Market Data Will Be Shipping's Next Digital Revolution
It might come as a surprise that the shipping industry has been relatively stable since WW2, aside from revenue volatility. The industry’s major problem has been managing the availability of tonnage to meet demand cycles. Ships have gotten bigger, but their design and capacity have generally been more evolutionary than revolutionary.
Today we are on the cusp of a new revolution, and it will come in the form of data - not the operations-focused “Big Data” solutions that industry insiders talk about today, but market data. The majority of industry discussions give little attention to this topic.
Shipping companies have always thrived on proprietary information and personal relationships. There are a few types of data that are accessible to all players - for example, weather conditions - but shipping groups rely on confidential information about upcoming surges of raw material production or cargo availability at a specific location. These proprietary insider connections have traditionally been a source of material difference in the financial performance of each shipping company, and they can be a make-or-break part of the business, especially during soft markets. This has been an area in which many family-run companies have excelled.
Today, in an era where few things remain hidden under the sun, it is becoming more difficult to gain an advantage based on a steady stream of private information. Instead, access to “data crunched” intelligence is becoming increasingly relevant to commercial management decisions. Beyond linking up industry-related data points with known causal relationships - for example, the relationship of upstream production to downstream cargo volume - some firms are using data sets that seem unrelated, revealing new correlations using data crunching. That is what Big Data is all about. One could even say that going forward, the game will not be about managing vessels, but about managing data.
This ‘information revolution’ is likely to have multiple effects on the way the shipping business operates. To start with, although shipowners have proved that they are excellent at managing vessels, there are many non-shipping entities that are better at managing data than any shipping operation, no matter how sophisticated the latter may be. Some of them (think Amazon) rely on maritime transport as a fundamental part of their business, and one could easily foresee them storming specific shipping sectors in the process of integrating their own value chain.
Shipping - a niche activity by global standards - might manage to develop sector-specific “data management champions,” but this would be a difficult feat. Scale is extremely important in data management. Although such sector-focused ventures are already in development, it may be difficult for them to remain independent for long.
The skills and resources required to develop a data-intensive business are significantly different than the ones required to manage or own vessels. This is such a different activity that instead of following the model of other asset-heavy sectors - like aviation or hotels, where the split between ownership and management of assets happened many decades ago – shipping’s main segments may go a step further and opt for a threefold split of the business. This could look like the following separate functions:
- A very few ultra-large data managers, sitting at the top, compiling data and selling information for commercial management purposes.
- A group of third-party vessel managers sitting right underneath, providing the service of managing the vessels.
- A larger number of institutional investors (and some of the existing private firms) acting as non-operating shipowners.
The industry may develop in a different way, but it is unlikely that the information revolution will leave shipping in its current form. As in all major changes, this transition is likely to offer many opportunities to the most astute players – but it is also likely to give the shipping industry's giants a good run for their money, even if they look untouchable today.
Dimitri G. Vassilacos is a partner at Ship Finance Solutions (SFS), a boutique financial consulting firm specialising in the shipping sector. Prior to that he had assumed a variety of positions during a 20-year-long career in the banking sector, including Managing Director & Head of Greek Shipping at Citibank and Manager of the Shipping Division at National Bank of Greece.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.