Disruption Has Come to Shipping

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Only if I had a penny every time I had to spell out these terms to a financier dealing with commercial terms for the delivery of a vessel. It sounds almost like gibberish, but for those in the knowing, these are very clear terms and have saved many a shipowner or charterer from undue legal headaches. (For more shipping abbreviations, please see our S&P blog here!) These abbreviations are standard language and stand for All Going Well / Weather Permitting / Unforeseen Circumstances All Exempted / With Out Guarantee. They are the remnant of past reality, when Telex was the primary way of communicating commercial information in a time sensitive manner, and, text transmitted was charged by the number of the charterers consisting it. Really.

This was a time when people had to economize with their words due to technical and accordingly economic considerations. Had to be succinct since additional characters cost money; then, the telefax replaced the telex and transmitting was charged by the page, and eventually email has become the prominent way of transmitting information, which effective is free (besides a nominal monthly fixed cost for the connection). For those nostalgic of telex, Twitter had set a limit of 140 characters (now 280), but this was for other than economical considerations. And, the 280-character limit, Twitter does not stop someone for blabbing all they want; again for free.

The Internet has been changing the way the shipping industry is functioning. For starters, business has become much more transparent and efficient, and so far has affected the economics of auxiliary services such as ship-brokerage, charter brokerage, supplies and victualing, etc It has also affected documentation and certification for statutory and regulatory inspections, maintenance, communications, cargo and commercial documents, etc And, in the next phase of technology, the actual operations, management and trading of the ships are coming into focus.

When the Internet was “invented” in the 1990s and for the “dot com” mania, technology was still a novelty; too bulky and still very expensive in terms of computers and computer code, and, quite frankly, shipping was not the ideal industry for B2B (business-to-business) applications to start with. Two decades onwards, the cost of technology has come dramatically down, there are many app developers knowledgeable with new platforms, and more importantly, there has been a universal push to employ technology for both substituting for routine business and mainly “dig data” for making informed decisions. In the last decade, technology has had only an evolutionary impact on the shipping industry; however, looking forward, the impact can become revolutionary, or as they say, “disruptive”, in the sense it can disrupt existing industries from doing business “as always have been done”. Disruptive technologies effective force established industries to do business on a new set of economics and market drivers: physically hailing a taxi but now booking car service via an app (known standards of safety, security, timing, pricing, service, etc, with possibly automated cars in the future) is one of the most simplistic ways for one to understand “disruption”.

The impact of technology so far has been subdued and only limited to certain, well defined areas such as automation, digitization, etc It has just been complimentary to the industry by providing efficiencies and cutting costs, sometimes at the expense of shifting business models for a few complimentary service industries. However, looking forward, it seems we are almost of the cusp of major paradigm shifts that can change the market. For instance, brokerage – whether S&P and chartering – could be completely substituted by online platforms. What would stop a charterer from posting their business online and then get to choose the best bidder (ship) at the optimal price? What would stop a shipowner from posting their ship online for sale once the decision is made to divest of the asset? All these are commoditized products (cargoes, routes, ships, etc) and once a platform attracts critical mass, the market becomes much more efficient. And, execution of contract on an online platform, is just a formality.

As ships and cargoes getting connected, “Internet of Things” (IoT) can help with more efficient transport and optimizing the supply chain (translating to lower shrinkage, pilferage, spoilage, etc and of course lower financing trade costs). IoT can help from preventive maintenance onboard ships to minimizing to cost of repairs, but mainly can lead to automation of shipping and effectively to man-less ships. If airplanes with human cargo can be trusted on auto-pilots for most of the flight, it’s hard to see what would stop ships from navigating the seas on their own. And, one step further, “big data” and artificial intelligence can allow for predictive analysis of business trends and expected cargo movements. Probably, all these sound like a sci-fi scenarios with a remote hope of application. Instead of a counter-argument, one has to pay attention to a modern automobile and try to draw similarities to shipping. If a highly regulated and fragmented industry (automakers) with a much higher degree of human interaction can see their way to driver-less cars, it would not be too hard for ships to follow. Naval engineering remained a “bulk” and material-heavy discipline for the last several decades, just like cars used to be at Detroit’s glory days; however, a shift to more intellectual power is seems to be coming.

Ships are very expensive assets and often industry players prefer to stick with what it’s known and proven rather than take un-necessary risks; it’s an applaudable approach, but again, there is a paradigm shift when one has to jump into the future. Imaging being the last shipowner who built the last clipper ship only to see the steam engine cannibalizing the market. Change will come irrespective of the hesitancy by shipowners because other industries and companies from other industries will force their way on shipping. It is estimated that one-fifth of the containerized cargo moves on account of Walmart. While Walmart has taken a more cavalier approach to transport, Amazon has been much more aggressive and technology savvy. While at earlier stages, Amazon was completely dependent on UPS and FedEx for their shipments, now they building their own fleet of cargo planes and vehicles and hiring people for deliveries, just a step before deliveries with drones. It’s only a matter of time before Amazon will start shaking the containerized shipping industry. Would one think that other bulk commodity owners such as Vale, etc will not play the game?

Disrupted long time ago… Image credit: Karatzas Images


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