In an exclusive interview with DNV Forum, Andreas Sohmen-Pao, vice president of World-Wide Shipping, gives us his thoughts about the impact of e-commerce in shipping.
Many people in the maritime industry speak of a world where all chartering takes place online, where purchase requisitions move electronically from ship to office to supplier, where brokers disappear, companies are downsized, and prices are slashed. This is as likely to happen as cinemas were likely to be replaced by television. Pricing will become transparent and buying clubs will put pressure on margins, although these can be offset by cost savings achieved through consolidation and increased volumes.
Sohmen-Pao believes the internet will facilitate direct communication between buyers and suppliers, but this should only relieve intermediaries from mundane, repetitive tasks, enabling them to spend more time on value-enhancing analysis and decision-making.
Threat or opportunity?
Explains Sohmen-Pao, Just as machines freed humans from pushing widgets in the factory, so modern technology should free us from pushing paper in the office. But for companies and individuals who fail to embrace change and upgrade their skills, the future looks frightening. No-one knows where the internet will lead us, nor which ventures will succeed or fail. Yet as a Harvard Business School professor recently stated: Change is always a threat if it is done to us. It is an opportunity when it is done by us. At World-Wide Shipping, we have embarked on a major technological upgrade, accompanied by the requisite training. We are also helping to shape the way in which we transact business in future through active participation in an internet venture called Onesea.com
Onesea aims to become a leader in the provision of maritime services over the internet, and has been developing technology for both procurement and chartering, as well as other related services. Maritime procurement is a market with many buyers and suppliers spread over the globe - a perfect target for using the internet, says Sohmen-Pao, but given relatively low transaction costs today, and the high unit cost of many shipping purchases, it is unlikely that buyers will pay a significant commission just for the transaction efficiencies offered by internet sites.
Where real value can be created is in consolidated purchasing, where larger volumes allow suppliers to bring down unit costs and offer volume discounts. This is by no means straightforward - issues like guaranteed minimum volumes, uniqueness of parts, quality control, on-time payment, will all need to be addressed. In tackling these issues, a company like Onesea is helped by its independence from any one industry player - which provides neutrality and speed. At the same time, the company enjoys significant industry support through minority stakes, which should provide a ready supply of buyers and sellers for the marketplace it is establishing.
Self-regulation
Apart from the transaction efficiencies that businesses like Onesea will bring, Sohmen-Pao believes the shipping industry should also be prepared for other effects of increased information flow. The behaviour of companies will become increasingly transparent as their activities begin to take place online. Trading histories will show up companies which are systematically late with payments. Those which consistently fail to meet industry standards for quality should become visible at the click of a mouse. This is a development that should be encouraged, since it will provide an effective means of self-regulation for higher standards. And there may be little comfort for those who refuse to participate in such systems, because it may on the one hand raise questions about their reasons for not participating, and on the other hand deny them the opportunity to enjoy the cost-savings and marketing power that these technologies provide.
Sohmen-Pao believes that, ultimately, the scope of applications for which the internet can be applied in shipping is as wide as our collective imaginations will allow. As many have observed, the internet has essentially enabled ideas to be realised faster than ever before. Whether it is just about communicating more efficiently with colleagues and partners or providing video feeds directly from ships for inspection, whether it is about buying a thousand litres of red paint or sourcing the entire crew for a vessel, the internet as a facilitating medium for doing business is here to stay.