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SHIPPING STRATEGY 3.0 – AFTER THE STORM Shipping whitepaper 2010

By Jesper Adeltoft, Sarah Skade, Morten Bregendal Sørensen, Johan Fritz and Lars Bo Hansen

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“SOMETHING BIG IS HAPPENING”

The above quote signifies the general sentiment among Scandinavian shipping CEOs when interviewed by Quartz+Co in the autumn, 2010. In light of recent years’ market developments; most managers now sense an industry shift in the making. Even by shipping standards, the last decade has been a ride of unprecedented highs and dramatic lows. After the 2000–2007 super cycle and the recent years’ challenging markets, things seem to be improving – albeit slowly and irregularly – across segments. Since 2008, thinking about strategy has been a luxury for the few. Instead, short-term survival has been top of the agenda – or actually it has been the agenda. But as things are slowly improving, the longer-term view comes back in play. The time has come to regroup, rethink and find a

sustainable position to reap the benefits of what is moving toward a new industry reality. So exactly what does this imply? Does it mean radical, new strategies? Will status quo be a winner after all? Or maybe, the industry is going back to what shipping once was all about? To begin answering this, we asked the leaders in the know. Through a series of in-depth interviews, we spoke to CEOs who, across segments, represent close to 15% of the global shipping industry capacity. From surprisingly open discussions ranging from financial strategies and hedging tools to shipping culture and operational processes arose some quite challenging, but very interesting conclusions. We call it Shipping 3.0.

FIG. 1 - SCANDINAVIAN FLEET COMPOSITION

DEVELOPMENT IN FLEET COMPOSITION IN DENMARK PERCENTAGE

DEVELOPMENT IN FLEET COMPOSITION IN NORWAY PERCENTAGE

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Tankers Dry bulk General cargo

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Container Other

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Based on development in flagstate gross tonnes. Danish Shipowners’ Association.

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Background and approach We dedicated 100 days to analyse the thinking and actions of leading shipping companies in Scandinavia. We initiated the work by deciding that we would work with both facts and feelings – this duality in many ways characterises the industry – one without the other is not relevant. In addition to collecting data, reports, historic strategies and expectations to the future, we contacted the top-20 shipping companies in Scandinavia. The selection criteria were clear. We wanted to talk to companies across key segments such as tank, bulk and line. The aim was to gain insight from the most influential shipping companies by talking to the CEOs and top managers. We narrowed in on the bigger international shipping companies with a base in Scandinavia. Obviously, the shipping industry comprises many smaller, more specialised and locally-oriented companies, but in order to make clear conclusions, we thought it necessary to focus our efforts. This is also why we prioritised the liner and tramp companies and did not include passenger and specialised shipping services – such as offshore. As seen in figure 1, the selected segments are the biggest measured in Gross Tonnes (in Denmark and Norway). We also think that they are closely related in terms of business logic as they are both part of large international supply chain systems. We also talked to a number of industry experts, professors and officials to get access to the best and most relevant thinking in the field. In short, we asked two questions: What are the key exogenous drivers that shape the context for the company, and how do you – as a company – adopt your strategies to these external forces? We then processed, discussed and concluded (and discussed again). The end result is this whitepaper: Shipping Strategy 3.0 – After the storm. We have interviewed the top managers of the Scandinavian shipping industry. Together they represent about 15% of the global shipping capacity across segments. It is important

to underline that this whitepaper is not a transcript of the interviews conducted. Instead, this is our view of the trends and developments within the shipping industry and the company leaders’ perception of these. Not everyone will agree with all conclusions – but then again – not everyone should. Hopefully, readers will find interesting, valuable and useful information in the following discussion.

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AFTER THE STORM – CONCLUSIONS IN SHORT

In the interviews, we used the term Shipping Strategy 3.0 as a generic term for the changes in shipping strategies. This is a generalisation bordering on the naive. However, we did feel the need for a sort of headline to contain the different dimensions and issues in this high-level and broad view of the industry. The origin of the term is our interpretation of the history of the industry: Shipping Strategy 1.0 was, in this dichotomy, the traditional broadly-based strategy pursued by most shipping companies of the last century. These companies were often family-owned, proud of, loyal to and orientated toward the nation they belonged to, and relatively conservative and resistant to change. They were companies in which most employees had been employed for many years – and had all been raised within the industry. They focused on owning

vessels – and the more the better. Strategy was very much dictated by tradition rather than directed toward future market positions. Shipping Strategy 2.0, seen in most large shipping companies from the year 2000 and onward, was an opportunity-driven strategy. Opportunistic growth ambitions drove shipping companies toward bigger, more profitable and more diversified portfolios. In the interviews, Shipping Strategy 2.0 was characterised as “crazy days”, when anything was possible; everything was profitable and “no” was a word rarely used. Opportunities drove the companies, not the other way around. And when industry rates are skyrocketing (figure 2), what else could a company do but enjoy the ride of a super cycle bonanza?

