Every winter around this time, in an expensive building opposite Dirty Dick’s pub in the City of London, a group of senior managers gets together to thrash out their 10-year investment forecast.
I expect there’ll be coffee, and two kinds of water. And considering these senior managers work for Barings—which as I write has around $275 billion in assets under management—probably some really good biscuits. You know the ones I mean; covered in chocolate and wrapped in gold foil. Or perhaps not. Because when things start going pear-shaped it’s the little extravagances like really good biscuits that tend to be the first casualty.
Remember three months ago when I introduced you to the new Seaconomics? When I pointed out as I have been doing for several years, that the historical link between global GDP and shipping volumes was decoupling and the entire globalisation paradigm of endlessly rising trade volumes was looking dodgy? Well, looks like Barings agrees.
“We believe globalization has probably reached its peak,” says Marino Valensise, head of the multiasset team at Barings. “The market won’t like it.”
That’s why at this winter’s meeting Barings will be considering reducing or perhaps eliminating altogether what they call their ‘globalisation premium’. And that’s awfully significant.
The globalisation premium is a big deal because to date it’s meant that U.S. stocks collectively traded at a price/earnings ratio about one whole number higher than they otherwise would have. But rather like the link between GDP and shipping volumes, that link has been decoupling. Over the last ten years Barings has cut that premium by 50 per cent, and if—having relentlessly pored over all the data it can lay its hands on—Barings decides to do away with it altogether, the outlook for stocks is going to head south along with it. Particularly in those sectors viewed as most likely to suffer from the slowdown.
Enter Hanjin. Or should that be exit? Barings might be reassessing the biscuit budget but Hanjin have already scraped the bottom of the barrel. The heat and light of its implosion has been spectacular, and my sense is that by providing a cold, hard light of day example of the industry’s problems it has finally given people the opportunity to start saying out loud what they’ve been suspecting for some time. That shipping’s in trouble. Big, big trouble.
But despite the fact that everything from the Danish Maritime Forum to IHS and Lloyd’s List seem to have finally woken up to what’s going on, that really is only part one of what needs to happen. Acknowledging there’s a cliff edge coming up only helps if you’re then capable of doing something to stop your company strolling into the void.
I’ve come to the conclusion that what this is boiling down to is scale. To paraphrase Douglas Adams, shipping is big. Really big. For most people it is so mindboggling big they’re happy to walk away and leave it to others they consider ‘qualified’ to manage it. But as big as shipping and its problems is, the scale of the solution to its problems is actually several magnitudes larger. And that’s what we’re having a problem with.
I’ve come to the conclusion that what this is boiling down to is scale. As big as shipping and its problems is, the scale of the solution is actually several magnitudes larger. And that’s what we’re having a problem with.
I’ve said many times that the companies which don’t stroll over the edge into the digital abyss won’t necessarily be the ones with the best technology, the deepest pockets or even the best ideas, they’ll be the ones with leadership of the correct mindset, and probably blessed with a little bit of luck too. The luck you can’t do so much about, but that mindset you can have a shot at changing. If you understand where it came from.
While Hanjin was busily going bust IMO was celebrating World Maritime Day with the slogan, “Shipping: indispensable to the world.” Although it sounded to a lot of people as though it was IMO that thought it was indispensable to the world. That slogan tells you a lot about the shipping industry. There’s no doubt that ships have been absolutely indispensable in getting us to where we are today, and that led to an embedding into the global consciousness of a shipping-centric view of the world.
Perhaps the clearest example of that comes from the Mercator Projection, which reimagined the earth as the surface of a cylinder then laid it out flat to make it nice and simple to steer a ship across an ocean. For almost 450 years that map, developed by a Flemish geographer in the 16th century as an aid to shipping, has been one of the standard maps of the world. What Gerardus Mercator gave shipping, shipping then enforced on the global consciousness. But in recent years we’ve begun to realise just how narrow a view that map has given us, and the effect it’s had on the way we think the world actually looks.
On the map lines of longitude are parallel, but in reality lines of longitude converge at the poles. Which means that the closer you get to the poles the more distorted the map becomes and the bigger everything looks relative to its actual size. Hence countless generations have gone out into the world with the idea that Africa—weighing in at a land mass of 30.4m km2—is pretty much the same size as Greenland, at 2.2m km2. That Europe and other countries in the western hemisphere are actually much larger in comparison to the vast countries they colonised—like India and Africa—than they really are.
You can debate the extent to which the received wisdom of that shipping-centric map of the world has distorted policies and even morality over the centuries if you want to, but the important point is that we don’t need to rely on a map drawn up in the 16th century any longer, particularly not one which is demonstrably suspect. And actually, a very similar thing has happened to shipping.
I’ve mentioned the decoupling of the link between global GDP growth and shipping volumes, but there’s another link that’s been decoupling for many years that I’d argue might have been even more significant.
