For a stake in the future, embrace the competition

August 24, 2015

second we discuss where shipping goes from here, starting with whether it’s even possible to predict change let alone anticipate it and how shipping companies might change their attitudes to their core business and in the process deploy the solutions that give them a stake in the future.

Shipping certainly has a ubiquity – even if it believes itself under-appreciated – but in such a fragmented market it can be hard to differentiate. Can it get to a stage where it is able to better anticipate and prepare for future change?

Leonhard says that adaption is more a question of mindset than intelligence; developing the foresight that makes room for new levels of assumption. “This is the same in all industries, but it gets worse the deeper you get inside a B to B relationship because you feel extremely safe and you may have stasis blocking innovation.”

Whether or not the impact of say, steam and then diesel power could have been foreseen, he thinks a period of oversupply and thin margins is the ideal time to figure out what might be the next business model that inverts the industry. It might seem a stiff challenge to focus on creative change at a time of near-structural crisis, but he argues the opposite – if someone doesn’t come in and disrupt the industry at such a time, there must be something wrong.

“Perhaps shipowners need a good dose of future shock, because in a downturn clients realise if they haven’t paid attention to and that instead suppliers have basically protected their castles while they were able to, rather than think about what was coming,” he says.

His parallel is Airbnb – a start-up with no assets that took only a few years to achieve a market capitalisation greater than the Hilton Hotel Group by unlocking pent-up demand that individuals could meet better – and more cheaply – than the hotels themselves.

Industries with high margins will naturally tend not want to look at the future, but the recorded music industry provides the same parallel – a high margin business that failed to see what was coming next, even though the advent of digital music should have been a warning.

“What will happen in shipping is the end of what I call ‘managed dissatisfaction’, which is inherent problems in a system that everybody has come to accept,” he says. The most obvious example is the inability to watch a TV programme whether it’s from last night or 15 years ago. “But now, new people come in and say there is no more management of dissatisfaction, there is no built-in inefficiency, we can do this for a lower price and there’s complete transparency.”

He sees change of this type coming first to the ports sector, as their connection to local communities and involvement in urban innovation means they will be affected by trends towards lower consumption and new rental/lease models. In the short to medium term, the bulk of improvements are about efficiency and beyond that, discovering the means to add value in new ways.

For shipping, Leonhard thinks the requirement for change could be more drastic, but does not necessarily end in destruction. The impact of Google maps on the nascent GIS-based mapping industry was to use the knowledge it had gained from search to provide much more information than simple features and terrain. Why not take the same principle and apply it to shipping?

“I think what some smart people are going to do is say OK, we have the means to connect your cargo in real time and see that everything on the ship is working and this can be monitored real time in a way that really adds value. These marginal gains start to add up and eventually that becomes like an Operating System for the ship.”

This is happening already to some extent of course but Leonhard makes the comparison to Google’s self-driving car, in which it only has a small manufacturing role, yet is revolutionising driving – in its own neighbourhood at least.

Companies should also take a look at what has happened in the technology sector itself and realise that by acquiring smaller companies and removing external competition, they can start offering those services internally and to competitors, just as Amazon’s cloud computing is used by thousands of companies in the delivery and publishing businesses.

“Clearly there is an opportunity for someone to consider what is needed in terms of collaboration, investment in technology, acquiring start-ups, look at issues like energy usage and become the global shipping OS,” he says. Do that and they are much better placed to respond before the point when fewer physical goods are shipped and in far smaller volumes. Leonhard thinks the logical thing could be to get into your competitors’ market, rather than run from it.

“If you know 3D printing is going to disrupt you in the long term then you should get in and take a position so at least you might profit from when it goes mainstream rather than ‘saying oh yeah we never thought that would happen’”.

Other industries are typically doing this already – shipping is some way behind airlines in examining unmanned assets and the dividend is clear: a considerable cost reduction will mean more passengers not fewer. The other major topic is what supersedes today’s spotty Skype calls and videoconferences to shrink distance and time in such a way that it can be properly monetised. “That’s not the same business as being an airline but in some ways it’s similar – you are bringing people together. The question is whether you really have the discipline and structure to go into a parallel business which requires a different way of thinking,” he says.

Buying out the competition is not a new idea but it’s a new spin to suggest that a business can buy up companies that are better at technology than you are and profit from their expertise. “If you were smart, you would talk to those guys to see if they want to kill you and whether instead you can integrate them, or if you can buy a piece of them and then maybe eventually we can become the OS, based on what these guys have created.”

This approach makes sense when one considers the democratising nature of technology, particularly for the thousands of suppliers to shipping, bunkering, agency, stevedoring, ship supply or logistics. It might have been easy to be one of the myriad service providers in the past but as barriers fall and new entrants come into a market characterised by transparency, it becomes harder to compete, he suggests.

“The question eventually becomes, which part of what you do becomes so crucial that nobody can cut you out, and also how individual, how unique you are. Right now you can win by having better technology but eventually everybody has that technology, so what else do you do, what other value do you offer, what other services do you have that other people don’t have?”

In many ways this suggests that the problem – differentiation in a commodity market – will remain, even though the game itself will have different rules. Perhaps the unmanned ship project announced by self-styled disruptor Rolls-Royce Marine could be the test bed for shipping and something similar is needed around service supply.

“I think the primary goal would be to build that OS for shipping, or to be part of building that. It’s the way you can generate value, generate trust and eventually that transcends into a successful business where you succeed, even though everybody has the same offering.”

Ends