FIG. 2 - RATE DEVELOPMENT

LONG-TERM DEVELOPMENT IN BALTIC DRY INDEX INDEX VALUE

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Then the storm hit in 2008, and the well-fed and frankly somewhat spoiled companies had to adapt – fast. The last couple of years have been about reducing operational costs, handling the order book, managing the financial constraints and focusing on operational and tactical matters. While these days are not yet over, most shipping companies predict better times ahead as global trade is slowly picking up again. It is thus time to evaluate the damages of the big storm and decide how to navigate in this new reality. In short: Welcome Shipping Strategy 3.0. Not that this is an established term, but in our view it implies shipping strategies that are more focused, more global, more professional and more customer-driven. In Shipping 3.0, companies still pursue opportunities aggressively, but the growth will come from current core competences in the form of segments and/or selected parts of the value chain. It is “growth from the core” more than growth “for the sake of it”.

and consequently the shipping industry, had proportions beyond anything seen before. “We have been hit by the crisis and things will never be the same again” one manager said. But it is one thing to be ready for, and even hope for, radical change. It is quite another to pinpoint what this “new reality” might look like. Here, the jury is still out; some managers believe that the industry will change fast and in many ways, while other managers say that the current business model and strategic logic in the Scandinavian shipping industry is so advanced that the correct answer to the many challenges is “more of the same” and not something totally new. Our point of view is this: we believe that the Scandinavian shipping industry five years from now will be very different from today. It will not change through a radical paradigm shift but through a step-by-step transformation. Each step might seem to be within the current way of doing things, but seen over time, the changes will transform the industry in Scandinavia.

This sounds like a kind of level 1-2-3 lifecycle transformation of all shipping companies – that is not the case. Some shipping companies are still struggling with the traditional mindset of a Shipping 1.0 company, while other companies are firmly moving toward 3.0-mode already.

Does that sound like a small thing? In our view it is not. In Shipping 1.0 strategy was guided by tradition and in Shipping 2.0 by chance while strategies in the era of Shipping 3.0 are about choice. This is a major change in the industry. It implies setting clear targets, prioritising and focusing efforts and designing the optimal business model. It builds on decades of experience but while it respects history, it is not limited by it.

It should be noted that we are not saying 3.0 is for everyone, and we are not saying it is now or never. However, we are saying that this is the trend and general direction of the Scandinavian shipping industry.

Structure This whitepaper contains three sections:

This whitepaper presents four major external trends which push the companies toward Shipping 3.0. The degree of urgency differs due to the companies’ different histories, segments, focus and current strengths, but the trends are clear and unavoidable; continued volatility, financial market constraints, increased importance of new geographical markets and further customer consolidation. Most CEOs we spoke to felt that, yes, indeed these are new times. The vehemence, the surprise and the sheer magnitude of the shift from record-setting markets to downright awful ones have made everyone consider future strategies. Even for an industry used to radical changes and rollercoaster-type cyclical ups and downs, the crisis that hit the world economy,

Section one describes the key external forces and trends that drive the need for change. We have identi- fied four main drivers.

Section two describes the companies’ key strategic directions and business model. This is supplemented by our take on future business model archetypes. Some time and effort is spent on describing the areas in which shipping companies will be different in the future.

Finally, section three rounds up the whitepaper and points toward future areas of interest.


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SECTION 1 THE FORCES DRIVING CHANGE The shipping industry in the Scandinavian region plays a major economic role. It contributes approximately 5% of the GDP in Norway and close to 10% in Denmark. It is an industry with national interests, and discussions regarding conditions for growth and development – such as the “Blue Denmark” structure – are ongoing. In most of our interviews, these business conditions were discussed and comparisons were inevitably made between the three countries. Even though the final judgement of best or worst conditions is beyond our scope, the importance of the political and legal conditions for the industry must be emphasised. The shipping industry in Scandinavia is still a big employer. In Denmark it is for example estimated by the Danish Maritime Authority and The Danish Shipowners’ Association that the total number of people working in the “Blue Denmark” is between 75,000 and 80,000. In industries as volatile, geographically dispersed and atomistically structured as shipping, the external forces are fundamental to the strategies developed. The external environment defines the rules to which the company must adapt and hence, strategies must address the challenges defined by these forces. We see four major trends defining the playing field and external context for strategic manoeuvrability among shipping companies. The four trends are described in more detail below. Trend 1: Continued volatility High highs and low lows are a fact of and a precondition for the shipping sector. Rate changes of 200% and 300% over a couple of weeks would send most non-shipping managers to the madhouse screaming, but in shipping, it is merely registered and acted upon. In certain areas such as project cargo, volatility is lower than in for example bulk, but as a general trend, it is here to stay. Underlying this trend are the very steep demand and supply curves where small changes – particularly in demand – have a high impact on rates. The growth of FFA instruments, the fast movement of information, the trans-

