Ocean shipping may be poised for technological change, but this evolution faces headwinds, and not all vessel sectors will advance at the same pace.
Few individuals are closer to the front lines of shipping’s technological push than Nick Brown, director of marine and offshore at classification society Lloyd’s Register, an organization that certifies equipment and practices from a safety perspective. Brown recently sat down with FreightWaves to discuss how he believes the coming transformation will play out.
Regarding ocean shipping’s notoriously slow progress, he explained, “The fragmentation is probably what has made its transformation so slow compared to other industries. If you look at the airline industry, you more or less have two airframe makers and two or three engine makers. With shipping, you can go South Korea and find seven or eight different designs for VLCCs [very large crude carriers]. Does the world really need that many VLCC designs?
“In the airline industry, there’s a huge amount of research and development that goes into developing the next airframe,” he continued. Analogously, he believes technological advances in ocean shipping will likely be driven by the largest entities, which can support the necessary R&D.
Within the maritime industry, the largest shipowners are in the container-shipping and cruise sectors. “Those organizations tend to be the biggest ones,” he noted. In contrast, ownership in wet and dry bulk shipping trades remains extremely fragmented.
Container shipping and cruising may also spearhead technological adoption because “these organizations tend to have a closer connection between the ship and the consumer, whether it’s the Ikea or Walmart products on a container ship or the passengers themselves on a cruise ship,” he said, opining: “I think there will be more adoption of new technology where there is more of a B-to-C [business-to-consumer] relationship than a B-to-B [business-to-business] relationship that is more distant from the end consumer.”
For container shipping in particular, he sees “a huge opportunity to be more connected with the overall supply chain, and a huge opportunity in terms of working out a better connection between land-based logistics and sea-based logistics and making those interfaces more aligned.”
Bulk shipping hurdles
For the dry bulk and tanker sectors, ownership fragmentation is not the only issue. The reliance on spot contracts instead of long-term charters poses yet another hurdle.
Technology adoption can be expedited if a customer (in this case, a bulk cargo shipper) actually wants the benefits of the new equipment or design enough to help underwrite the expense. This dynamic is facilitated by long-term relationships between vessel interests and cargo owners, which allow time for equipment and designs to be developed and fine-tuned.
But liquid and dry bulk shippers generally enjoy a high availability of very inexpensive, flexible and highly commoditized freight options. Thus, most do not have an incentive to make long-term commitments to specific vessel interests.
Brown agreed that an emphasis on spot employment is a hindrance to technological advances in the bulk trades. However, he countered that some commodity shippers are big enough to influence the pace of change. “The Valemax wouldn’t have existed if it wasn’t for Vale,” he pointed out, referring to the class of very large ore carrier specially designed for Brazilian mining giant Vale.
Furthermore, some technological advances do not require any interest from cargo shippers. All that’s needed is a ship design that materially lowers operating costs and the financing to buy it. Vessel interests have an incentive to invest speculatively to obtain a competitive advantage in the spot and time-charter markets that allows them to undercut competing vessels.
At the top of the list in this category is an effort to sharply reduce the number of required crew. Crew wages represent a significant cost center, while accommodation space takes up room that could otherwise be used to generate revenue.
Asked about the possibility of cutting ocean-going ship crews by half, from 24 to 12, Brown responded, “I think it will happen and I think it will happen within the next 10 years.”
“People onboard ships are in two primary roles – one is to operate the ship, the other is to maintain it. Going down from 24 to 12 means that philosophy will have to change; 12 people will be able to operate the vessel, but they’re unlikely to also be able to maintain it.”
He’s confident that the maintenance load can be reduced through the use of equipment sensors and ‘digital twinning.’
Sensors could feed data to a land-based digital model or ‘digital twin’ of that equipment. Predictive models could then be used to determine when maintenance is required. Riding crews could join the ship at the next port and conduct the necessary servicing.
Brown added that this business model offers the further advantage of fewer unplanned outages “and would allow the charterers of the ship to have more confidence that they absolutely know at all times what the condition of the ship is and when it needs maintenance.”
“But it’s not such a black-and-white argument,” he said on the future choice between ‘crew-light’ and ‘technology-light.’ “You’ve got to balance the cost of the hardware with the cost of the crew. For example, if you’ve got a very large container ship, the cost of the crew is not a very large proportion of your daily running cost.”
In the overall picture painted by Brown, change will be uneven across the various vessel segments, led by first adopters – likely the largest players in container shipping and cruising, as well as the largest commodity players in the bulk shipping segments.
Hurdles will linger, including ownership fragmentation and the spot-focused, at times adversarial relationship between vessel interests and cargo owners.
Yet Brown is unwavering in his belief that technological disruption will ultimately prevail. “As we work together with companies on their digitalization journeys, we can see that the whole industry is not in the same place. There are many different starting points. There are also a lot of different appetites to move at different speeds. And I don’t think we’re even close to the middle of that journey. We’re still at just the beginning of that journey.”