May 3, 2016


Time for a change, ready or not

Shipping guru and analyst par excellence Martin Stopford has had an idea that is a very simple and at the same time very complex. He wants to foment shipping’s fourth industrial revolution.

On his tick list of why such a change is unavoidable are some pretty unarguable propositions. First, the world needs better transport. “I’m pretty bored of hearing that shipping has a rubbish business model,” he told the recent CMA Conference. “We need to get real value into shipping because the business model is not up to the challenges of the future.”

Other industries have embraced a ‘smart toolbox’ and as the technology has improved so has the opportunity for change. Also pretty clear is that the world needs more cargo but less carbon. GDP growth as low as 1% calls for an additional 20bn tonnes of cargo but 50% less carbon generated to be anywhere near the Paris climate agreement goals.

Trade is shifting too and the days of OECD-dominated world order are over. Future growth will come from non-OECD countries that want to trade globally in a digitalised economy. “Is shipping up to offering that, when we often don’t know where the containers are, let alone what is in them” he asked. As illustration, Stopford shared an anecdote from a big US shipper who admitted they had a dozen containers on the same ship with one destination but a dozen different delivery dates. “That is not an information system you can build a new world order on”.

What he advocates is in many ways a return to the 1970s concept of industrial shipping where transport was managed by multinational cargo interests rather than shipping investors, using big ships and high volume terminals to productively manage logistics.

Much changed with the 1970s oil crash. Before then 82% of the independent tanker fleet was on timecharter to a Triple A credit-rated entity. Sometime between 1972 and 1990 cargo owners walked away from putting capital on their balance sheets and shipping reverted to the neo-classical ‘perfect competition’ model.

Stopford pretty much wrote the standard textbook on that but now says he feels bad about it. Bulk trades switched to a spot market ‘beat ‘em up’ model and the logistics disappeared. The container trades which were supposed to be about door to door delivery became commoditised and quayside to quayside instead.

“Customer relationships have become very adversarial. How can you build a new trade system if you are at loggerheads with customers or you don’t know who they are and they don’t respect us for what we do,” he asked.

His vision of a 21st Century business model is to swap the ‘we trade ships not cargo’ mantra for ‘we manage transport not ships’. To do this the industry will need to change everything, from personnel systems and client relationships. Today’s slim line companies are going to hate that, he observed, as bitterly as liner companies decried the advent of containerisation.

But the state of the markets evident at the CMA conference he said had made him concerned that the model of the last 50 years would offer no solutions. His ‘Smart Shipping’ mantra is based around the simple idea of delivering cargo better through greater interoperability, leveraging technologies such as the Internet of Things.

Not an advocate of unmanned ships, Stopford said there should still be automation and de-skilling of operations and navigation onboard, removing tasks that computers do better than people. Ships will be managed from shore with personnel merged into a single productive unit “rather than two teams who don’t work together and don’t respect each other”.

Fleet systems would be integrated to improve asset performance in a similar way that oil majors once ran command centres, while big data would be used to reduce accidents. The model he invoked was the modern, automated factory where production is concentrated into processes that improve productivity and cut costs.

Technologies both new and emerging would power the change, from telematics to satellite communications, data storage and smartphone apps but Stopford is clear IT is the enabler not the answer. “This is not about IT enabling management in shipping company; these days there isn’t much management, we are just using the model we have been stuck with for 30 years.”

His thesis though, is more wish list than programme for change. He cheerfully admits to not knowing when or how the industry would move towards this vision, but he feels instinctively it will happen. As the pressure for profitability persists with the slumping dry and container markets, it will become impossible to resist change and he is prepared to go on telling the story to whoever will listen.

He accepts that shipowners ‘speculate because they can’t manage’ but he is adamant that the industry needs operations run with more and better resources and a change from the 19th century model of human resources. History is instructive here. When Malcolm McLean unleashed containerisation with the launch of the Ideal X, his competitors were slow to recognise the change his invention would bring.

“If you have 180 ships and masters and you realise you are going to have to get rid of three quarters of them, then the model has changed, and only two liner companies survived the birth of containerisation. Every time a shipowner says this won’t happen, I try to understand what it’s like to be told your business model is wrong. Somebody will put the pieces of this together until it works.”

Image credit – Chris Preovolos

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