parency in the industry and the commodity-type industry and structure further enhance this trend. The closely integrated and interdependent supply chains of companies where just-in-time principles rule increase the tangible consequences of hits from external unpredictable forces. Whiplash effects drive the system to extremes. Some instruments to smoothen out this volatility have proven their worth in recent years – among these the FFAs and increased use of short-term charters. However, totally neutralising the volatility is not possible. Trend 2: Financial market conservatism Since this is a capital-intensive industry, recent challenges to the financial sector mean that access to finance is strained – at best. However, there are signs indicating that access to finance is loosening up. Also, there are recent examples of new types of investors looking into the shipping market with the intention of entering the market at what is perceived as a “low” point in a cyclical industry. But still the lack of access to finance and handling the asset side in general is a fundamental factor which must be taken into account when the future strategy of any shipping company is decided. Shipping banks are still cautious, conservative and marked by the last couple of turbulent years. The shipping industry is seen as a risky business – and in general, banks balance risks and opportunities differently than they did just three years ago. On top of that, some of the banks involved in shipping are still supporting players in trouble and hence even more reluctant to increase their exposure to the shipping industry as such. Moreover, as the rules regarding financing and the Basel regulations in the financial industry are implemented, the need for capital is even greater. A capital-intensive industry in which growth often requires long-term investments is clearly dependent on a wellfunctioning and open-minded financial system. Currently, it does not have one. Getting new capital in the market or from financial investors will be a challenge for the shipping companies. Only a major

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change in the supply and demand balance with resulting improved rates can somehow change this. On the other hand, new types of investors are looking at the shipping market as a place of opportunity. Asset prices are perceived as being low and certain types of investors, e.g. capital funds, see good opportunities for entry (and expected exit when the markets bounce back and asset prices go up). Trend 3: Shift toward new geographical markets Growth in trade and thus in shipping will likely be led by Asian markets. For certain segments, such as product tankers, the western markets will continue to be the biggest markets for a long time, but growth will, at best, be limited. Therefore markets like China and India are key geographical areas for most shipping companies. After the big economic crisis of 2008 and 2009, the Asian region came out bigger, faster and stronger, while most western countries are still struggling with major economic challenges that entail limited growth and unattractive zerosum game market conditions. In a number of segments – bulk being one of them – Chinese shipping companies are competing head-on with western players. The foundation for this competition is, however, somewhat different as some Chinese shippers have access to both finance and cargo due to the close relationship they have with Chinese banks and shipping customers. This integrated model between finance providers, vessel-suppliers, shippers and ship-owners reduces transparency and could threaten shipping company margins. The importance of the Asian markets is not new and has not arrived overnight. It has, however, increased as western markets are slowing down and Asia is changing from a source of cost reductions to a global market place itself. Furthermore, the trend of growth beyond western markets is expected to continue with NEXT 11 and other rapidly developing countries playing a bigger role in the global economy. Trend 4: Stronger and more concentrated customer base In most parts of shipping, customer structures have become

more concentrated. Particularly for the larger vessel types, shipping companies are facing fewer customers. Although, for some segments and areas, this trend is blurred by the cloud of intermediaries between shipping companies and end customer. The consequences are clear: Expectations are higher and the willingness to pay is lower. Shipping companies become price takers as the market and negotiation positions shift. Consolidation is still taking place in many industries; however, the shipping industry itself is an exception, which is a reality expected to continue. However, one look at the mining, grocery, retailing and fast-moving consumer goods industries shows another trend: Shipping customers become fewer, bigger and less dispensable. To make matters worse (for shipping companies, that is), the oversupply of high-quality vessels operated at almost the same OPEX drives the shipping industry toward pure commoditisation where price is the only true differentiating parameter. This makes it increasingly difficult to command a price premium for being a quality tonnage provider, having a strong brand or other classic shipping differentiators. Moreover, customer demands for special treatment increases – and the willingness to pay for it is declining. The area of green shipping and sustainability is a case in point – looking at the, in many ways, disappointing outcome of the COP 15 meeting in Copenhagen in December 2009, some might expect the focus on shipping’s climate footprint and environmental effects to ease off a bit. However, that is not the case – it is here to stay. Driven by large companies such as global retailers, and with an increased scope so that it is no longer only about CO2, NOX footprint, etc., the green agendas are integrated into more broadly-scoped CSR policies and strategies. Some customers are increasingly setting their expectations to shipping companies high with regard to policies and results in the complex area of sustainability. A number of shipping companies, in particular Danish ones, have developed advanced and highly ambitious strategies in this area. In general, they act based on external necessity and internal logic. However, the payoff in the form of customer preference, loyalty and/or ability to collect higher-than-market rates has still not been proven.


