Optimisation will be the focus for 2019
Shipping is expected to spend the coming year exploring ways to further optimise operations at a time of unprecedented uncertainty, speakers on a Lloyd’s List webinar have said.
Geopolitical risk, cyber-attack, and keeping control over costs are the key concerns. Digitalisation, consolidation, and the global sulphur cap, although remaining at the forefront of the media agenda in 2019, will influence investment decisions but won’t drive change by themselves.
For Richard Meade, Editor of Lloyd’s List, significant political and macroeconomic risk seen in the past year will continue, particularly in the form of sanctions, territorial disputes, and changes to trading relations.
2019 will see “the optimisation of existing business models rather than the disruption of new models”
Richard Meade, Lloyd’s List
Mark O’Neil, Chief Executive Officer at Columbia Ship Management, agreed there was a possibility of a perfect storm. As a first reaction, 2019 is likely to see “an industry-wide drive towards consolidation and partnerships – structures that are resilient enough to stand against that uncertainty.” However, he warned that consolidation would not be the answer: further ahead the industry will see a reshaping of structures as external investors turn shipping into a cog in the overall logistics chain.
Uncertainty is also a key element for Roger Holm, President of Wärtsilä Marine Solutions. The past year has seen a push toward a multi-fuel future, which will grow in 2019. The broader need is to look at the total ecosystem, with digitalisation the developing tool to do this.
2019 will see “a transition in the technology discussion away from the technology itself and towards the value it brings”
Roger Holm, Wärtsilä Marine Solutions
Such a storm of uncertainties can’t be planned for, even in the short term, but shipping must adapt to whatever is thrown at it. Speakers agreed there is pressure for a change in thinking from traditional medium-term strategies to short-term “nimbleness and flexibility”. The industry in 2019 will be in a very different position from 2008, Mr O’Neil said. A decade ago there was money in the bank; now, a period of austerity combined with turmoil in some of the larger economies has left shipping vulnerable. Equity investors control a considerable proportion of the industry. “If 2019 is as challenging as we fear, those investors might try to get out quickly.”
The technology discussion must transition in 2019 away from the technology itself and towards the value it brings. “There is no sense investing in technology if there’s no value,” Mr Holm insisted. Mr O’Neil agreed. “Digitalisation is yesterday’s story,” he stressed, “not the end in itself.” Companies should not be bullied into investing in technology neither they nor the industry needs. “It must be relevant and compelling to our particular market. There’s as much danger in getting ahead of our market as in falling behind.”
This will become important in 2019, when financially-stressed ship owners focus on the value of new technology. “Some environmental technologies bring little business value to the ship owner: ballast water treatment is one of these,” said Mr Holm. “In many cases it’s a tick-box exercise. However, some customers are willing to invest now because they’ll benefit when the contract comes up for renewal in a few years’ time.” He believed the thinking moving in the right direction.
Mr Meade thought the year ahead would see shipping calling for more than “executive evangelists preaching the transformational power of technology.” There is little, as yet, to satisfy the sceptics. He hoped to see “the optimisation of existing business models rather than the disruption of new models.” There are signs already that the proliferation of incubator initiatives and start-up businesses, which need to show tangible results, promise much for 2019.
Whether or not environmental technologies are more likely to be taken onboard by listed companies, where shareholders wanted to see evidence of green credentials, was debated. Shareholder appetite or financial expediency might be the looming boardroom battle.
It’s a battle that has to be put into context, the speakers agreed. The amount of new regulation coming out of IMO has been challenging for the industry, said Mr Meade. “This won’t get easier; it will get worse. “2020 will be seen as minor against the problem of addressing greenhouse gases by 2050.” Because maritime assets last for 20 years or more, “we need to take decisions this year about 2050.”
2019 will see “a drive towards consolidation and partnerships – structures that are resilient enough to stand against uncertainty”
Mark O’Neil, Columbia Ship Management
Even so, Mr O’Neil said shipping traditionally has taken a ‘wait and see’ position on major investments and has generally proved to have been right. “IMO 2020 has taken up a lot of bandwidth in the press, for reasons we understand, but operationally it’s not taking much of our time.” The need in 2019 is to optimise shipping businesses, whether that’s through economies of scale, consolidation, or using digitalisation as a tool. “The environment has a massive place [in our business, but] we are not going to spend good money if it can’t be recovered, and if we’re not required to do so unless it’s a matter of law… unless it’s compelling.”
From a tech perspective, Mr Holm agreed “there’s no silver bullet for IMO 2020.” For the technology developer as much as for the ship manager, the need in 2019 must be trust in the regulatory timings. “There is a hidden wish that once again we’ll see changes to the schedule. Whatever we do, we should have global rules and regulations.” Long-term planning is better, he said. Regional regulations add cost and uncertainty. “We need to see the big picture… We need predictability.”
All the speakers pushed cyber security up the agenda for 2019. Probably all companies will be attacked in the coming year, so fending off an attack is hard. The key is how to react, said Mark O’Neil. “Your systems will always be exposed to a determined hacker.” For Roger Holm, cyber security “is not an IT issue, it’s a cultural issue.” Nevertheless, cyber is a bigger risk than is generally acknowledged, Richard Meade cautioned: “It seems to me the industry has gone back to sleep on this issue.”
Shipping’s challenges are not governed by the calendar. Cyber-attacks will continue, geopolitical tensions will evolve, environmental pressures will grow. The speakers on this webinar acknowledged the external and internal concerns but called for optimisation in operations to remain the central focus. Digitalisation is a tool rather than a goal, consolidation is a stage on the path to a reshaping of shipping, and predictability and the bigger picture would help investors in 2019 much more than turmoil and short-termism.