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Great interest in “Survival through Innovation” conference

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Goh Chock Tong

A significant element of BIMCO’s Perspectives in Shipping Programme, and a major contribution to Singapore Maritime Week was the well-attended BIMCO conference on the theme of “Survival through Innovation”.

Officially opened by Emeritus Senior Minister Goh Chok Tong, this was a positive demonstration of how innovation might be employed to confront the severe challenges currently being faced by the industry.

But how should we think about innovation, which is much more than a philosophical concept, and quite a complex matter to translate from the “wish list” into real and positive action that will make a difference to a company’s direction and ultimately its results? As a preliminary “trailer” to the subject, Nigel Barlow, who is renowned as a motivational speaker, invited delegates to “rethink” and better understand the whole matter of practical innovation.

“Thinking” itself, he suggested was the most important but intangible element, while one’s response to innovation depended heavily upon attitude – whether one was a spectator, one of the “walking dead” , a cynic, or, by contrast a “player” whose interest and energy would motivate and encourage innovation. He pointed to the problem of experience, which can produce a negative mind-set and act against the development of new ideas.

He spoke about the importance of the brand and the image given by an open-minded, “can-do” attitude, which radiates from the progressive and innovative company. He emphasised the importance of curiosity, the need to “reach out to minds not your own”, to avoid stereotyping – “putting people in a box”, and the importance of challenging long-held assumptions.

Considering the obstacles to innovation, Mr. Barlow suggested that most companies had an ambivalent attitude to real innovation, considering that adaption or improvement were adequate alternatives to something that was really new and represented innovative thinking. Two words which stopped innovation in its tracks, he said were “yes but”, while “why not?” and “what if?” would achieve precisely the opposite and encourage positive action.

Every innovator, advised Mr. Barlow as he ended his inspirational address, should have “unreasonable expectations” of what can be achieved!

Conversations on innovations

“Survival through Innovation” then took the form of separate “conversations”, between three groups of industry leaders, facilitated by the well-known broadcaster Nisha Pillai. The first group, which consisted of the Standard Chartered Bank’s Nigel Anton, the Bank of China’s Pakco Lam, Grant Schutz from Norton Rose and Michael Harvey of Rio Tinto Marine, was invited to consider the topic of Innovations in Ship Finance, against a background which suggested that finance was becoming increasingly difficult to arrange, with many sources of ship finance withdrawing from the market, perceiving the current overcapacity and lack of apparent reward.

The audience was invited by the panel to consider various propositions. Mr. Anton suggested that banks, in particular, were returning to more traditional ways of doing business and while things were tough and a notable lack of liquidity in general, there was still no lack of interest in financing projects with better capital returns. Offshore energy projects, rather than pure shipping seemed more promising. Owners, he advised “should be with a bank you can grow with”.

The need to finance the huge numbers of ships in the Chinese shipyard orderbook and support the shipyards of China was a subject raised by Mr. Lam, who suggested that Yuan loans, subsequently converted to US Dollars were an important part of the strategy. He even mentioned that buyers usually get a 5% discount from the yards when paying in Yuan. Mr. Schutz suggested that despite their difficulties, banks were likely to remain among the main source of capital. Export Credit Agencies were increasing in importance while there appeared to be “room to move” in leasing deals, even though these had hitherto been relatively insignificant. Mr. Harvey, who gave a miner’s perspective, albeit one that was a major charterer and was now building a modest fleet of bulkers, which will only account for 5% of its charter demand, pointed to the “unprecedented volatility” in the market with the movement away from long-term contracts into transactional business, noting a distinct movement away from traditional fob contracts to cfr pricing.

Volatility, uncertainty, doubts about the availability of finance, short term thinking and an industry where “companies which have survived up to now are clinging on” add up to an overall picture where innovation is badly needed, if worse is not to follow. With overtonnage, fewer traditional lenders remaining and the demands of Basel III requiring banks to retain more capital, the conversation turned to the need for a longer term perspective, and less disconnect between the cargo and the available shipping.

“Bankers will increasingly focus upon the expertise of the owners”

In the future, it was suggested bankers will increasingly focus upon the expertise of the owner. A growth in “industrial shipping” might be contemplated with major cargo shippers seeking to manage their physical risks. As to the overcapacity of shipbuilders, consolidation and closure of more yards could be forecast before there was any recovery in demand. There is no shortage of management challenges as innovative ideas to finance ships are required in the future. Advice came thick and fast. Cancel tonnage that is not required. Consolidate the relationships between ship owners, charterers, financiers, and even governments, the disconnection of which, it was suggested, had led to so many of the present troubles. Seek to break the links that lead to overcapacity. In such a strategy survival might be discovered but there are, it seems, few easy answers on ship finance conundrums!

For the second “conversation” the Technology and Operational Innovation panel was faced with the “killer” question as to whether shipping and shipbuilding could re-invent itself, as something as dramatic as this appeared to be indicated. There was no shortage of technical expertise available, with a panel consisting of Peter French of the BMT Group, Hiroshi Iwamoto, chairman of the Committee for Expertise of Shipbuilding Specifics, Class NK’s Yasushi Nakamura and Tom Boardley, the Marine Director of Lloyd’s Register.