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Vetting procedures and demands are other examples of bigger and more powerful customers demanding special treatment, but showing no willingness to pay for it. These are hygiene factors that every shipping company needs to address and be good at. They are deal breakers, but while non-compliance can lose you business, high performance is not guaranteed to win you anything. In conclusion none of the above-mentioned four trends are viewed in isolation, industry game changers. It is the combination and the impact together with internal drive for change that lead us to believe that the Scandinavian shipping industry will change dramatically over the next years. Not with a big bang, but through a tough transformation. Some companies will come out of this prosperously standing stronger than before, while others will struggle. These trends all increase the complexity of being a Scandinavian shipping company. Increased volatility makes it more risky, growth beyond known markets makes it more uncertain and dispersed, limited access to financing makes long-term tonnage growth more difficult and, finally, demanding customers increase industry commoditisation thereby reducing the opportunities to get a price premium. These are the trends any Scandinavian shipping strategy must seek to respond to.

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SECTION 2 SHIPPING 3.0 Some could interpret the previous section as a negative and depressing picture of the current conditions for shipping companies. However, that is only if the answer to these challenges is “same old, same old”. It is not. Linear thinking in a dynamic and unpredictable world only leads to one place, and it is not a nice one. Given these changes in the context of shipping combined with the dramatic shift in market conditions from a historic high to a historic low, we did expect major changes in the way shipping companies think and execute their strategies. Was that confirmed in the interviews? Most CEOs we met said:”Yes, there will be new strategies, new business models and new, radically different ways of being a shipping company”. Not all interviewees shared this view, but everyone agreed that at this moment, it is almost impossible to predict what a “new reality” will look like. What will the new business models be like? It might not be more of the same. It might be similar to the development in the airline business, where clear, simple and price/cost-focused new entrants over a short period of time changed the whole industry logic. Or it might be something completely different. Our take is this: yes, the time is ripe for a shift in how shipping companies work. It is time to think and act differently. The defence systems are down and a number of dogmas are up for discussion and might be laid to rest. Companies were lifted from the tradition-driven Shipping 1.0 to the opportunity-driven 2.0 by the good times and many opportunities. Shipping 2.0 was overthrown by the global financial and economic crises. A return to 1.0 can hardly be considered attractive, and while 2.0 would clearly be desirable, it is not really a realistic option. So something else – something different – must emerge. On the other hand, we do not expect the development toward this new industry approach to happen through rapid revolution. We foresee a step-by-step transformation very much driven by the industry’s own wish to work differently, to take charge of its own future and – by choice – to design an attractive position. Five years from now, we expect most Scandinavian shipping companies to be very different from today, but we do not expect this to happen through a big bang paradigm shift, nor do we foresee revolutionary business model shifts. We do, however, see a determined, yet sensible change in key strategic elements and dimensions transforming the industry.

Moreover, we do not expect this transition to happen by itself. It will require brave and innovative shipping companies to push themselves – and consequently the industry – forward. Some might return to the comfort and familiarity of Shipping 1.0, but as it will be clear from the following discussion, we do not consider this an attractive or sustainable strategic direction. On the other hand, we do not expect a revolution where everyone who does not think and act differently will be out of business in five years. This is a conservative industry and a robust one as well. It should be remembered that a lot of people expected the dramatic drop in rates to drive the whole industry toward consolidation, but the role of shipping companies in the global supply chains is, in many areas, the most fragmented and unstructured part. However, in spite of this strong logic for consolidation, no industry shake-up has taken place. Surprisingly, apart from a few mergers, we have seen no big fire sales or any spectacular crashes. Maybe the companies are just not ready. Maybe they do not see the need, or maybe the financial crisis has not hit hard enough – or long enough – for some players to give up on the current structures and ownerships. Apparently more punches are required to make managers and owners further reconsider their inherent unwillingness to merge their company with another. It is said that strategies are designed in times of peace, but it can apparently sometimes be difficult to think a new thought with a full stomach and wallet, which explains why no big industry shake-up took place in the good times. Why it has not happened in the bad market conditions is less logical. Keeping this in mind, on the basis of the interview input as well as Quartz+Co´s point of view, we will present our approach to the changes in the shipping environment. We see the answers as being quite clear as managers were pretty much in agreement both across segments and historic background. Therefore, we believe that five years from now: • • • • •

