Feedback from 50 commercial shipping operators on digitalizing their businessAs part of productizing our latest product line we sat down to meet with 50 operators and mapped out their needs, ambitions, expectations and disappointments in their digitalization work. In this blog, we give a high level overview of what seems to have worked out and what often has not.
When we met with a large number of operators and asked the same questions, clear patterns started to emerge in terms of how digitalization has been approached and what challenges they encountered. The patterns were surprisingly repetitive and in the cases where things did not go as planned, it seemed like most operators were struggling and got stuck with the same challenges. In an effort to draw some useful parallels on a high level, we have to separate the ones who have made a deliberate effort towards digitalization from those who have not. We also have to separate those who feel they have been successful from those who have not. We will for sake of argument generalise a bit and divide the operators into 3 categories:
- Operators who have made a deliberate effort, and believe to have been successful in their digitalization of vessel operations and business. They have effectively utilized the latest technology to create real monetary value in the business. From here on we will reference to them as “satisfied operators”.
- Operators who made a deliberate decision to move ahead with digitalization of their operations, but after some time (often years later) still don’t believe they have had any return on the investment, or are not at all satisfied with the level of their expectations. We will reference these as “unsatisfied operators”.
- Operators who have showed no interest in evolving into new technology or digitalization. These operators are operating their business on traditional manual reporting, communication and record keeping such as noon reporting, telex, basic mail and spread sheets. We will reference these as “non-engaged operators”.
Why do some choose to move faster than others?Early on in this process, we learned not to make any assumptions on what type of operator was ahead of others in their digitalization work before meeting with them. One can however in general say that two segments are reasonably far ahead compared to the rest (with some clear outliers deviating from this).
With good margin, the Cruise Industry is years ahead in implementing advanced solutions for data collection, real-time optimisation and remote monitoring. This is probably attributed to a combination of the owner-operator type long term thinking, a high level of propulsion complexity and the fact that the vessels themselves today may cost a billion USD to build. This easily justifies investing in the latest high end technology.
Thereafter, still way ahead of the rest of the cargo shipping segment, we see some container lines. It tends to be primarily the owner operated vessels that have been best equipped with real time data collection and optimization solutions. The segment as a whole has come quite far on the shore side in terms of creating Fleet Operations Centers, where the new data and the visibility it creates can be acted upon. It has however been over 10 years since the pioneers started with this setup and only now are the late ones getting up and running. It is quite interesting that there is more than a decade in spread, from the leaders to the followers in such a highly competitive and commoditized area as container shipping.
A large spread between early adopters and followers is even more visible within the wet and dry bulk segments. Often it even felt counter intuitive when meeting operators in these segments. When we first set out to map the market needs, we met with large, very reputable operators that we had assumed were very advanced in how they used technology, only to learn that some were still operating as if technology limitations were the same as 60 years ago. I can recall a great example of this, which we experienced at the end of a presentation for a well-known, large tanker operator on “dynamic speed” settings. We were told by an experienced senior shipping manager that “obviously you can’t change the RPM during the voyage,” and “we can’t mess with how things are done.” I think this comment and especially the word “can’t” is fascinating, as it communicates so many things, but mostly it shows how hard change comes in some areas.
On the other hand, we were also in many cases surprised how far some had come in their digitalization work when we were least expecting it. A good example of that, was a medium sized dry-bulk operator I met with two years ago. In this case, to my surprise, I encountered a medium age dry-bulk fleet where every technical aspect on-board was integrated and linked in real-time to a data centre on the shore side. But not only that, the data was also fed back effectively to the business side. For some reason, these guys were 5-8 years ahead of most leading large dry bulk operators, who are just now slowly moving forward.
As mentioned above, we quickly learned that we could not make any assumptions prior to meeting an operator on how far we expected them to have progressed. I don’t want to believe it is totally random, and simply a result of interest and priority of key individuals, but I struggle to see any other clear patterns of what drives the priority. It is a global business and as it would seem so are the practices on how we operate and run our business. It does seem that in some parts of the world there is a slightly larger interest or willingness in trying new ideas and testing new technology, but the variations are not huge and there are outliers from both camps in all parts of the world. The only clear correlation we can see seems to be the age of decision makers. It would seem that those who grew up with computers versus having had to go through the process of learning about them later in life, were more willing to naturally turn to them to improve processes.
So why have some operators succeeded and gotten so far ahead of others?It is really difficult from an outside perspective to point out causation here but for sure there are some very clear correlations when looking at the “satisfied operators” as a group. In general, we tend to see:
- A strong engagement and interest from top management to move ahead with technology to support the business. One can argue some strong, competent, key individuals may have applied heavy influence but in the end it seems it’s only when top management gets on-board with a long term commitment that things pan out to deliver real returns.
- Involvement from subject matter experts who have done similar work before. They may be in-house staff, external consultants or suppliers. Digitalization of vessel operations is uncharted territory for most anyway so the project team has to have some idea from the start on what will and will not work. In almost every case where I have met “satisfied operators,” I have quickly realized there was staff involved who had previous experience.
- Digitalization in the terms of what we are now looking at cannot be run as a normal IT project and then considered ticked off as done. When real value has been derived through digitalization of the business, the business seems to have been actively involved and engaged throughout the project. Setting up a small team (often as a side-job), sending them off to run a project over 6 months as traditionally often done, never seems to have worked out well for anybody that I have met. Especially if the end goal is developing an in-house solution that is expected to do everything and tick all boxes at once. Solutions need to be developed with a circular reference (active feedback) organically through and with the business.
