Although the maritime shipping sector might generally be characterized as conservative, at least eleven relatively recent innovations are having a profound impact on it.
CEOs/ship owners react differently when dealing with these major innovations, even disruptions. Some of these executives/owners seem to be actively “pushing” innovations in the shipping companies they lead, so as to capitalize on an innovation or simply to stay on track with the competition. In contrast, other CEOs remain more complacent or do not immerse themselves in the technical considerations characterizing innovations in shipping. Rather, many of these shipping executives might be stronger at understanding the ups and downs of shipping markets, and they may know how to make decisions to take advantage of cyclicality.
Furthermore, privately held firms are often more capable of pursuing effective innovations. Firms that are publically traded but with controlling private parties are also classified as private in my mind (e.g., Carnival Cruise: the Arison family, and A.P. Moller-Maersk: the Möller family). These firms typically do not have to publish all of the cost elements of specific innovations in any of their quarterly figures. Instead, they can afford to take a longer-term view, which involves embarking on a longer payoff for innovations without having to worry about potential negative reactions from stock market analysts and fund managers.
Let us now first discuss two major areas of innovation that changes in regulations primarily drive, although cost and efficiency considerations clearly might play a role here, too. Let us then discuss nine innovations that cost or efficiency considerations seem to primarily drive, although new regulations might play a role here as well.
Two major innovations that changes in regulations primarily drive
The International Maritime Organization´s (IMO’s) new regulations on low-sulphur content in bunker fuel take effect primo 2020. This will have major implications for all ships, both future and existing ones, as follows:
Shift to “light” fuel (say diesel), or install scrubbers (thus cleaning the emissions), or shift to liquefied natural gas (LNG) (which emits vastly less pollution).
In the very short run, a tradeoff between going for “light” fuels and installing scrubbers may occur, as LNG solutions can be implemented only on new ships (or in relatively new Wärtsilä engines). This tradeoff would largely be a function of expectations regarding the price differentials between “light” and “heavy” fuels. If “light” fuels become very expensive, the scrubbers would become more economical, and vice versa. However, if heavy fuels are used, scrubbers will not be enough in the long run. To effectuate the cleaning of NOx, which is also a part of the IMO regulations, additional filters are required; the crew then collects the NOx in bags on board, to be discharged at special stations. Thus, in the somewhat longer run, the introduction of LNG propulsion might be the best option, as it is the cleanest option. Here, I wish to further elaborate on five consequences of innovation as a result of the IMO regulations:
Scrubbers: These have come down significantly in size and price, whereas cleaning capacity has increased. Newcomers, such as Yara, are challenging conventional providers, such as Wärtsilä and Alfa Laval.
LNG bunker terminal systems: Chains of LNG filling terminals are now in place not only along many coastlines (such as Norway’s), but also for the important sea link between Europe and East Asia. Innovations have been necessary for modifying port terminals and for building new ones.
Ships’ main propulsion: Several makers of the main engines for large ships (notably Wärtsilä and MAN) provide engines that run on conventional fossil fuel today, but which can easily be modified to take LNG later. This is a major innovation!
Refineries: To switch from “heavy” to “light” is not just a matter of investing—Innovations are also required. Some of the technological challenges here apparently have not yet been fully solved.
With the increase in refining, we cannot simply change the fuel characteristics from standard “heavy” to standard “light.” In fact, there is nothing that might be labeled “standard light.” Instead, we now have a wide range of light fuels, all with various characteristics. Blending these light fuels into a good mix for new and old engines might require innovations in blending equipment, new segregation setups for various bunker types, and new testing equipment. Further innovations are certainly needed to ameliorate some of these new challenges in fuel blending.
2) Wastewater treatment: This IMO regulation is now in effect for new buildings, but existing ships have been given extensions to 2020 for installing such equipment. Here, I wish to highlight two major areas of innovation:
Wastewater treatment equipment has become simpler, more compact, and cheaper.
It has become easier to install, requiring less off-hire—another beneficial innovation!
We have now covered two areas of innovation that governmental regulations primarily drive. In the following, I wish to turn to innovations that market forces primarily drive.
Nine innovations that cost and efficiency enhancement considerations primarily drive
As stated above, each of the following nine innovations seems to stem from efforts to lower costs or to improve efficiency, although new regulations might play a secondary role in propelling these innovations forward.
