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Cross-border synergies when shipping rethinks value creation

There are two telling issues that stand out in the 2016 OECD report on ocean economies. The first is the way many of these industries are intertwined with one another. The second is that all of these industries are set to grow, and must do so, not only in a truly sustainable way, but in a manner that is beneficial across the ocean industry spectrum.

What the OECD says about the shape of the ocean industries can be juxtaposed against some of the warnings laid out in the latest shipping market review report from Danish Ship Finance. This is not a shipping cycle downturn that has become prolonged, says this report. This is a systematic shift in the global business playing field caused by a number of macro-economic factors based around global trade, technology and information.

The two reports, sat alongside each other make sober reading for a die-hard believer in cyclical trends in shipping. As an analogy, it is like watching the almost predictable rhythm of a deep-sea swell, before being rocked by the shattering impact of a mega-storm that disrupts the economic rhythm.

Global trends and macro-factors
The OECD, in its report, which looks at the economic value of the oceans in 12 years time, points to a range of global trends and macro-factors being influential in the ocean industries (and the maritime and shipping industries are part of this mega-industry). But, says the OECD, the trends cut both ways. They can be positive, and challenging.

“While on the one hand many of them hold out the promise of expanding economic, social and health-related opportunities through ocean use, on the other hand, they point to a further increase in the pressures already weighing on the oceans’ health. The most important trends and drivers are most likely to be related to the growth, structure and settlement patterns of the world’s population; to global economic developments such as growth, rising incomes and international trade; to the effects of climate change; and to advances in science, technology and innovation. However, geopolitical factors and governance are also likely to play an important part in the longer run.”

Rethink value creation in the shipping industry
These are also part of the macro-economic influences that Danish Ship Finance refers to in its market summary.

“For the past three years, we have discussed how the fourth industrial revolution and demographic changes are impacting the underlying industries that shipping serves, and how it forces the shipping industry to rethink its value proposition,” says Christopher Rex, head of research.

“We build on these arguments and initiate a discussion on how to add additional layers of revenue to the existing business model.”

The long-term findings of Danish Ship Finance are that, even though there may be occasional spikes, freight rates and second-hand vessel values may stay low for some time across most ship segments, and the structural nature of the ongoing changes will slowly erode parts of the underlying demand landscape.

For companies with deep investment in existing trade patterns that should be a concern, and Rex believes these changes should represent an opportunity to rethink value creation in the shipping industry.

Synergies in border industries
Industry should be therefore looking at the role of the assets on the books, the type of competitors that are emerging, and the border industries where there may be similar synergies that can help offset the challenges.

“To realise the potential, it will be critical to build capabilities around digital strategies that may introduce additional layers of revenue and deliver value not just to customers but also to customers’ customers,” says Rex.

Maritime service providers could well find benefit in examining these border industries in the ocean space, and some are already doing so. Damen Shipyards has been involved in the construction of tidal energy systems, dredging companies are involved in ocean mining activities, and the evolving sustainable aquaculture industries have garnered support from the Norwegian maritime technology and research firms that are seeing the benefits of branching out.

Opening Oceans Conference
Nor-Shipping’s Opening Oceans Conference will bring key maritime, shipping and ocean industry players together to discuss the ideas, tools, models and technologies that will enable them to work together to realise the vast potential of the ocean space. Taking place in Copenhagen from 2-3 May 2018, this unique conference invites c-level executives to explore the possibilities of sustainable business operations below, on and above the ocean waves.

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