- An appropriate timeline is given to execute, i.e. one needs to get at this sooner rather than later. It might seem obvious that those who started early have often come quite far, granted efforts have been kept up, but interestingly this is often not realized. Moving from Shipping to Tech, I quickly learned that in development “9 women cannot make a baby in one month”. It simply does not matter how much resources you pour into a development project, especially if it is about collecting and processing data. You will need a certain time for each step you move ahead. Not realizing this and applying an unrealistic project timeline, will simply result in an insufficient end solution or a project with no monetary return. It is worth noting here that developing successful solutions from scratch takes years and yet you very often meet operators who claim they will do it in 6 months.
What are the most typical situations where the operator is not satisfied?Getting stuck is easy and there are many reasons for things not working out that aren’t always obvious so we can’t claim to capture full causation as much as illustrating situations often encountered among “unsatisfied operators”. However, typical situations we often noted would include:
- “We did this years ago, we now have all this data, but it’s so broken we can’t do anything with it.” This was, and still is, a very common situation we meet when visiting potential customers. It is frustrating because it is very hard to step up at this point and help out in cleaning up the data. We are productising a solution where we will be able to assist the customer with their own data sets but productising this capability has taken us a very long time due to its complexity. In short, what typically has happened is that a project has been set up to capture data through auto-logging on-board and then sent ashore to a data warehouse. From this, one has also mapped out what reporting is needed for the business and developed that part. Once the system goes live it is quickly concluded that the data quality on the raw data from the vessel is of such bad quality that it is not fit to support the business. Building a data centre in-between that can validate, filter, repair and enrich the data, (the most expensive and difficult part to develop) tends to have not been part of the project. In most cases it was simply overlooked on an assumption that data from the vessels, especially if from an auto-logging method, would always be accurate.
- Failure to appoint project teams that can and will take the time to engage. Regardless if an internal solution is developed or if the project is relying on external providers, it is essential that the project identifies and delivers on the businesses needs and requirements. This will simply not happen if the project team is left to guess what is needed without circular reference with the business. Our CTO once gave me some very good advice on product development: “if you fail to communicate the needs of the business to the developers, they will still go off and develop something, just not what you need.” I think it was well put and now I have seen it myself too many times when listening to staff at operators. Often management will never know as the shipping industry don’t have a very good culture in allowing for “failing fast”, moving on and rectifying when these things happen. Rather, it ends up as a system nobody uses and the users are instead blamed for creating work-around’s and not following directions.
- “We spent a lot of money to build this system years ago so we are done.” I am not sure who would use a 10-year-old mobile phone or a 15-year-old PC meanwhile an on-board reporting solution and reporting interface is somehow often considered to be up-to-date after a decade. The base problem here is that so much money was sunk into the solution that even if they would prefer to move over to something more modern off the shelf it can’t be justified internally.
- “Not invented here” – was a concept quoted to me by a head of a Scandinavian shipping line. What he was jokingly trying to say was that we all believe that what “we” do is unique, and therefore we can’t possibly buy solutions off the shelf. It seems common to believe that “we need” custom solutions because what “we do” is so different. On this note I can mention that I have seen a good 15-20 variations of in-house, manual ship-to-shore reporting solutions that basically are doing the same thing.
Why some operators chose to not engage at all in digitalization?One could argue the choice to do nothing in most cases have not been an active choice rather than a result of not giving it any attention. Nevertheless, in speaking with operators who have chosen to retain fully manual traditional ways of working, there are few recurring statements we often hear as justification:
- “What we do is so complex that you can’t automate it.” I would argue that here that there is often a huge misunderstanding of what system tools are meant to do, as well as an under-estimation of what is technically possible.
- “Our operations are very different from how others do it so we can’t make solutions for that.” This statement will often come from wet and dry -bulk operators justifying it with “that they are not operating liner services”. From an outside perspective, meeting with a large number of similar operators, this seems to be one of the most standardized areas where a high level of automation should be totally feasible. We simply all seem to believe that what we do is unique.
- “We will let others pave the way, and get on-board when it’s well tested.” This may very well be a safe strategy but it is a clear benefit in getting started in time, simply as the change process is slow. It may also be an expensive one if it leads to a period of operational disadvantage in a chase to the lowest cost base.
Some concluding thoughtsIf one aims to simply automate existing processes that are already executed (albeit manually), the only financial upside is the man-hours you save from no longer doing the labour. These savings are small and not that relevant in most shipping operations. It seems in comparison, that most traditional internal IT projects have often been run to streamline a business process and reduce manual labour, rather than setting up an environment where yet unknown “operational waste” can be identified and acted upon. Agreeably this is not an absolute truth, but the point here is that a different mode needs to be in place as real monetary upside will only come with doing things not already done. This requires engagement from the business over time with top management committed and not just handed off as a side project for a small team to execute in a few months.
Huge breakthrough comes in tiny steps through the power of incrementalism, i.e. many small marginal gains over time. We all like a dramatic story but change doesn’t happen out of the blue – it is a process that needs to be managed. Expectations of big bang successes and magic bullets need to be managed in order for people to want to stay with the process until the returns are showing.