3) Hull design: Significant improvements in ships’ hull designs are taking place, leading to lower fuel consumption and higher speeds, as well as higher efficiency:
The aquadynamics of hull design has come a long way, particularly in reducing the so-called “drag” effect.
Ships are being retrofitted with new bulbous bows, which have better aquadynamics and/or are lighter in weight (important when passing through heavy waves; results in less pitch). Innovations at shipyards are also important here, as a new bow section might typically be put in place in less than two weeks (i.e., with typically no breach of contract in most ships’ time charters).
Another important innovation in ship design applies to the size of a cargo hold, which has now become even larger due to advances in naval engineering.
Underwater coating systems: Better coatings for hulls are now available. These coatings gradually release ingredients that prevent or slow down the growth of seaweed and barnacles, thus counteracting the slowdown in ships’ speed and decreasing fuel consumption. Jotun and its SeaQuantum concept is the pioneer in this area of innovations in paint and coatings.
Propeller technology: Propellers are becoming more effective (Lips/Wärtsilä is a pioneer here), and so-called pod technology has come a long way, with applications in cruise ships (less vibration and noise), offshore supply ships, and ice breakers (more flexible maneuverability).
Rudders and fins: These are becoming even more efficient. Fins mounted over the propellers/rudder might increase fuel efficiency and/or speed. Firms such as Becker seem to be in the lead here.
Less weight: The so-called SAVER design for container ships, which Seaspan pioneered, might epitomize this type of innovation, which includes thinner steel plates in non-cargo loading areas (bow and stern) and the use of more composite materials (superstructure). These new configurations lead to significant weight reductions and corresponding savings in fuel consumption. Innovations in ship design and in shipbuilding are more generally now focused on weight reduction.
Gear for cargo handling: New players are entering this space, with more innovative products arriving particularly in the electronics area. These innovations lead to higher efficiency and speed in the loading and unloading of cargo.
Ship engines/main propulsion: We see increased efficiency here, too, perhaps stemming from innovation in three areas:
Better electronically steered fuel injection systems, quite similar to what has already been implemented in the automobile industry.
Longer bore/stroke for the engine’s cylinders, thus allowing for fewer rotations. MAN is perhaps the leader here. (Bore/stroke is a measure of the mechanical property of a piston engine. To achieve a given work, a longer bore/stroke engine will require lower RPMs, making the engine more efficient and more fuel-economical.)
As already noted, easy conversion from burning conventional fossil fuel to LNG. (This is an amazing engineering feat!)
Two Innovations that management process considerations have primarily driven
Up to now, we have considered innovations that the government or the external market has driven, but some innovations stem from internal management considerations as well.
Streamlined cargo documentation flows: Information technology is setting new standards for reducing document flow in cargo transfers, mostly in container shipping. Several competing approaches are presently being tested, stemming from the efforts of major container lines and IT providers/ consultants. Significant time savings and cost savings are being achieved. However, much internal disagreement still exists among the various stakeholders involved (shippers, container lines, harbors, customs, etc.), so no definitive breakthrough has been reached.
Integrative logistics: Sea transportation is, of course, only one (although typically an important) step in cargo flow from the producer to the consumer. Some large shipping companies are now pursuing the total integration of cargo flows from the manufacturing site to the end-consumer market. IT technology allows for more precise cargo tracking, and shippers even undertake storage en route. Some of these shipping companies may actually now consider themselves more in the IT sector than in the traditional shipping economy.
Conclusions
We have now discussed a set of 11 innovations, but others undoubtedly exist, too. One thing seems clear: The traditionally conservative shipping industry is now going through a period of radical change—indeed, a revolution! We will not speculate too much regarding what the major implications might be, except for briefly pointing out three related issues:
A shipping company’s overall portfolio strategy needs to take these dramatic innovations into full account. Is the portfolio robust enough to cope with these innovations without having parts that might make it more vulnerable? Have we sufficiently implemented the innovations that we consider to be particularly important in our niche?
The winners of the future are probably not today’s leaders. A paraphrase of Darwin’s words are more applicable than ever: “It is not the strongest that shall eventually win, and not the smartest, but the most adaptable.”
The human resource profile in the leading shipping firms is likely to dramatically shift: more advanced engineering, stronger IT competences, better systems engineers, and so forth are needed. Also, ship owners themselves will have to be more dynamic than ever before to be on top of innovative breakthroughs. Only then might their shipping companies push their portfolio strategies in a winning direction.
I discuss all of these issues in my new book, Innovations in Shipping, to be published by Cambridge University Press, 2019.
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