The industry, said Peter French, did have a record of innovation but with environmental regulations piling in along with financial constraints it was unrealistic to expect most companies to “invest their way out of trouble”. But there were useful technical and operational advances that could be taken advantage of, that would contribute to energy saving and environmental gains.

He pointed to better coatings and the optimisation of trim, better use of meteorological data, neural networks and more intelligent maintenance intervention all of which could improve efficiencies and reduce costs. Progress, however was hampered by the question of “who should pay” for these investments and there was a need to provide evidence of payback from innovations. Perhaps, he suggested, those offering devices or improvements to efficiency might consider financing these on a “no cure, no pay” basis.

Mr. Nakamura illustrated a national effort being undertaken within the Japanese shipping and shipbuilding industry which focussed on fuel consumption, with no fewer than 22 different projects contributing to this research. This was well advanced and would be applied to newbuildings. A bubble system to improve energy efficiency was mentioned. There had been promising results, but he pointed to the need for more data from ships in service, as environmental gains were difficult to assess.

“Owners and builders need to work more closely together for continuous improvements”

Owners and builders needed to work more closely together if there was to be continuous improvements in ship efficiency and product quality, said Mr. Iwamoto, who also pointed to the paucity of operational data about how ships performed and were handled in service. But he also suggested that there was need for production technology to be properly assessed, and proper oversight provided on the issue of competitiveness and the risk of over-supply. He asked whether there were too many new technologies being developed, suggesting that there needed to be rather more co-ordination.

The shipbuilding and equipment industry, said Mr. Boardley, has yet to convince owners that their products were necessary. He said that basic efficiencies were achieving considerable fuel savings and asked, controversially that if owners were able to deliver 14% fuel savings with ”old technology” why was there a need to embrace the new and untried? Looking ahead, he suggested that research seemed to indicate that LNG offered many solutions for the future, being generally available well before 2025 and the global cap on emissions. Regulatory changes, he said were still not always clear and the industry was anxious not to be taken down “a blind alley” on a range of regulation based technical changes that owners were having to take on board.

This debate showed that innovative thinking in the technology was being presented to the industry and “low hanging fruit” appeared already available even though more concrete proposals and data on expected results was lacking. The users of ships also needed to be onside and share in the insight on such matters as speed and economy, where producers need to present a much better business case. More data was a demand, while owners felt it not unreasonable for new regulations to be properly justified through impact assessments, something conspicuous by their absence at present.

The human factor, seafarers and technology all intruded into the third “conversation”, on Innovation in Shipboard Management in which the expert advice was provided by Professor Mike Barnett of Warsash Maritime Academy, Inmarsat’s Frank Coles, Peter Sorensen of FORCE Technology and containership operator Gerry Wang of Seaspan.

A more comprehensive picture of fatigue and the deterioration of performance caused by the lack of proper sleep had been gained from the Project Horizon research in the UK and Sweden, said Prof. Barnett. This has implications for risk assessment, and will hopefully lead to a more analytical approach to manpower planning, with fatigue prediction models available ashore and afloat. Cultural and attitude changes through education were also indicated.

Peter Sorensen suggested that such fatigue prediction was very necessary, with P&I clubs reporting growing numbers of accidents in which fatigue was identified as a contributor. He thought that there was a need to “work smarter”, perhaps distributing competencies aboard ship more widely, through task analysis that will assess the optimum manpower needed for tasks and voyages. There were, he said encouraging results with manpower software, being tested by the Danish Maritime Authority, in which manning levels could be simulated and overburdened personnel could be helped with additional manpower.

The role of communications, “a value, not a cost” was emphasised by Mr Coles, with a modest investment producing substantial savings. Good communications he suggested could be vital in the efficient operation of ships, instancing the “virtual arrival tool” which would ensure optimum speeds throughout an ocean voyage. And while he admitted that at such times as the present there was a reluctance to spend on capital expenditure, the ability to communicate easily and economically between ship and shore could be justified in so many different ways. There might be questions about the need for providing broadband for the crew, but more connectivity facilitates good management, both on board ship and ashore.

The quality and professionalism of crew was a crucial matter exercising the mind of Mr. Wang, who was concerned with accidents attributable to “stupidity” and lack of professionalism, which was something that needed to be better trained. The access to high quality professionals, and their retention, was a major issue for the industry.

There was no shortage of discussion in this “conversation” with plenty of contributions from the floor, with forceful interventions about such matters as whether mixed nationality crews had led to a degradation of standards, the need to recruit not just for seafaring but subsequent shore careers, the esteem (or the lack of it) in which seafarers were held in society and whether outsourcing through manning agencies was a positive or negative development.

“Seafarers and managers are part of the same team”

There was a brisk discussion on whether ships should be managed more from better educated officers aboard ship, for the need for seafarers to have pride in what they do, with two way loyalty between seafarer and employer. The importance of leadership and leadership training was stressed, ensuring that both seafarers and managers were part of the same team and moreover felt this bond were emphasised. We don’t want a “them and us” attitude was a strong comment.

At the same time as suggesting that there was a considerable room for improvement in shipboard management and scope for innovation, it was also emphasised that safety had improved, and ship operational management much more precise. And professionals, it was stated with conviction, “deserve the best!”

“Survival through Innovation” was well attended throughout and attracted considerable and robust “audience participation”. It provided much food for thought, and no shortage of ideas, upon which industry innovators will doubtless be working!


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