The focus on environmental sustainability and energy efficiency in shipping is here to stay but the gap in incentives and procurement strategies between owners and operators, including cargo owners and charterers, needs to be closed to benefit the industry fully, argues Jotun Marine Coatings executive.
As shipping continues to go through tough times, owners and operators are reducing headcount, capex and opex spending in an effort to secure the bottom line. At the same time, they want their vessels to operate faster, cheaper and greener to meet regulatory and market pressures.
“The ability to compete effectively is crucial for any shipping company at any point in time,” says Alexander Enström, Global Key Account Director, Jotun Marine Coatings. “One can argue that there is stabilization in freight rates but the levels are far below the ‘golden years’ that suddenly ended with the global financial crisis. Also, with the onset of much of the upcoming environmental regulations, fuel and energy efficiency is likely to receive even more focus from owners and operators going forward,” he predicts.
According to Enström, effective transportation is about meeting a transport demand at the lowest cost and with the least harm to people and environment. “As in many industries, investments undertaken are typically based on the expected future returns through reduced costs, improved performance or increased earnings. By way of an example, improving fuel efficiency using new technologies and fuel types will increase competitiveness and reduce the damage to the environment. However, this is not as simple as it may sound.”
He continues, “There are many stakeholders with different roles and expectations. For instance, owners and charterers will have different interests depending on the terms of the charter party. Indeed, the business model of the company is identified as the most important and significant segmentation variable on buying behaviour and procurement strategy from a technology suppliers perspective. The strategy gap between these two market segments needs to be closed to benefit the industry fully in terms of environmental sustainability and efficiency.”
We conducted an interview with Enström to get his views on this important subject.
1.Energy efficiency has emerged as a key issue for the industry over the recent years. Spurred initially by high oil prices, it has taken hold even in today’s market, and many in the industry are predicting it is likely to stay. What are your thoughts on this issue?
The focus on energy efficiency is definitively here to stay. Sustainability initiatives are very much driven by the end users and energy efficiency is an integral part of the sustainability drive that is affecting the shipping industry. In parallel, the industry will have to adapt to the new reality with higher operating costs (fuel) at “normal” freight rates, which yields strong commercial incentives for efficiency enhancing programs.
2.Some operators are resorting to short term solutions that provide short term results. Many argue this does not make for safe and sustainable operations. What’s your opinion?
The shipping industry comprises many different actors and can be segmented in different business models. At one extreme we identify pure asset players and at the other integrated operators.
Ship owners with more asset-playing perspective will focus on optimizing the return on their investment through buying and selling at the right time. Such business models don’t necessarily harmonize with long term investments in technology upgrades providing more efficient vessels.
Integrated operators tend to focus more on the lifetime sustainability and actual operation of the vessel, which results in a tendency to make technology upgrade investments with a longer-term perspective.
3.What are the barriers for operators choosing long term solutions?
- Historically, good return on investment on asset playing has made this an attractive business model in shipping, though the trend is changing.
- Lack of aligned incentives between ship owners and operators (cargo owners/charterer) where one side is responsible for technology upgrades (owner) while the other side is responsible for operational costs, including fuel.
- Another barrier is the trust in technology providers, especially with regards to measurability, transparency and guarantees.
4.How can paint manufacturers, like Jotun, work with operators to be ‘part of the solution’?
For instance, how are they helping operators to improve a vessel’s hull performance, reduce fuel consumption and the corresponding emissions?
As technology suppliers, we always need to be sharp and fast in innovation, and to accurately respond to the core needs of the customers and market. In addition, it is always critical to support transparency and measurability of value added solutions – what can be measured can be managed. Also, we need to raise the awareness of negative consequences in terms of environmental and economic impact of efficiency loss and steel deterioration that could otherwise be managed with the right coating solution and linked service.
5.Most paint manufacturers promote ‘quality’ products and services. What does quality (or lack of it) mean for business?
Delivering quality means having an accurate understanding of the customers’ expectation and fulfilling it with the right product and services.
6.Is there a pressure to improve quality? Where is it coming from and why?
Pressure to improve quality comes from the overall industry trend towards sustainability, which is driven, in turn, by the environmental focus from the end users and economic impact for the owners and operators. It appears that the reduced attractiveness of speculative asset playing will force the industry to focus more on operational efficiency and competitiveness. Also, awareness of the value of technology upgrades among charterers is gradually adding a commercial pressure on the ship owners.
7.Quality and profit – are they linked?
Definitively. Technology upgrades for charterers and operators yield direct profit to the bottom line in terms of reduced fuel bill etc. For owners, technology upgrades yield competitiveness and long- term benefits in the chartering market. And for manufacturers, technology upgrades (should) yield extra funds to invest in innovation and create additional mutual value for the industry.
8.Some paint manufacturers are saying that their relationship with owners has changed. That is, in the past, the company was selling to technical/purchasing managers, but now decisions on coatings are made by senior management, energy and revenue heads. Why?
In our experience, this again depends on the strategy and business model of the company. Integrated companies and cargo owners are in the forefront of identifying the value of a strategic approach to coatings procurements thus raising the issue higher in the hierarchy.
The general trend among ship owners (typically asset players) who outsource technical management (and/or commercial management) to third-party actors such as ship management companies leave the decision on a spot basis to technical and purchasing managers and consequently make them the contact point for technology providers.
9.Where are paint manufacturers differentiated? How can they make added value evident?
Through measurability and transparency.
10.Any learning points/case examples you would like to share on how paint manufacturers can make added value evident so that it impacts buying behaviour?
Hull optimization programs stretching over numerous years where the collaboration process includes substantial data exchange and a program for monitoring and verification.
11.Management portals to manage the performance of a fleet, including voyage, hull and propeller, engine & systems performance are attracting increasing market interest. What are your thoughts on the use of these portals?
Data exchange and digitalization is the foundation for future partnership creating mutual value between buyer and seller. Web interfaces and portals will be a very useful tool for monitoring and reporting performance.
12. An increasing number of companies are predicting that using Big Data effectively will transform the way the industry works, helping operators significantly improve the performance of their fleet, increase the safety of their vessels, reduce operational costs and become more efficient. What’s Jotun’s position on the use of Big Data-digitalisation?
We believe it is strategically essential to be on the forefront of utilizing big data efficiently. In this strategy, numerous projects are rolling in parallel out of which, many are already in use in our day to day interaction with our customers.
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