In English law there’s a test that the courts apply when they want to decide whether or not a party has acted reasonably. It’s called ‘the man on the Clapham omnibus’, a reasonably educated, intelligent but non-descript person against whom the defendant’s conduct is measured. Ask the man on the Clapham omnibus, or the New York subway, or the woman in the nail bar, or the housewife in the supermarket to define ‘shipping’ and they’ll most likely tell you that it’s when something is sent from one place to another.
The bottom line is that shipping is no longer a noun, it’s a verb. It has come to mean, in everyday parlance, the conveyance of a good from one place to another, and that conveyance may include ships, trains, aeroplanes or trucks—or even drones—but that doesn’t matter. It refers to the activity, and if you’d like evidence of that fact then just google the word and see what you get.
What the man on the Clapham omnibus is telling you is that shipping isn’t about ships. But he’s telling you more than that—something really, really vital and valuable. It isn’t about ships. It’s about MORE than ships. It’s about the end result, not about all the links in between.
There’s an old Chinese proverb about a frog sitting in a well. The frog that sits in a well—it reads—only sees his piece of the sky. For centuries shipping’s dominance and relative importance to world trade has mean that its sky became everyone’s sky, to the extent that it has skewed everyone’s view of the world we live in. But that just isn’t the case now.
When your industry has genuinely been at the centre of the world, it’s not hard to understand why adjusting to the fact that you don’t even own your own name any longer is tough. That’s why IMO’s assertion is beginning to look more like a plea. Shipping is becoming less indispensible to the world for all the reasons I outlined last issue—the new Seaconomics is seeing to that. But the industry is still resolutely refusing to look outside its piece of the sky.
I read one analyst talking about ship operators needing to concentrate on realising ‘marginal gains’ from digitisation and the role of the maritime press in raising the profile of the industry. Well, Hanjin has delivered awareness of the shipping industry that the Ruperts at IMO’s PR agencies overseeing the annual World Maritime Day offensive could only dream about.
It’s been accurate, informative and devastating. Because what it shows—from the tearful mother interviewed on the BBC whose seafarer cadet son was stranded on a vessel with no supplies off Singapore, to the frantic manufacturers and suppliers with no idea where their stuff was, when it might arrive or where—was that the world is still too reliant on a dysfunctional industry that isn’t fit for yesterday, let alone tomorrow.
Marginal gains aren’t enough. They aren’t even a start. You have to think bigger. Much, much bigger.
I am sorry to be the one to tell you this, but shipping has no divine right to exist anymore than trucking or aviation does. And it doesn’t matter how many times you trot out the weary stat that it delivers 90 per cent of everything, increasingly the man in the street is going to tell you that trucks do too. And in a few years drones might. And after that hyperloops or heavy-lift airships.
So marginal gains aren’t enough. They aren’t even a start. You have to think bigger. Much, much bigger. What shipping has on its hands is a need for wholesale digital reimagination—it needs to understand that shipping’s problems aren’t big enough. And that requires genuinely blue-sky thinking, which is just about impossible for a frog that won’t leave its well.
But seeing the big problems at all is often hard, and that’s not something that shipping has a monopoly on. The investor and founder of start-up incubator Y Combinator Paul Graham describes the phenomenon as ‘Schlep blindness’. A schlep is a Yiddish word for an unpleasant or difficult task usually an intrinsic part of solving a really big problem. The magnitude of the schlep involved can subconsciously stop you from even seeing the problem in the first place.
Graham cites the example of Stripe, which has become a massive global payments platform. He points out that for more than a decade every hacker he knew who’d had to process payments online knew it was a pain in the backside, and yet no one created a start up to solve the problem.
“They decided to build recipe sites, or aggregators for local events,” writes Graham on his excellent website. “Why? Why work on problems few care about and no one will pay for, when you could fix one of the most important components of the world’s infrastructure? Because schlep blindness prevented people from even considering the idea of fixing payments. Though the idea of fixing payments was right there in plain sight, they never saw it, because their unconscious mind shrank from the complications involved.”
And you know what, that’s exactly what’s happening in shipping. In fact I think this is somewhere between schlep blindness and a Somebody Else’s Problem—let’s call it a Some-Schmuck Else’s Problem (SSEP)—because the real problem isn’t shipping. The real problem is that the global trade and logistics system is still massively inefficient, and that’s such a huge problem, such a massive, humongous, monstrous problem, that just like the online payments problem, shipping can’t even entertain it.
Ask yourself why we have vertical markets. I think at least part of the answer is because you had to silo things off to make them manageable. Because the human brain simply couldn’t cope with the complexity of managing ecosystems in the way that the power of computing now enables us to.
That’s why this is a mindset thing. Because what the digital age of exponential computing power allows us to do is to stop thinking at a functional level and begin looking at delivering an end result from a strategic perspective.