Shipping companies will Shipping companies will Shipping companies will Shipping companies will kinds of leadership Shipping companies will and simpler strategies

be be be be

more global more focused more professional driven by different

execute clearer

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INCREASINGLY GLOBAL SCANDINAVIAN SHIPPING COMPANIES

The shipping business is an international business. However, that – by definition – does not make shipping companies global companies. In short: a global scope does not equal a global company. A global company is characterised by the fact that it has taken the geographical dimension out of the structural equation of the company. The company is truly global when geographical belonging is no longer relevant in the decisionmaking processes and overall business model design of the company; when processes, communication, leadership, information and people effortlessly travel across the globe. In the future, shipping companies will have to be much closer to the non-western, new and growing markets such as BRIC and NEXT 11 because of their increasing importance regarding competition as well as opportunities, as highlighted in the previous section. This requires an organisational set-up much more dispersed and decentralised than today. It moves the point of gravity away from the current Scandinavian centres toward the new markets. Some are already well on their way while a lot of the Scandinavian shipping companies are still struggling with the consequences for decision-making processes, organisational structures, process-designs, roles and responsibilities, etc. One might argue that moving closer to Asia – as a first step – and later to other future growth markets does not equal making decisions there. Decentralisation, it is claimed, is not necessary as long as market presence is in place. That is nothing more than an argument of convenience. In a market characterised by volatility as well as increasing customer power, decentralisation becomes an organisational side effect of globalisation – and a necessary one as such. In a fluctuating industry such as shipping, central decisionmaking is the most common method to decrease risks – almost a reflex. But, on the other hand, in a volatile, customerdriven and global setting you must be close to the markets in more than just physical form. You must be able to make decisions fast. If not, opportunities are missed, customer patience is challenged and market insights are lost in translation on their way up through rigid hierarchies. In short, we believe that a global, agile shipping organisation must, by need and definition, be decentralised and that the price paid

for that in relation to risk and exposure must be handled through contemporary risk management tools. This is not as straightforward as it sounds. It might be the most challenging task of all for the Scandinavian shipping companies in the years ahead. Quick-fixes are not the solution – this is why companies wishing to be glocal must think again. This neologism derived from local and global is nothing more than that; a combination of two words. It might sound smart and like a good solution since it promises a balance between the need for central synergies and control and the strife for local presence, energy and fast decisionmaking. But in many other industries, it has turned out to be semantics which cannot be transferred from paper to real-life organisations. The hard and successful work of some local shipping organisations and politicians in defining the political framework to attract shipping businesses will also be challenged by the globalisation tendency. The political/organisational interest and focus are not about where the headquarters of a shipping company are, but rather about where activities end up and investments are made. Almost by definition, a national shipping organisation and the national regulations become less important when shipping companies go global. The consequences for national clusters are uncertain, but definitely something to think about. It boils down to the matter of whether national cluster synergies trump the globalisation scale advantages. If only the actual vessel ownership and some high-level corporate offices stay behind in Scandinavia, it can hardly be called a cluster, and the national cluster synergies will not be maintained. We heard different opinions from the CEOs on the subject of whether the strengths of the Scandinavian cluster were sustainable in the longer run. In many ways the strong Scandinavian position in the global shipping industry indicates that the traditional Scandinavian way of “doing shipping” has proven its worth. Generalising very broadly, one could say that just a few regional ways of “doing shipping” are currently competing for world dominance. On the one hand, we have the Scandinavian way, which is focused on long-term relationships, partnerships and operational excellence, and on the other, we have the South-European model in which focus is on short-term asset management strategies as well as the


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emerging Chinese one, which is integrated and commodityoriented. We do not see any proof of the Scandinavian model being the best or most sustainable. The future of shipping might very well come from somewhere else. Becoming more global will be a challenging transition – across all levels. It will add to the complexity, the need for different approaches and the degree of commercial flexibility. Take China for instance – a market in the middle of a huge transition, during which manoeuvring and relationship-building can be difficult as the traditional Chinese model is constantly being transformed into a new one. However, the new one does not replace the old one, and it might be of value to remember that Scandinavian companies in general have a good reputation in China.

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MORE FOCUSED SCANDINAVIAN SHIPPING COMPANIES

“Back to basics” was the strategic term we heard most frequently in the interviews. “We will be more focused”, almost everyone said. “We will move back toward the core of the company like we used to be” was another comment. In good years, there is a tendency of “overeating”, as one CEO put it, “We have spread too thin across segments, functions and everything else, and forgot the core of the business and what we do best”. Many confirmed this sentiment. It feels right to sharpen the focus after Shipping 2.0’s years of expansion, diversification and free lunches of the super cycle. But the aim for focus also arises from the need for reducing complexity in the business and operational model. Return to the four identified trends, and it is clear that they all drive complexity, which, in short, kills flexibility and reaction speed. Focusing is a way to buck this trend – making the business less complex and easier to manage.

