Shipping’s Next Lightbulb Moment
Sail, steam, digital. Welcome to shipping 3.0
Back in the late 1990s a story made the rounds which has found its way into legend. At the time V-chips—the technology which allows parents to censor TV programmes where bad language appears—were becoming standard in all US television sets. It’s limitations were exposed however when in combination with the TV’s closed-captioning system the V-chip chose to sanitise the actor Dick van Dyke’s name to ‘Jerk van Gay’.
The story became infamous because it’s funny, but also because it reinforced the comforting and widely held belief that no matter how fast they added things up, computers could never replace the piece of work that is a man. Nuance, language and context would always be beyond them.
Just over ten years later in 2011, the IBM computer known as Watson went on the US quiz show Jeopardy! and—in a test of similes, jokes and riddles—beat the humans. This year Google’s machine learning algorithm mapped the precise location of every household, business and street number in the whole of France, in one hour. Ray Kurzweil, Google’s director of engineering, says that by 2029 machines could become conscious.
To say that we are living through a period of massive technological change really is an understatement. The acronym VUCA, has been coined to capture the characteristics of the world we’re currently expected to navigate, which PwC describes as a ‘world in beta’. Volatility, Uncertainty, Complexity and Ambiguity are no longer short-term issues to overcome but a new status quo. Across industries, geographies and societies massive change is underway, and yet a significant portion of the shipping and maritime industry is still comfortably laughing at the Jerk van Gay story. There is a mass delusion going on that somehow shipping is going to be immune from all of this. That—to paraphrase Robert C Gallagher—change is inevitable, except from a vending machine, and the shipping industry.
Not only is this myopic and dangerous, it’s also illogical. Listen to anyone in our industry and they’ll tell you that shipping’s fortunes are intimately connected to those of the world economy, the whims of governments and a host of other external, global, unpredictable factors no one in shipping can influence. Well, the digital trends we’re talking about are going to change all those things, and therefore, by extension, shipping. The opportunity lies in not simply allowing ourselves to be passively buffeted by these trends, but harnessing them now to empower, energise and improve our industry almost beyond our current comprehension. We’ve already proved that’s possible.
In the early 1830s a fully laden sailing ship leaving from Great Britain would take approximately five weeks to cross the Atlantic. Then in 1838 Isambard Kingdom Brunel’s new steamship the Great Western made the voyage in just fifteen days. The Great Western’s voyage was the first of a new era. Shipping 1.0, the age of sail, lasted over two thousand years, shipping 2.0 has lasted less than two hundred. Built on fossil fuels, economies of scale, mass consumerism, globalisation, and improved communications it has been defined by the advent of steam, radio, and containerisation. In shipping 2.0 the experience of building, sailing and operating ships was profoundly different from that which had gone before, but the change to shipping 3.0 will be even greater. Shipping 1.0 was sail, shipping 2.0 was steam, and shipping 3.0 is digital.
To paraphrase Robert C Gallagher—change is inevitable, except from a vending machine, and the shipping industry.
This year DNV GL unveiled the ReVolt concept ship, unmanned and battery powered; by 2018 Rolls-Royce anticipate they will have their first fully autonomous prototype ship capable of unmanned operation; by 2025 fully automated ships will be entering the market; ten years later many types of ship will be delivered with autonomous operation capabilities, and by 2050 segments like container shipping could be fully automated and unmanned. It’s also entirely possible that all of this is far too pessimistic.
But to focus solely upon the change to our ships—iconic though that will be—is too narrow. Shipping 3.0 represents a far greater set of challenges than a move to autonomous ships and unmanned operations.
“There is no silver bullet in this world of innovation,” says Heather Cox, Citi’s chief client-experience, digital and marketing officer for global consumer banking. “We don’t know where the digital world is heading.”
It’s a statement which in previous years may have been considered ill-advised for a company in a highly competitive market to make. But it’s a reflection of the shift in approach to managing and leading organisations that’s happening everywhere.
The more data and information we’re getting the less organisations and individuals are realising we know. The traditional leaders, with big personalities and a preference for gut feel at the top of companies are declining in influence. In fact the whole notion that any organisation has all the intelligence and innovation it needs within its confines is being thrown out.
In many respects it almost feels as though there’s a humbling of business going on. The digital revolution is forcing transparency, exposing the less savoury bits of organisations that no one ever used to see—like margins—and then broadcasting them to customers across massive, uncensored communications channels. But it’s not all bad news, because the communications channels work both ways, allowing businesses to listen and learn and collaborate with absolutely anyone anywhere on the planet, tapping the global brain to solve their most intractable problems.
