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Shipping software developers see new money but old challenges

Photo courtesy of Jim Allen/FreightWaves

Investment funds are increasingly setting their sights on ocean shipping software development. With more money flowing into the space, more products will hit the market. Some will change how shipping does business. Most will not.

To understand the hurdles to maritime software development and what areas tech providers are focusing on, FreightWaves interviewed Evangelos Efstathiou, founder of Boston-based consultancy SkySail Advisors.

Prior to launching SkySail, Efstathiou held positions at Marsoft, Veson Nautical, SpecTec Group and Chinsay. For the past two years, he has curated an infographic ‘map’ of the maritime tech landscape spanning three pillars – commercial operations software, vessel management software, and maritime intelligence and analytics. As SkySail’s map has garnered more attention, Efstathiou, through his interactions with tech providers, has gained an insider’s view of the latest developments.

Why investor interest is growing

“There has been an acceleration of interest among investors in the last 18 months,” Efstathiou explained. Asked why, he answered, “If you look at the dollar value of the goods moved [at sea], there is a belief that technology investment will grow as carriers try to differentiate themselves in a commoditized market, so the pie should be growing. The amount of money to be spent on software should be growing.

“There is also more availability [of software to buyers],” he said. “You can now put up a cloud-based application on Azure or AWS and that software is much more efficiently accessible to a larger number of people. That is very relevant to shipping, because typically your customers are spread across dozens of countries. In fact, some of the cool new tech today is really just improvements over the past migrated to cloud-based solutions to provide new connectivity.”

Yet another reason for the focus on maritime software is the increased proliferation of automated identification system (AIS) vessel tracking data.

“AIS has blossomed over the last 10 years because there are more satellites,” he said. “This has also created a number of initiatives from people outside of shipping that use AIS – such as for protecting fisheries and reducing greenhouse gas emissions – and once you get beyond shipping, you tap into a much larger pool of people.”

What’s holding software back

Despite improved funding access, maritime software developers continue to face several challenges.

“The cost of sales is so high that it’s really hard to grow revenues enough to be able to grow and innovate,” said Efstathiou. Customers often aren’t aware of a new software solution until it’s recommended by a business partner. Given that the potential customer base in shipping is thinly stretched and distributed across the globe, cost of sales can be prohibitive.

Another hurdle is the niche nature of ocean shipping. With relatively few potential customers (at least on the vessel interest side of the equation), technology providers “tend towards monopolies because there isn’t enough business to go around, and it can be difficult to launch something new or to innovate if someone has already captured the market,” he said, adding that some software providers in leading positions “would rather build solutions on their own platform than partner up with other vendors.”

He believes that such leading players are averse to offering application program interfaces (APIs) that allow data to flow from one software product to another, which can slow progress overall. “The easier software developers make it to integrate with each other versus trying to be ‘the winner’ with the system everyone uses, the more it helps adoption,” he argued.

“Today, the concept is to bring technologists to shipping. The danger is that if you don’t understand shipping, you’re going to spin your wheels building software that nobody buys.”

Evangelos Efstathiou, SkySail Advisors

The next barrier involves the complicated nature of shipping itself. Shipping operations are highly differentiated – even within the same shipping segment – and “the tools you need and the way you work with a shipping company is very different depending upon how that company matches up ships and cargo.”

Efstathiou noted, “A vendor may have a solution that works with its tanker customers and may assume it works with all tanker operators, but that’s not necessarily the case.”

Furthermore, from a software developer’s perspective, “shipping know-how is very specific so it’s difficult to scale,” he said. When those with shipping knowledge max out in terms of what they can do on a project, the developer must hire more people with shipping knowledge. “Shipping knowledge is not easily transferable,” he said.

This is a particularly important point given a current shift in the maritime software development business. In the past, software was generally created by people within shipping who were seeking to automate or streamline a process they knew in depth.

“They were shipping people first, technologists second,” said Efstathiou. “But today, the concept is to bring technologists into shipping. The danger is that if you don’t understand shipping, you’re going to spin your wheels building software that nobody buys.”

Changes on the horizon

Efstathiou is optimistic despite the barriers. He told FreightWaves of several areas where he expects new software developments to emerge.

The first is blockchain. “People who used to be cautious a few years ago have embraced it,” he said, citing enthusiasm among several very large market participants and predicting blockchain’s implementation in maritime software.

Another is digital freight brokerages. He believes physical brokers “will be here for a long time,” but he sees price discovery migrating to digital platforms. Already, Clarksons Cloud has been launched, touting itself as the world’s first end-to-end digital shipping platform. “When you look at Clarksons Cloud, the writing is on the wall. If you’re not a technology-enabled brokerage, you’ll be in big trouble soon,” said Efstathiou.

Big Data and the Internet of Things comprise another software growth area. This will encompass systems for on-board sensors and so-called ‘digital twins’ – digital representations of shipboard systems on land-based computers connected via satellite.

Software for ancillary shipping services such as ship finance and insurance could also become more important in the years ahead (this category could compel Efstathiou to revise his landscape infographic and add a fourth pillar).

Finally, he highlighted the significant potential for market intelligence and analytics software platforms using AIS data – although he stressed that this will be much more difficult than some market entrants seem to realize.

“To do it right you need to pour millions of dollars into building a platform. I see all these startups saying, ‘We bought some AIS data and now we’ll show you what’s happening in world trade.’ But it actually requires a huge amount of capital to do this right.

“There are a large number of players who claim to be doing AIS, and all they’re doing is buying AIS data and creating what they believe to be derivative content, but what they’re essentially selling is AIS data a little bit cheaper than what you’d pay if you went to the satellite guys yourself. If you ask me, those guys aren’t going to be around much longer.”

The rise of startups using AIS has led to another inefficiency – a proliferation of ‘geofencing’ (the creation of virtual boundaries to track when vessels enter and leave each area). “You have to geofence the ports and the berths. Every single one of these startups is doing its own geofencing, so you’re creating many different sets of disparate data, with all of them hoping they’re going to win this race. It’s a huge amount of effort to create all these geofences – there’s no open-source geofence list of ports, which would be the smarter way to do it.”

Furthermore, just having the AIS ship positioning data itself is not enough. To determine whether a vessel is laden or in ballast, the AIS draft (water depth) data needs to be married with a database of each vessel’s maximum draft.

Developers embrace AIS data. Photo courtesy of Wiki Commons.

An even more complicated issue is that to analyze a particular company’s fleet position, the AIS system needs to know which ships are in a company’s fleet, which is difficult to automate given that ships are often listed in databases under a different ownership name for tax reasons, and an increasing number of ships are operated under sale-and-leasebacks and are technically owned by leasing houses.

“It doesn’t just require a significant amount of capital, it requires a significant amount of understanding to infer the results you’re really looking for,” concluded Efstathiou. “There is a lot of value in shipping market intelligence and analytics. The problem is unlocking it.”

Greg Miller

Greg Miller covers maritime for FreightWaves and American Shipper. After graduating Cornell University, he fled upstate New York's harsh winters for the island of St. Thomas, where he rose to editor-in-chief of the Virgin Islands Business Journal. In the aftermath of Hurricane Marilyn, he moved to New York City, where he served as senior editor of Cruise Industry News. He then spent 15 years at the shipping magazine Fairplay in various senior roles, including managing editor. He currently resides in Manhattan with his wife and two Shih Tzus.