Defining core and non-core processes is not simple. It is different from segment to segment and, to some extent, from company to company as it depends on the differentiation and market position taken. What is clear is that in the future, more processes will be classified as non-core, and thus be considered for outsourcing. The question is also whether the specialisation will roll back the growth in size that automatically (well, almost) comes from Shipping 2.0. Here, we think that a distinction needs to be made. Individual and independently focused shipping companies can very well operate within a corporate structure that ensures the overall access to finance, brand, etc. However, from an operational point of view, these shipping divisions need to be highly focused and very much drive their own business strategies. A sharper focus further raises a number of questions:

Will specialisation and decomposition mean more outsourcing?

1. How do you grow the company while decreasing the scope of it? All shipping companies we know of have long-term growth ambitions. They want to become bigger, measured one way or the other. That seemingly contradicts the need to become more focused and specialised. But only at first glance. Firstly, most segments of shipping are expected to grow eventually, and growth can thus come from growing with the markets. Secondly, in most segments and even in most niches of the segments, no one company has a dominating market share. That comes with the atomistic nature of shipping. Therefore, growth can come from winning market shares, and many expect the big to become bigger as an atomistic and unstructured market does seem to benefit the bigger companies. Finally, growth is possible through acquisitions and mergers. It sounds strange, but growth through focus is a sustainable shipping strategy.

In general, we think so. In certain segments – for example product tankers – some processes in the technical area are so close to the core of the company that they can only rarely be outsourced; however, a number of other non-core processes can. One could say that partnerships are beyond pools – as seen in the SeaMall purchasing partnership recently established – and the handling of financial transactions in the companies. Moreover, certain HR functions have long been outsourced – more or less.

2. How do you reduce the risk profile of the company while putting more eggs in the same basket? Exposure to fewer segments, fewer controllable in-house functions, dependency on external partners integrated into the company’s value chain and fewer customers should all imply a relatively higher risk profile. In many ways, the focus is contrary to what would be a textbook answer to the high volatility of the industry. The idea of handling volatility and uncertainty through presence in different segments that

“Back to basics” does not imply back to Shipping Strategy 1.0. Times were very different then, and the tradition-driven, asset ownership-focused, integrated and top-down-driven company, is neither an attractive nor a valid solution. The daughter of focus is specialisation. Specialisation in shipping goes beyond segments and markets – it also implies selecting what functions and services are to be internal and which are to be outsourced. More on this later. The shift toward more segment focus and decomposition of the value chain seems to be at the expense of a more general shipping company and group. In that sense, it challenges the traditional and “old school” Shipping 1.0 business model and shipping company set-up.


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supposedly outbalance and offset highs and lows has, in the opinion of many top-managers, been proven wrong. No segments were left untouched by the market crash. Maybe they were hit in different ways, but they were all hit hard. Consequently, handling risks will now be within the selected segments and/or functions, for example through balancing a mix of chartered and owned vessels and smart use of COAs, FFAs, etc. In short, there is no proof that different shipping segments naturally develop in different cycles and therefore offset each other. From this follows that putting all eggs in one basket can be both more and less risky. In general, it is said that investors must diversify while companies must focus. We are not saying that all shipping companies will be single segment-focused and/or single value chain-focused, but the general trend will be toward fewer segments. It might, from a corporate point of view, make sense to be active in more segments to split costs of finance, to exploit synergies in HR and purchasing, etc. But, as previously mentioned, there is also a tendency toward gaining access to these synergies in non-core functions through partnerships with other shipping companies. While recognising the values in a diversified approach, we do believe that focus and specialisation is the key. In a marketplace where timing determines the winners and losers, there is a strong need to be close to the market. This enables you to know when to go long or short – when to buy and sell. Being close requires a certain market position based on history, competences and/or fleet. No company can neutralise the market cycles, but those close to the market might be able to influence the speed and the highs and lows as well as better predict the cycle developments. In shipping, people talk to each other all the time. Therefore, the actual market influence and the speed of reaction is dependent on the amount and quality of the information accessible. In essence, the bigger the market presence, the bigger the role a company plays in a segment, the better the chance of getting access to information before the rest of the market. The market in that sense gives the advantage to the market makers – if any. Given the structure with dedicated shipping banks, intermediaries, brokers and shipping professionals

analysing the market, the amount of information available and the efforts needed to get it must not be underestimated. Moreover, utilising financial instruments and strategies like hedging and FFAs means that offsetting the worst market turbulence does not have to go through diversification. While the importance of risk management processes has grown, the answer is not, in our view, diversification, but rather focus and specialisation. Ask yourself this question: what shipping company, or indeed any company, has beaten the market and become a winner by being unfocused? Related to focus is the degree of consolidation in the industry. Many did expect the financial troubles and challenges of a number of shipping companies to lead to a tsunami of mergers and acquisitions. It is the most logic and rational development in the atomistic and commoditised industry. An analysis of the returns of the Scandinavian shipping companies clearly shows that they were all hit hard. However, this industry shake-up has not taken place. Our expectations are that yes, it is needed from a structural point of view, and yes, it does make sense from an industry perspective, but the economic and strategic logic is not what matters here. This is an emotional business, where loyalty matters, company history and tradition are still pivotal and the consolidation of the sector will, in our view, as well as in the view of many others, be slower than what strict financial and industry logic might dictate.

