What Happens When Enough is Enough?

By Nick Fisher, CEO, Masterbulk 

You know times are bad when the Baltic Dry Bulk index reaching a new low is no longer newsworthy. The offshore sector in crisis, global markets in bear territory, unhappy mergers, bankruptcies, and China slowing - this is the reality we find ourselves in. None of this can be a surprise. For too long, too many shipping companies have been under extraordinary commercial pressure. Commentators have long been predicting the tipping point, and now it seems we might just be there.

Perhaps it is time now for industry commentaries to move away from emissions, piracy, and diversification and focus, perhaps on the commercial realities of survival. Time for the lawyers, accountants, and advisors to give something back to shipping with some useful commentary and tips on business restructuring…and time for us all to share in what has, and hasn’t, worked as we look for further efficiencies.

In this spirit, I thought I would share a few observations from this, and the last, downturn. 

Do businesses wait too long to restructure? What are the signs of crisis that you should be looking for? Should this be management or owner driven?

Too often, organizations miss the opportunity to restructure by hanging on in a vain hope that change will come by itself. The warning signs are there in the financials and the non-financials, the actuals, the forecasts, and actions of the bellwether. The question is, however, are these indicators being measured adequately to give the business fair warning?

Actions in a recession often seek to reduce margins and/or market share, depend on “the way it has always been done,” and remain emotionally attached to certain business models and “holy cows.” Shipping is full of management models that worked well in the good times. However, everything worked well back then. 

Ultimately it is management’s job to identify, sound warnings, take action, overcome owner/board resistance (if any), and get buy in for changing the way operations are structured. If the owner or board is taking the driving seat, the wrong management team is in place and action is well overdue. If the banks are modelling the business’s record of accomplishment and projections and nervously questioning company statements, it is probably too late.

A business cannot save its way back to profitability. Often, in a failing business, the management is myopic and cannot see the wood from the trees. 

“Measurement is the first step that leads to control and eventually to improvement. If you cannot measure something, you cannot understand it. If you cannot understand it, you cannot control it. If you cannot control it, you cannot improve it.”  –  H. James Harrington

I believe it is fundamentally vital to understand whether or not the business is measuring what it should in order to make informed choices and, as a result, to take timely action to address negative trends and indicators. I have seen lively discussion on whether a business should manage its activities through positive reporting (i.e. measuring and reporting everything) or exception reporting (only report something when it is not doing what it should). 

The former ensures the existence of a robust enterprise risk management framework; enabling regular monitoring of how effective various risk management strategies and accountabilities are from an operating perspective. Often, in today's dynamic world, this method pops out design flaws (in risk management strategies/ controls/ contingencies). 

Equally, positive reporting helps ensure processes run smoothly. e.g., in sales operations planning or in financial reporting and HSSE exception reporting is better suited to an environment where the controls are reasonably robust and errors are minimal. If you are operating in an environment where controls are perhaps not as tight, then positive reporting might be more appropriate assuming that the party making the positive reports has "ownership" of these numbers / metrics. In a well-controlled environment, such reporting may not add any value to the organization or the manager.

That said, even very well run businesses have become casualties through failure to innovate and adapt in time to market shifts, and missed the opportunity to consolidate, divest, or diversify. Shipping is generally too conservative and traditional. Therein lies the challenge. However, do not discount the “deepest pockets” strategy – holding on in a bad market while the competition sells up and/or moves out.

What does success look like?

Alternatively, how do you make the best of a bad situation? The business survived! It may not look like the business before the market turned and the people may not be the same, but the numbers are moving in the right direction. Delivering on the promise – that is what the stakeholders are looking for.

If something is burning a hole in the bottom line, as management, it is sometimes quicker, easier, and more effective to ask for forgiveness for taking the action and getting the result, than asking for permission and not getting it in time to deliver the full result – know your limits of authority!

It’s management’s job to challenge all the “holy cows,” but it is the owner’s money. It maybe then that a second pair of eyes may be needed to challenge the status quo – management and the owner/board alike. This, perhaps, sets the scene for external advisors. 

Do not wait to move. Procrastination is the killer.