The end result of shipping is for the customer on either end to get what they want. Shipping is just one small part of a trillion-dollar global circulatory system for trade which has the potential to operate far, far more efficiently. But until now the schlep required to attack that problem has been too much for anyone. Until now.
“Global trade is no longer a human scale problem,” says Matt Tillman, chief executive officer and co-founder of the Singapore and San Francisco-based ocean freight rate platform Haven. “It’s a machine scale problem.” You’ve heard of Haven, right? And Clearmetal? And Xeneta?
Or what about Flexport? It just raised $300m-odd in a funding round. Someone described it thus: “Can you imagine what the world would be like if international trade was made easier, the way software has made our work and personal lives easier? Flexport is where ‘software eats the world’ meets international shipping.” That someone is Y Combinator founder and Flexport investor Paul Graham.
When your industry has genuinely been at the centre of the world it’s not hard to understand why adjusting to the fact that you don’t even own your own name any longer is tough.
These are the people who are busily schlepping away to solve the big problem that should forge shipping’s new place in these hyper-intelligent digitally-enabled trade flows. So can we all please shut up about the dearth of innovators in shipping, because we’ve got them. The industry’s problem is that it’s been looking for them in the wrong place.
People with big titles in legacy shipping companies aren’t showing any signs of the kind of transformative thinking the industry urgently requires, but we’re still wringing our hands trying to persuade them to look at a different piece of sky.
Possibly the most shocking thing I heard out of Copenhagen’s Danish Maritime Forum was that the ViceChairman of CMA CGM sat on a stage and said he had no idea what a Millennial was. That on its own should bar him from taking part in a discussion on the future of the industry. But it won’t. Because he’s important. Yeah? Come see me in a few years and we’ll discuss who’s important.
I have very different ideas about who’s important than the organisers of the Danish Maritime Forum do. The very first Futurenaut we ever featured was Xeneta CEO Patrik Berglund, and I told every last one of you that what he and his team were doing was transformative. Finally, three years late, he’s just won the Lloyd’s List award for something or other. Like my other poster boy for disruption Adam Compain at Clearmetal who’s just got given a gong by Lloyd’s List Intelligence. Fantastic. About time. But the real trick is to find these people and encourage them fast. Not wait until they’ve got the money to spend advertising in your magazines or buying tables at your awards dinners. Or indeed, buying your awards.
That doesn’t get the frogs out of the well. But we do. And you know what, when that happens, the results can be astonishing. We took a variety of really very senior frogs—from ship operators to bankers, connectivity experts to insurers, cyber experts to cutting-edge ship designers and engineers and most importantly, customers—and stuck them in a room in north Norway while I poked them with sticks. What started life as a discussion around autonomous ships soon developed into a wholesale reassessment of shipping’s role as part of the new intelligent global transportation systems that Industry 4.0 is creating.
“Sitting here today we’ve already redesigned the port infrastructure, redesigned and simplified the ship, integrated haulage companies into the maritime logistics chain, and addressed cyber security value,” said Futurenautics Maritime CEO Roger Adamson summing up the day. “We’ve started to discuss how we engage our customers better, asked how we get ship owners out of asset plays and into the business they should be in which is moving stuff around the globe at a profit on time, on behalf of happy customers, questioned where we need people and where we don’t, and whether a more distributed physical network is required.”
That’s the kind of big thinking that needs to happen if we’re going to develop into what I call the blue logistics channel that shipping has to become. We need a digital vision for this industry, and it needs to be shared and engaged with and built upon collaboratively, with passion and belief, by people who think far bigger than boats.
Transparency is what’s really driving this, because once you get transparency and visibility you can start to measure things. That’s data. Big Data, and using analytics turns that into information and intelligence, which in turn delivers efficiency on a scale we could only dream about in the past. There have long been those who held that shipping simply couldn’t be disrupted in the way other industries had been because it’s so physically rooted in meatspace. But the cyber physical systems are already changing that. Machines and humans are merging so fast it’s dizzying and it’s allowing us to shrink the physical world the same way we’ve used the Internet to shrink the digital one.
That’s why the disruption and the opportunity has barely started for shipping, if it thinks big enough. Right now there is no value created on the ship. All anyone can focus on is reducing cost and that’s just not enough. This is the reason that everyone’s struggling with the concept of autonomous ships, because taken in isolation they don’t save money. Because you’re looking at them solving your current problem, which is making money, as opposed to the real problem, the huge SSEP you’re struggling to even see, which is making global trade more efficient.
Maersk Line global sales head Michael Hansen recently warned that the industry had to change otherwise it would be disrupted by new entrants. “Someone once said – and excuse my French – if you have an industry with shit service then you deserve to be disrupted, ” he said. “It’s no coincidence that an industry like this has got a number of start-ups knocking at our doors and at the doors of our customers.”