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MORE PROFESSIONAL SCANDINAVIAN SHIPPING COMPANIES

The industry must become more professional. Not to say that this is not the situation today, but until the year 2000, many shipping companies were small, family-owned and managed companies which had not changed much in many years. They were, and are, professional in their own right, but given the rapid changes in the external environment, there is also a need to adapt. The industry and the companies were considered conservative and – to some – even unattractive in their way of doing business. Then came Shipping 2.0 with its tailwind of a super cycle, and there was no incentive to change the way things were done. You could argue that Shipping 2.0 brought shipping companies into another league with more attention, higher and more professional expectations internally and, in particularly, externally from the stock markets. Not every company was ready for this attention, but they adapted and managed.

Nothing is wrong with this in a good market and a geographically consolidated company. However, it is obvious that with pressure on rates and increased complexity – derived from oversupply of vessels, professionalism of customers, shift in power balance, growth of non-western markets, decomposed and decentralised organisations and lack of access to experienced professionals in key markets – more standardised and stable processes must be established. Not as straightjackets, but more as fundamental ways of ensuring quality, improving efficiency, preventing failures and decreasing reaction times.

Shipping 3.0 implies improvements and increased professionalism in the areas described below.

We do not foresee more bureaucratic shipping companies. Nobody would want that in a market where speed and decision-making ability must be close to the market. But we expect more streamlined and consistent process designs in most international shipping companies in Scandinavia.

More professional handling of processes Today, many shipping companies are running key processes – within for example technical management, HR, operations and commercial functions – the way they have always been handled; untouched and unchanged by the hands of time. When the shipping companies grew from the year 2000 and onward, they did not improve the process efficiency, but merely added more people. The operation of 10 vessels was the same as the operation of 200 vessels. Many executives mentioned that they were working on making the internal processes more robust, more scalable and more efficient – in many ways more contemporary. This ambition is not driven by the financial and economic crisis alone – even though it did push process improvement up the management agenda – but also by a wish to improve professionalism in performance and efficiency internally. Good processes in the age of Shipping 1.0 consisted of an experienced team that knew how to do the job. Based on their common experience, the fact that they were in the same office and had all been in the company for many years made the process of, for example, closing a ship highly efficient. The process was not documented, nor was it identical to how it was done elsewhere in the company. But it worked, and it worked well.

Increasing expectations to/from larger customers – particularly in product tankers, chemical tankers, etc. – and the focus on vetting procedures further drive the need for strong processes and repeatable performances.

In close relation to this is the use of IT. Because shipping has traditionally been a “people industry”, IT has not been a general focus area, but in the last couple of years, shipping companies have increasingly recognised the opportunity of building competitive advantages by using IT more and in a better way; not only to reduce errors and manage risk, but also to increase manageability and transparency of the entire business. It is, in short, difficult to envision a responsible and profitable shipping company with a global business footprint without strong IT-founded processes. IT shall no longer merely support the business, but take a more active role and drive business improvements. Professional customer relations Fewer and stronger customers – of which some belong to rather different business cultures – highlight the need for close and value-creating customer relations. Managers in the interviews stressed that, historically, this is an area where business success is made in the shipping industry. In Shipping 1.0 and 2.0, it was by many considered

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the key differentiator. When the hardware in the form of vessels, safety, quality and sea-farers is a standard commodity, the uniqueness that allows a company to charge rates above the market must come from the software – i.e. the people. This is an area where most Scandinavian shipping companies historically have been strong. Relationship-building and maintenance is and has always been a key competence of the Scandinavian shipping philosophy and values. It is an extrovert business with many extrovert people in it. Drawing a value chain of the industry explains less in most segments than drawing a people relationship map. So in short, Scandinavian companies are generally strong in the customer relationship area. This is underlined by the fact that in Scandinavia, shipping is seen as a people industry, whereas in some regions it is seen as an asset industry. Regardless of the strong point of departure, relationship skills and competences must improve – too often relationship skills are not scalable as they are highly individual. As companies spread into new markets, the relationship skills need to be industrialised, so that others can learn “how to be good at relationships”. Relationship-building is not, contrary to what a number of people in the industry claim, an art form that you either master or not. There are tools, good practices and generally a number of skills that can be learned. Differentiation in most shipping areas and segments comes through individual managers participating in individual meetings. Thus, what is said, done and not done at those meetings actually carry the brand of the company and sets the differentiation points in stone. In shipping, marketing is one thing, but individual customer touch points is another – and a more important one. Continued and systematic monitoring of customer expectations is a relatively new practice in many shipping companies. Luckily the mantra of “we know our customers because we talk to them every day” is recognised as being too uncertain, too influenced by personal incentives and lacking an overall view of relationships between shipping companies and customers. Thus understanding customer needs, perceptions and general satisfaction becomes difficult but not less important.

