Disruption is Coming to the Shipping Industry

As I sit at my desk, I find myself shaking my head asking myself why so many in maritime do not “get it.” I can only conclude that while people happily read about impending transformation of our industry, they do so in the misguided belief it will only affect others – and that they somehow remain insulated.

This year’s Nor-Shipping was abuzz with an assortment of technological jargon and concepts, many promising operational savings that verge on the magical. Veteran observers and members of the industry, of course, were rightfully skeptical of such snake-oil claims.

But it’s no wonder people are confused. On top of the technical innovations aimed at boosting operational and navigational efficiency there are environmental solutions being pushed on to shipowners to satisfy the whims of the industry’s regulators. Then there are more remote and autonomous ship proposals and development projects than even Elon Musk could shake a stick at. We have numerous start-ups and venture companies all rushing to offer digital widgets or applications that promise to break the status quo in the chartering business and rewrite the rules of engagement for transporting goods over water.

My view, however, is that the industry is in denial. Most players are either failing to see what is coming, or are pretending not to see it in the hope it won’t happen. The market for maritime assets, aka ships, has run out of steam. Recurring stints of oversupply reveal an industry that is unable to manage itself, unable to modernize, or make real progress despite the technological revolution happening around it. So, it is going to be disrupted.

The business model has to change and it will be painful. Innovation can be described as the improvement that occurs from within. Disruption, on the other hand, is change imposed from outside. The former is incremental, while the latter rips up the present model and starts again from scratch.

Amazon has a missile aimed at the global shipping industry. Last year it put into action the ‘Global Supply Chain by Amazon’, a blueprint for a global shipping and logistics operation, which leverages the power of vertical integration to take ownership the total value chain. Its logic is that such ownership is necessary to deliver the speed, convenience and the lowest possible prices that are the core strengths of its business model.

In Amazon’s own words, it will be a “revolutionary system that will automate the entire international supply chain and eliminate much of the legacy waste associated with document handling and freight booking.” If this comes about, the world’s largest e-retailer will have its own logistics and distribution hub, challenging not only land-based shippers such as FedEx, UPS and DHL, but also the middlemen handling paperwork and cargo associated with shipping worldwide.

Amazon is already partnering with third-party shipping carriers to advance its global operations.  Once it has mastered the shipping model and achieved the necessary scale, it will jettison its existing partners and run it on its own.

Another example of Amazon’s Pac-Man personality of gobbling up markets is its aggressive position in cloud computing services. This vital back office service started quietly as an internal project.  After opening the platform up to the market, it quickly expanded to become the company’s fastest growing and most profitable business.

Colin Sebastian, an analyst at the financial services and investment banking firm Robert W. Baird & Co, has described the e-retailer’s global supply chain ambitions as a classic Amazon move. “They take baby steps along a long path, which allows some companies that could be disrupted to remain in a sense of denial. Amazon rarely takes one big step forward that shocks the market,” he wrote in Forbes. In his view, Amazon’s ambitions could translate into a $400 billion business.

So, what happens to maritime? If other transport industries are any indication, Amazon and its ilk will want a technologically advanced, highly efficient ship, built for purpose, and preferably unmanned or autonomous. Today’s tonnage will not make the grade; neither will today’s operational or management practices.

Shippers themselves, then will drive change, not the industry’s regulators or the vessel owners struggling to shave an additional percent or two off their costs. The whole environment within which manufactured goods are delivered could change forever, going on to radically reshape the business of shipbuilding and affect the sort of technology on board ship. This could even prompt the demise of some insurers, some classification societies, freight forwarders, and many other third-party businesses that support the operation of maritime assets and the carriage of cargo.

In the meantime, the hyperbole surrounding cyber-security, Internet of Things and bandwidth is largely irrelevant. All industries face these challenges and are stepping up to address them – so why can’t maritime? Vessel navigation and operation will adapt and evolve to fit in with these new norms.

Most commentary on the state of the industry, its adoption (or not) of technology and the regulatory pressure it is under is framed in the context of today’s business model. My fear is that remaining within the walls of today’s maritime space simply ignores the fact that the industry is about to be disrupted by a Trojan horse.

Frank Coles is CEO of maritime technology firm Transas. 

Ref: Robin Lewis, Forbes April 1st 2016.

This article first appeared in The Marine Professional.