He’s right, the opportunities are so huge they are mouthwatering. But what he’s missing is the motivation, the Big Hairy Audacious Goal I’m always banging on about. “Flexport is one of that small handful of startups that are going to change the world,” says Paul Graham. That has to be the ambition. Changing shipping, or changing your loss into a profit just isn’t enough. And that’s where the big incumbent companies are struggling.
As one of the audience in a session on 3D printing I moderated in Copenhagen observed, it’s very difficult indeed to get new ideas or projects off the ground when they’re being evaluated in terms of legacy ROI. How do you put a price on changing the world? I think the very fact that companies are trying indicates they are destined to fail.
Chat with Patrik Berglund as I do and you’ll hear a genuine passion for the industry in which he works. Have a walk around Hyde Park with Adam Compain as I did recently and he’ll tell you how he sought out a position at OOCL because he was absolutely fascinated by the industry. These men, and so many others running these disruptive companies are simply not motivated by the almighty dollar alone. “The platform comes off as a bit idealistic. But that’s kind of the point of technology,” says Haven’s CEO, Matt Tillman. “It’s here to create something new.” Not shore up something old.
Shipping isn’t indispensible, and instead of finding big problems it can solve it’s focussed on managing dissatisfaction in an atmosphere of learned helplessness so pervasive that most of it isn’t even sure it’s possible to do anything different any longer. Technology is allowing us to see things we couldn’t before and it’s encouraging more people to change things they don’t like.
Take the new global hot spot maps to illuminate how what we buy pollutes the planet and where. “What we are trying to do is to connect economic activity and global supply chains with environmental impacts. That has not been done before,” said Daniel Moran, a postdoctoral researcher at NTNU’s Industrial Ecology Programme, who was one of the lead authors. “We tried to spatially locate environmental impacts on the production side and link that to global supply chains. The idea is to help governments, industries and individuals target areas for cleanup.”
Or what about that shipping-centric map of Mercator’s, which the website True Size is challenging by allowing you to compare the size of any nation or U.S. state to other land masses, just by moving it around on the screen. These are whole new pieces of sky that shipping has to get excited by if it’s going to reimagine itself.
The bottom line is that we need to move from shipping’s traditional zero-sum game to a hero-sum game. That’s one where individuals and companies do things not because it’s good for them, but because it’s good for everyone. Heroes are those who are sometimes prepared to sacrifice their personal concerns for a greater goal and a greater good. It may sound fanciful but transparency really can drive that.
Here’s an example: received wisdom would suggest that those customers using the Xeneta platform to benchmark their freight rates would be desperately pushing to make sure they were paying the least possible, right? Wrong. What Xeneta has discovered is that customers don’t want to be paying the lowest rates possible, because they know that means their business is worth the least to the carrier, which means they’re probably getting the worst service and have the highest likelihood of their cargo being rolled. Makes sense doesn’t it? Value versus cost. If shipping can start harnessing that kind of thinking then the evidence is that profitability beyond its wildest dreams could well follow.
But is it going to happen? As the old fairytale goes, could the kiss of digital transform the shipping frog into a prince? To be honest the evidence isn’t looking too promising. The Digital Infrastructure Investment and Transformation study we’re currently running with Ericsson has shown up some interesting interim results. So far the average maritime company thinks it’s undertaking digital transformation on around $100,000 a year. So, yeah. About that.
That doesn’t apply across the board, and if there’s anything that’s heartening then it’s the fact that enquiries to Futurenautics Maritime from companies wanting to get a handle on what the digital shift means for them and how the heck to take advantage of it are up 150 per cent year on year. Show me a ship operator who can say the same.
That we’re getting so busy trying to help answer those questions has to be a good sign. But there are still too many people who want the future to turn into the past. It’s an attitude that seems to be gaining traction in a lot of places.
From Trump’s desire to make America great again to the UK’s Brexiteers wanting to take their country back, there’s a sense that the past was a far better place than where we’re heading. And I don’t think that’s got a lot to do with politics. It’s to do with vision. Because at the end of the day, despite all the technology, connectivity and globalisation, there are still a lot of frogs in their own little wells, rigidly focussed on their own pieces of sky.
Shipping can rightly claim to have broadened the minds of the world in the past. But if it’s going to do it again it needs to find a vision of its own. I’ve been kissing this particular frog for a while now; in fact I’ve had my tongue down it’s throat for the thick end of three years, but I’m beginning to wonder if it’s crossed the line into mouth-to-mouth.
No amount of snogging seems to be turning the shipping frog into the handsome digital prince—or princess—we all want to see, and the truth is that the time for transformation is fast running out.
Before long it’ll be time to forget the frog, put your head between your legs, and kiss something else goodbye.
Images courtesy © Getty Images/Xeneta/Walt Disney Pictures
This article appeared in the October 2016 issue of Futurenautics.