The mantra of this new normal is ‘simplify, standardise, share’. But shipping and maritime isn’t adapting quickly enough. Humility is in very short supply and as for simplicity, the industry has always believed itself to be highly complex and used that to justify conservatism, insularity and poor customer service. In the age of machine-learning though, where Google can map every street number in France in an hour, complexity isn’t an excuse for not delivering.
In fact we aren’t even going into this new era with the most basic requirements in place. Any business must have an attractive value proposition for customers, make money from that value proposition, and adequately organise or access the resources needed to deliver it. Large sectors of the shipping industry haven’t even got that right yet.
The upside of that—and something which many outside the industry are recognising—is that shipping is ripe for disruption, improvement and holds huge opportunity. Surviving in shipping 2.0 was tough but success in shipping 3.0 is going to involve a wholesale reappraisal by incumbent companies of just how they are going to be affected by, and capitalise upon new technologies. Gartner recently grouped the key technology trends for 2015 into three main areas; the merging of the real and virtual worlds; intelligence everywhere, and the emergence of a new IT reality. For shipping you can add to that the massive improvements in deep sea connectivity.
Whilst shipping comes in for a good deal of criticism from other industries about how technologically backward it is, one has to appreciate the gulf between the type of shore-side connectivity they’ve been enjoying and what was available at a reasonable price to shipping for decades. The advent of new HTS networks like Inmarsat GlobalXpress and Intelsat’s EPIC is a genuine game changer for our industry. But even now, without either network fully on-line, high-grade connectivity is affordable for ship operators, and yet they are not investing in it, or leveraging it at anywhere approaching the scale they should. There is a cost involved, but actually it’s about more than that. Investing in communications infrastructure on board a ship isn’t as straightforward as it might appear.
Ship managers frequently know all too well the kind of efficiencies they can drive with better communications, how much better they can fulfil charterers requirements. But with ships on rolling management contracts there’s no guarantee the vessel they spend good money fitting an IP satellite system to will actually be theirs to manage a few months down the line. Trying to persuade owners to make any additional investments over and above the cost of the tonnage is difficult. Ship owning is increasingly just speculation. With customers dissatisfied at one end and owners only interested in maximising returns at the other, it’s one symptom of how increasingly dysfunctional the industry has become. Put bluntly though, connectivity is the bedrock of our world in beta, and shipping 3.0. Without it shipping can’t exploit and defend against the new digital reality.
We have to improve interactions with customers, employees, suppliers and stakeholders. We must connect with our ships, machinery and other assets and stream that big data home where algorithms can crunch it and provide support for evidence based management decisions. We must also focus on how that connectivity can form the basis of innovative new business models, operations, products, and customer services. As we identified in our January 2014 Cloud issue, the shipping industry is already seeing digital technology drive transparency. Young companies like Xeneta, Freightos and Vessels Value are opening up opaque business practices and putting pressure on margins and prices. Vessels Value spun out of a ship broker, but as the ‘plug and play’ digital business models proliferate and traditional barriers of entry to a global business like shipping are undermined, new competitors from outside shipping and maritime will appear. Digital delivery platforms and marketplaces like KVH’s IP MobileCast and Inmarsat’s GX Service Enablement Platform will grow and access to the shipping and maritime market will democratise with transaction costs falling and value chains disaggregating.
Maritime software companies used to having the industry to themselves will face new aggressive and globally resourced competitors and lightning-fast start-ups in equal measure. Travel, recruitment, and intermediary services like broking and insurance are all particularly vulnerable to small competitors plugging into cheap infrastructure and undercutting both price and reach, packaging and pricing services in real-time.
Any preconceptions the industry has that seafarers are the only ones whose jobs are threatened in shipping 3.0 won’t last long. It’s estimated that up to 70 per cent of all white-collar information gathering jobs in the US are vulnerable to being taken by machines in the coming decade. Known as ‘knowledge automation’, more and more frontline and middle-management jobs focussed on synthesising information used by senior management will be automated. But as those positions disappear, the bigger headache will be recruiting the kind of highly-skilled Millennials shipping and maritime businesses will desperately need. Creative problem-solvers with an aptitude for maths, science and digital business opportunities will command high salaries and demand the kind of flexible working environments shipping doesn’t routinely offer.
Shipping’s leaders have to respond to these broad digital business trends, but for an industry which is so closely dependent upon current global trade flows, we also have to start appreciating how our customers are going to react to them.
Delivering our customers improvements in price, speed, reliability and security is necessary, but the reality is that the impact of trends like 3D printing, next-shoring and nearshoring, the circular economy, collaborative consumption, hyper-connectivity and crowdsourcing might mean there just aren’t the customers to be had in some sectors in the future.
