For consolidation, read co-operation
Ship managers are just like politicians. Whatever question you ask them, you get the answer they want you to hear. They are hardly alone in that, but ship managers exhibit best the problems of feeling misunderstood, underpaid and underappreciated and lose no opportunity to remind us that third party ship management is a tough business.
Some sympathy is certainly deserved. There is little sharing of the upside of good times, but there are constant demands for more value in bad ones. The recent OpEx survey by Moore Stephens found that management fees were among the items considered least likely to increase in either 2014 or 2015.
And the third party management sector, which accounts for no more than 10% of the global fleet, has a new problem. When charter rates are falling and owners are struggling to make money, how can the manager do the same while still maintaining standards?
The obvious answer would be consolidation, but the fragmented nature of shipping seems to place competition above collaboration, except in the case of a few pool arrangements. And as Exmar’s Marc van Nuytemans observed at the recent Shipmanagement Innovation seminar in Singapore, when an industrial company fails, the capacity is likely to leave the market or be absorbed elsewhere. In shipping, the banks take over and the problem remains, or even worsens.
The pressure on rates is thus perpetuated and the cycle continues, creating the impression that third party management is an expensive choice rather than a must-have. Ship management is unusual in being a market where its client is also a competitor. Managers must prove they can do the job better than the owner then charge a fee for the insult.
Bernard Schulte Ship management CEO Rajesh Bajpaee pointed out that if managers give up that claim “then we will have to find better ways to deliver innovation, though better technology or better skills,” as well as finding ways to do more with less.
But, argued van Nuytemans, wouldn’t it be better for the industry if rates stayed low for longer because of the consolidation this would encourage? Only then, he mused, might a small Greek-owned family business running Capesize bulk carriers feel the need to seek professional assistance? That was too cynical for Bajpaee who thought a greater focus on partnership would be preferable to indefinitely low rates.
This is already happening. Columbia Ship management Director Dirk Fry described his company’s joint venture with leading Greek owner Tsakos, which manages 48 tankers for Tsakos Energy Navigation and 90 ships from the general Tsakos fleet, as an opportunity to take a much closer working role with the principal.
This extends well beyond sharing local market knowledge towards creating a strategy that can lower barriers to entry into new markets providing what Fry called ‘additional market tools’.
“Joint ventures are the result of taking long term relationships from simple management to a more binding agreement that builds trust and confidence,” he said, pointing out that in hard times, managers are as choosy as owners. “The expectation is changing, from being dominated by cost, the manager is in the team, translating the contract into commercial execution to maximise cash income. In this way, the manager gets the upfront investment needed to provide enhanced efficiency and long term savings.”
The chances are that a manager’s superintendent is not aware of the owner’s needs and efforts on energy efficiency, nor would they be unless they sat within the owner’s operations department. The logical extension is to exchange staff to support the joint venture day to day and work more collaboratively on big ticket items like dry docking.
It hardly sounds revolutionary but since the maritime industry is one where getting paid at all can be a struggle, it makes sense to use every available tool to advance co-operation if it gives the owner an advantage with their charterers. As Fry highlighted that means challenging the idea of providing a technical service and expecting it to be enough.
If that added value is not apparent, then it can hardly be surprising that owners are finding reasons to look for savings, even where these are not driven by charterers. This being a ship management event held the day after the Intermanager Annual General Meeting, the question soon arose of the image the sector was projecting.
Bajpaee suggested consolidation of trade associations into one body that spoke for shipping and suggested the industry as a whole was too fragmented to have a voice. Even as a long-time Hong Kong resident, he said the transport minister was more interested in trams and cars than shipping, even though he governed an island which is home to one of the world’s biggest ports. “If we are not rewarded for the job we do, it is because we don’t recognise value ourselves,” he added.
Philippine Transmarine Carriers Chairman Gerardo Borromeo pondered why blue chip managers were contemplating whether they were being paid appropriately. “Why is it we even have to ask if we are being paid the right amount? This shouldn’t be a conversation among ourselves. Of course, competition drives efficiency but we must all provide value. If what we do for industry participants is not well enough understood then how do we provide value?”
The sector still needed to state the value proposition he said. In Singapore, the government and the private sector had worked together to create a shipping hub, something that the whole industry could learn from and replicate. This is happening in the Middle East too and he said the creation of more clusters was an opportunity to share value that would provide for sustainability in the long run.
V.Ships President Roberto Giorgi, well known for his enigmatic statements, suggested that a far more fundamental change was needed. Today’s ship management stakeholders were far more diverse than simply the bill-paying owner.
“When we think in terms of the addressable market, we need a more scientific approach. We need to be looking for how the market is changing and where the opportunity lies.” If a manager is unable to get business from the technical director, “you need to be going to the owner, their banker, and their shareholders. You need to know who is the economic buyer, the sponsor and coach,” he suggested.
That, it seems, is the closest this community gets to a root cause discussion about how to be recognised and valued for the service it provides. As long as the market stays just good enough to avoid forced consolidation, fire sales and defensive mergers, the search for differentiators and the quest for value will continue.