Is the shipmanagement model of ‘we can do it more cheaply than you can’ broken?
Shipmanagement is a very competitive business. It always has been, and while there has been plenty of consolidation in the sector, with some very large managers created, it remains the fact that this is very fragmented sector with hundreds of companies pitching their services to the same clientele. Pricing has always played a big part in who gets the business, but according to those surveyed for this article this perception of price beyond all else is changing in owners’ priorities.
“Some shipowners may have a rather short-term outlook, and for them saving a dollar now may mean everything,” concedes Mingfa Liu, managing director of ship services at IMC Shipping.
Over the years the ‘we can do it cheaper that you’ model has led to poor vessel management, an underestimation of operational costs and misleading owners to believe that vessel operations costs can be permanently squeezed, observes Caroline Huot, senior vice president for shipmanagement at Delta Corp. This model has meant many have failed to innovate and invest in new tools, she says.
Too low a budget is not considered savvy anymore
Only short-term “opportunistic” shipmanagers have had this mentality, claims Claes Eek Thorstensen, vice chairman at Thome Group. Experienced shipmanagers have always focused on optimising performance and working efficiently, he says.
“Adding value to the owner is essential,” Thorstensen tells Splash. “Quality shipowners recognise that cost is only one part of the equation and that a competent shipmanager will regard regulatory compliance, safety, seafarer training and welfare plus environmental concerns such as decarbonisation as key elements to running a well-rounded shipmanagement service.”
“Looking at costs alone was never a sustainable and promising business model to take care of high-value customers assets,” says Ian Beveridge, CEO of Bernhard Schulte Shipmanagement.
Quite so, agrees Bjorn Hojgaard. The CEO of Anglo-Eastern reckons the old adage of price is what you pay, value is what you get still holds.
“Shipmanagers have been successful at increasing the positive gap between the value provided to their clients and the price clients have had to pay for this value, thereby creating a business model that works,” Hojgaard says.
Sean McCormack, shipmanagement director at Northern Marine, says his company has never subscribed to a perception of a low-cost business model.
“Trust is everything in this business and key metrics that matter to clients are only sellable if they have been sustained over a long period. We don’t think this is achievable by participating in a commercial race to the bottom,” McCormack says, adding: “Within this industry we are benchmarked at the highest level of safety, security, environmental protection, and quality but at the lowest level on cost.”
Vinay Gupta, the managing director of Union Marine Management Services, reckons that good operators have now more or less realised that there is a level to which the cost can be pushed down without compromising on the quality and lowering it further is only going to hurt them in the long run.
“I have seen a trend now where too low a budget is not considered savvy anymore,” Gupta reveals, saying how heartening he finds it that many clients understand these days that the cheapest option is not necessarily the best one.
Scalability brings optimisation
Scalability is a key factor to optimisation, according to Mark O’Neil, president of one of the biggest names in the business, Columbia Shipmanagement.
“Without scalability – through technology and/or volume – one cannot do more for less, and more for less and better,” O’Neil says.
This is a point of view shared by another CEO of a big manager, Anglo-Eastern’s Hojgaard.
The ability to leverage scale across a large fleet of vessels will only grow in importance
“Going forward,” Hojgaard predicts, “the ability to leverage scale across a large fleet of vessels will only grow in importance.” And this, he says, is not just in terms of procurement, but also in terms of pooling volume around the best digital solutions, training standards and global presence.
Environmental considerations
While admitting the bottom line remains important, Marlon Rono, president of Magsaysay Maritime Corporation, stresses that society will no longer treat accidents and disasters as business as usual – as is evidenced by efforts in ESG, emissions and a host of other issues affecting the environment.
Environmental considerations are increasingly important in the decision-making process of most owners, something that will only increase with upcoming legislation from next year.
“A poorly managed ship due to a cheap budget will reflect emissions when you can’t maintain the engines due to budget constraints,” warns Sanjeev Verma, managing director of Landbridge Ship Management.
Verma reckons owners might start to realise that those who offer cheap management dues may not be able to keep the correct emissions rating of their ships, something that will then reflect in a vessel’s commercial earnings.
“Technology will also change the shipping landscape in the future,” Verma says. “With data becoming mostly available, shipowners will demand to access more and more information about their ships. It won’t be easy to manage an asset in substandard conditions due to constraints in running costs.”
This is one of the articles from Splash’s Shipmanagement Market Report, a 72-page magazine published this month. Splash readers can access the full magazine for free by clicking here.
Not really sure Ship managers will be able to function as “one” in the bigger scene.
There are too many kings, too much silo thinking and tunnel vision for them to be able to have a common voice. In addition, they are each their own profit centres so will they really support shipping with anything that is not giving a healthy return?
Many ship managers should first look inside their own organisations – how to make that more effective and utilize the competence of the employees. To many “lock” competence by top riding the organisation – in the end all comes from top down regardless how ineffective the directives are – no one ever listens to the competence on the floor and take ideas that way. As a result, an enormous experience capital is lost!
As it is most owners can run ships more effective with an inhouse organisation instead of tying their hands with ship managers where they many times sign a Blanco check. How many can really state they know where their bucks go?
CHEAP OR INCOMPETENT SHIPMANAGER? CHOSEN BY SHIPOWNER OR BY THE LENDER OR FINANCER OR FOR THE SAKE OF THE MARKETING BENCHMARKING?
This article is wrong. There is no “cheap cost model” of a TPSM the main reason for attracting Shipowners. It is mostly the request of naive Financial investors believing that a TPSM is more experienced to run their acquired shipping assets. Another reason is shipowners placing ships under TPSM as a means of benchmarking costs. Publicly listed ship owners may outsource ship management to address investor concerns by “dressing up” risk management, by aggressive marketing to no actual effect.
Marine lenders also appoint TPSM to assume operational and technical control of a retaken vessel following mortgage foreclosure and judicial sale.
SHIPMAN 2009 is decidedly pro-manager in terms of allocation of risk and liability and not in the best interest of the investor owners who entrust their ships to TPSM.
There is no such thing as “special care” of TPSM of ships by applying the cost-effective policy of using restricted and unskilled human resources “trained” on the job at the expense of shipowners, and “roving superintendents” visiting the ships under the strict budget of twice a year. TPSM aggressive “Marketing” of useless investments for handling (manipulated) data “analytics” and a feckless “presentation software”, instead of investment in skillful and dedicated Human Capital, is the proof of repeated serious incidents and catastrophic events involving “Mega Managers” at an accelerated rate.
Prudent Shipowners who need not lose control and flexibility of their operations and their assets are advised to INVEST IN HUMAN CAPITAL and trust not TPSM with proven inability, incompetence, ineffectiveness for lack of experienced and skillful human resources at both the office and on the ships.
P&O Ferries needs 1 minute and 17 seconds to replace 800 with cheaper crew! Quite a challenge.