Speaking at the TOC Americas conference Dr Jean-Paul Rodrigue, of the department of global studies and geography, Hofstra University said, “The shipping market has changed, the core principles have changed and the drivers are changing. We used to talk about economies of scale; now we need to talk about the diseconomies of scale.” In the same month that China Shipping Lines prepares to launch the largest container ship ever built, Dr Rodrigue hammered his point home. “Containerisation is entering a phase of maturity and at this point in time we are having a very difficult time finding the drivers for the next wave of containerisation. China is dying; all the drivers pushing for transpacific trade have reached maturity. The offshoring and outsourcing cycle that has benefited the industry so much is now pretty much done. The next driver is going to result in less growth for containers because of nearsourcing.”
It seems that our industry just isn’t appreciating how the world is changing. It’s a position which hasn’t improved since the Lloyd’s Global Marine Trends 2030 report in 2013 failed to even identify autonomous, unmanned ships as a potential development for commercial shipping between now and 2030. Technology, it claimed, was just too disruptive to model. But that’s not good enough. It’s crucial that we have an industry-wide awareness of where these technology trends are taking the world. In short, shipping 3.0 is going to be as much a mindset as an activity. There is no doubt that business models are going to change repeatedly, and the pace of that change, and of business itself, is going to become relentless. In light of that, the lack of diversity on shipping and maritime company management and boards is a handicap.
Hiring people just like us means we’re constantly reinforcing our own beliefs and prejudices. That can have a major impact on companies facing digital disruption. The overwhelmingly white, Scandinavian, male board of Nokia just didn’t see the threat from Apple coming. The same accusation has been levelled at the all-Japanese, male, family dominated boards in Japan which many believe bear some responsibility for its long recession.
We have to find people who challenge us, and we have to be prepared to fail harder and faster and make iterative improvements based upon what we’ve learnt. To start with every shipping leader should institute a reverse mentoring programme without delay. Pair up tech-savvy Millennials in your business with senior management and start diluting the corporate-think, then see where those new ideas take you. I can guarantee you will be surprised, because the new world these Millennials are shaping is almost inconceivable to most of us aged 40+.
There are organisations and individuals in the shipping industry who get it already. Even now shipping just doesn’t give the returns that other industries do, and that’s before shipping 3.0 really starts to bite. AP Moller–Maersk chief Nils S Andersen recently urged his audience at the Danish Maritime Forum to order a little less and look a little further into the future, focus more on market needs. “Prices of everything are coming down, and you have technology risk, so why on earth don’t we believe that owning ships is a minus game?” said Andersen. “The chance of making money speculating in ships is limited. I don’t know many people who get the idea of speculating on the price of trucks or Volkswagen Golfs.”
On the supplier side, by driving the autonomy and unmanned operation agenda, incumbents like Rolls-Royce—aiming to be shipping 3.0’s number one systems integrator—have already stepped onto the exponential growth track. For those still on a linear path the opportunity to catch them is already diminishing.
Making predictions is a mug’s game, but I’m going to stick my neck out here and make one. It is my belief that of all the powerful technology trends shaping the world, the two most important for shipping will be autonomy and the AI which offers predictive analytics. The introduction of autonomous vehicles is probably the single most disruptive thing which will happen to the world in the next few decades. Add to that the ability of machine learning algorithms to predict the future and I think you can have a stab at extrapolating how at least some of shipping 3.0 might go. You can read our vision in the boxes above and overleaf.
I listened to the maritime economist Martin Stopford at a conference recently saying that shipping was a bit old-fashioned and plenty of people, including him, rather liked it that way. He also said that what the industry needed was a Steve Jobs. I don’t disagree that shipping is conservative, and yet we have to remember that it has had lightbulb moments. Literally.
It’s largely forgotten now, but the first commercial use of the lightbulb outside Thomas Edison’s Menlo Park was on the passenger steamer SS Columbia. Having seen Edison’s first demonstration of the technology, president of the Oregon Railroad and Navigation Company Henry Villard decided he wanted it installed on his new ship. Insurers were extremely reluctant to provide cover, and even Edison was hesitant. But when she sailed on May 2nd 1880 with her electric lights blazing in the saloon, Columbia made history. Seventy years later Malcom McLean’s ingenuity led to the age of containerisation, which revolutionised world trade.
Both those pioneering men however, weren’t from shipping. Villard was in railroads, and McLean in trucks. So when Stopford says we need a Steve Jobs, perhaps what he means is not just a visionary, but a visionary from outside the industry.
“Sometimes it’s easier to innovate when you don’t know the rules,” says Mary Monahan EVP and research director at Javelin Research & Strategy. “Once you know all the problems, it’s harder to go outside the box.”
Going outside the box is something we’re going to have to learn to do a lot more of. Google’s prediction that we’re only fifteen years away from machines becoming self-aware sounds pretty scary. But what’s really frightening is that shipping still isn’t.
Let’s hope we wake up before they do.