Variables Muddy Strategic Forecasting Abilities
G2 Ocean’s executives had an unenviable challenge ahead of them when they met in their boardroom in the final throes of 2019.
Tasked with setting a five-year strategy plan from 2020, those executives had to balance the impact of trade wars and fuel unknowns against the desire to diversify and make inroads in new markets.
For Leif Arne Strømmen, one of the executives responsible for honing that strategy, many of the pinch points in forecasting the shipping sector revolve around future fuels, and more specifically, a lack of visibility on what fuel types will be in use in 2020 and beyond. In fact, he described fuel as “the biggest swing factor for any ship operator.”
“When you work on a five-year strategy you need to think ahead, because when you build a ship, you build it for the next 25 years,” Strømmen said. “There are a lot of uncertainties around future propulsion, future fuels and future IMO requirements – these are extra challenges.” Autonomous ships will likely play into that 25-year timeframe as well, adding another variable to forward planning, although Strømmen maintains that fuel is still the biggest topic.
He believes that it’s just a matter of time before a carbon tax is enforced on international transportation and shipping. “That means, customers shipping cargo on our ships will have to pay for their carbon footprint. So, if you continue to use dirty fuel with a high carbon footprint, you will be less competitive than a vessel using LNG in the future.” G2 Ocean is already trialing alternative fuels for its fleet and will soon kick off a project on biofuels.
The other key factor playing into G2 Ocean’s five-year plan is volatility. It was a key word for the market in 2019, and this year looks to “enjoy” more of the same, Strømmen said. “The biggest potential for disruption is the trade war and the impact that will have.”
Arild Samland, G2 Ocean’s director, gives the example of wind moves from China, where production has been shuffled around and moved from China to other Asian countries over a very short time frame, as a direct impact of the US-China trade war. While capital investment so far has been largely unaffected by the trade war, consumption has been directly hit. “If consumption goes down, you start a negative spiral where the whole world economy goes down the drain,” Strømmen noted.
Goals for G2 Ocean’s plan include growing its project business through expansion of its geographical footprint. Last year it widened its geographical reach with new offices in Houston and Hamburg, and it strengthened its projects team in Asia.
In Houston, Senior Project Manager Cliff Kuhfeldt acknowledges that G2 Ocean will be “fighting for the same cargoes” as its competitors. But he has a keen eye on the LNG petrochemical projects sector within the five-year strategy window.
“We’ve already positioned ourselves very well, and we have a good name in the industry. With a little luck, we will be able to secure some of these projects. One of the advantages that G2 Ocean has is a diversified fleet at our disposal, years of experience with our staff, and the commitment by the board for this strategy.”
Globally, the bright spots of petrochemical, oil and gas and onshore wind will continue to be staples in G2 Ocean’s business model, as well as its long-term contracts for pulp. But the team is also readying itself for the escalation of offshore wind projects and is looking to gain a foothold in mobility projects. Geographically, Asia will continue to be a significant source of project business, with India and China both playing key roles.
The ship operator has already actively embraced innovation, and has more than 10 initiatives running that will continue into 2020. The one most heavily publicized has been its blockchain project. It ran numerous pilots in 2019 to digitalize and simplify the bill of lading process, working with a start-up company and customer Manuchar.
The technology, Strømmen said, worked very well and the client has said it was happy with the solution. However, the challenge has been the education journey, which needs to be replicated throughout the value chain of G2 Ocean’s costumers and to its subcontractors.
“It was very easy to get customers on board,” Strømmen said. “The biggest challenge was in the next step, because after we spent time educating the customer and explaining how the platform works, they then needed to explain it to their customers. You need to train, educate, train, educate and train a lot of people and companies.”
This carries through to port agents: in some countries if an agent doesn’t have a bill of lading in three different colors with wet ink, they are not confident in its authenticity. “It takes a lot of time to train and educate people,” Strømmen said. “And that’s why it will take a long time to roll out this technology.”
But when it does take off, growth will be exponential – once people’s mindsets have been changed, once laws and regulations have been changed to reflect the different way of doing business, and once policies have evolved for P&I Clubs. “There’s a lot of things you need to do in order to change the working process.” Strøm-
men would like to tackle smart contracts for booking notes and time charters next.
He is particularly excited by the potential promised by future digital cryptocurrencies issued by national banks. “In five to 10 years’ time everyone will potentially be able to sit and transfer digital money to each other’s digital wallet via blockchain and not involving any banks. We will not need letters of credits anymore and we won’t need banks.
“With a digital wallet on blockchain no one can actually take any money from you; it’s much safer. And transfer of money is done in seconds instead of days or weeks.”
Smart bills of lading and letters of credit, combined with digital cryptocurrency payments, will really change the way world trade is done in the future, he added.
But the promise offered by these tech revolutions need to be factored against the operational realities of the future fuel conundrum and continued trade war uncertainty when it comes to strategic direction setting. These elements combined mean that forward planning today is as complicated as it has ever been for multipurpose ship operators.
Carly Fields has reported on the shipping industry for the past 20 years, covering bunkers and broking and much in between.
Image credit: G2 Ocean.