly organisational). However, I may sincerely understand the concerns and the racketeering feeling over the persistent effort of most of the software vendors to go for the overkill. In an industry that has survived due to its nature itself it is very hard to persuade someone to invest with a long-term horizon. I can also comprehend totally your view on the specific business topic. AI is still very young to be able to provide you with a viable answer through a “what-if” process. Information and data are still sparse. Yet it will do eventually. In the meantime though, there are many areas where digitisation may come handy for deep sea commercial shipping. The more accurate and in-time information you get from your vessels, the more capable are you to come up to the right decision in both operational and commercial areas. And that should be the target for the next years to come.

  4. Carleen Lyden Walker
    December 3, 2018 at 8:46 pm

    With all due respect, digitization is all about creating efficiency and value for the shipowner! If a digital platform can make your operations more efficient, you save money in time and energy costs. And we are not in a period where “a need for a paradigm shift” exists– it is already happening.

    Whether it is due to regulatory change (“punitive”??? The word is “required” unless we want the ire of global society upon our heads), competitive pressure (those utilizing these technologies will create more efficient, and less costly, operations), or societal demands (millennials and Gen X require digitization), our industry has changed.

    I suggest that companies get on board– or lose out to more nimble competitors.

  5. S Leonard
    December 3, 2018 at 11:28 pm

    Innovation is and always has been about doing things better, more efficiently. Disruption is about new things that make old things obsolete – it’s happening in every industry, but for some reason not in shipping, because of relationships? Wow, and I thought dinosaurs were extinct.

  6. Stephen Stapleton
    December 3, 2018 at 11:28 pm

    Mr. Patsadas has put it very clearly and it the nail on the head. Such digitization was tried in the mid/late 1990’s for containers and people lost $$$ booking with unknowns behind platforms only to have to pay freight a second time to get containers released.

  7. Barry Parker
    December 4, 2018 at 10:01 pm

    An important dynamic at present is that alleged “disrupters” (real or imagined) seem to be coming from outside the industry. The old time shipping gang always wins. When someone from INSIDE the biz takes on the disrupter mantle- only then could you see real changes. But having said that, changes will likely be evolutionary and meeting a shift on the cargo (demand) side, and not revolutionary- the stuff of fiery articles degenerating into digi-clickbait. Happy to continue this discussion off the board here- dinosaurs know where to find me.

  8. Panos Patsadas
    December 4, 2018 at 11:42 pm

    Should I also start considering myself a dinosaur for voicing an opinion that can be hard to accept? Like it or not it is the blunt truth when it comes to how shipping has been evolving over the decades, and it will evolve as and when it feels the need. At the moment this need is suggested from the outside, and not instigated from the inside. Once the change is called for from the inside, change will be fast and spectacular no doubt.

  9. Barry Parker redux
    December 5, 2018 at 8:07 am

    I’ve opined frequently on these subjects. The real changes will be driven by the cargo side- companies actually responsive to societal concerns and $ pressures. Certainly shipping companies can improve efficiencies but cargo side can drive real changes- or make shipping co’s “feel the need”. If cargo side influences a shipping person(s) on the inside, then the door for disruption/ innovation/ etc swings open. But shipping inside, responding, will do the innovating. A big question that came up at recent Mare Forum, in Houston, is “Who exactly owns all the data?” That’s a potential back door for real disruption. Again, the dinosaurs all know where to find me. Disrupters- ask your closest dinosaur buddy, and we can continue this excellent discussion through different medium.

  10. Nick Jones
    December 5, 2018 at 11:45 pm

    Digitisation – it seems to have as many meanings as there are opinions. My view is that in terms of improving business processes it is just more of what has been happening for the past 40 years, excepting that IT costs continue to go down as they always have done and thus the cost/benefit analysis improves.

    On the commercial side of shipping a key issue is (in at least in bulk shipping) the very few numbers of transactions processed. In a previous life, the business I worked for bought and sold the contents of 1,000 lorries (20-25MT) every day. As a consequence. contract terms were very tight. Contrast this with a dry or wet bulk ship company where the numbers of cargoes moved may only reach some tens of thousands per year and often fewer. I suggest that a consequence of the few cargo moves is the proliferation of contract terms for freight, bunker surcharge, port calls, berth shift, laytime allowed, etc, etc. which then makes automation of the business process more complex and hence the cost/benefit analysis more difficult. Standardisation is the route to easier digitization, but I appreciate this is easier to say than do.

    On the technical side, there is a different problem. Ships live for 20-30 years so there are numbers of generations of technology within a fleet and worse, the ships keep moving! Compared to a nice static factory, these factors add significantly to the cost of introducing technology across a fleet, yet a lot of the benefit comes from measuring and comparing the whole fleet.

    Mr Patsadas mentions racketeering. I would not go so far, but definitely people on both the business side and IT sales side are sitting at the top of a hype cycle. There is no magic wand. Success in digitization requires that you understand what you want to improve and what factors are important. A lot can be achieved by simply ensuring basic data is available, having good visualization and having clear responsibility for the outcomes.