Will the importance of relationships go away? A key discussion point in our interviews, and one where opinions differ, concerns the future importance of relationship-handling. That it was part of Shipping 1.0 is beyond discussion, but the importance going forward is not as clear-cut. The shipping industry is a people industry. Sometimes the asset focus and capital requirements shadow the fact that shipping is a knowledge-intensive industry where results are created by people dealing with other people. On the other hand – the argument goes – the shipping product is a generic commodity where price is the only real differentiator – and even more so now that fleets of most major shipping companies are young and of high quality. This points toward a transaction- orientated industry – as opposed to the relationship-based – where close-to-perfect market conditions with full transparency rules. The hand of the market determines the winners and the loser – not the relationship between buyer and seller. This might sound at bit black or white. And it is. The winning formula in a relationship-driven market consists of totally different competences than that of a commodity market. In the former, people is everything. In the latter, pricing and cost are key. It is obvious that the degree of commoditisation differs among segments. In some niche areas, access to quality vessels might still be enough to create a sustainable customer preference – areas where competitive advantage is in the hardware. In others – such as liner services – differentiation in everything else than price and quality is difficult. In major liner shipping companies, it is rather the access to and reliability of the network that carries the competitive advantages than the vessels or there operational efficiency. There are many buts and maybes here. In short, the jury is still out on that one. It is, however, the opinion of Quartz+Co that relationship skills and processes supporting these will continue to be a fundamental key competence requirement for many years ahead. Mainly in tramp shipping but in some form or another, in liner services as well. This is due to the structure of shipping – with the many intermediaries, the history and tradition, the growth of Asian shipping companies and markets, and, not least, the type of management in most companies.


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It might not continue to be a sufficient factor, but it will be a required one. Dinner and drinks will perhaps fade in importance but professional relationship management skills will not. For some companies, customer relationship management can become the key differentiator that can create a sustainable preference in the market. For other companies, customer management is more of a basic and necessary – but not sufficient – condition for doing business in the first place. The complexity of shipping companies increases the need for a structured approach to managing customer relationships. Making sure that the organisation masters commercial flexibility, where different customers are handled differently based on potential, requirements, importance and cultural starting point is within reach as the companies in general have a good intuitive understanding of the value of handling customer relationships. Finally, it must be remembered that in the growing Asian markets, relationships are of key importance. Business relationships might have a different and, to a certain degree, more personal nature than in western markets, but that they are a key to growth in Asia is beyond discussion. Professional governance Many – even larger shipping companies – have been run in a very traditional way where management and the executive board have not been working closely together in a symbiotic manner. This is not about family ownership or not, although the governance in the old Shipping 1.0, where owner, manager and leader was one and the same, has influenced the governance set-up in some companies. For some of the listed shipping companies this might sound odd and as something that was put behind many years ago, but we foresee even more demands on professional management and professional governance models in shipping. Cyclical industries attract purely financial players such as private equity, dedicated banks or similar non-shipping companies. We do expect that we will see more of this kind of speculative – and no negative implications in that term – ownerships or part-ownerships. These companies expect a professional and clear governance structure with clear roles and responsibilities, and that is a positive thing.

Risk management processes Obviously, risk management is and always has been important in shipping. However, given the increased volatility, focus on fewer segments and general uncertainty about market conditions, risk management processes will be handled even more professionally in the future. Already in use are many value-at-risk systems and processes. Moreover, the use of FFAs and the paper market as such expands the abilities of actually managing risk. Contrary to Shipping 1.0, there is no need to view the non-physical market as something less noble than the shipping market as such. Operational strategies and asset strategies cannot be split into “real” shipping and fake shipping. That attitude belongs to the old days. A key in handling risk is the mix of owned, short-term and long-term chartered vessels together with pools and other tools to reduce exposure to the market highs and lows. It decreases the braking distance and thus the overall consequences of a sudden market drop. This mix of vessel portfolio and balance of going long or short is key in all shipping companies’ strategies. Moreover, the asset light operational model in some form offsets the limited access to finance. The pure operational model was somewhat looked down on in the days of Shipping 1.0 but it is a fully legitimate and reasonable way of increasing market presence and growing. In short, professionalism in several areas of the industry is a key requirement. Being professional and efficient must, however, not be mistaken for a strategy. It is a precondition for the right to play.

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DIFFERENT KINDS OF LEADERSHIP IN SCANDINAVIAN SHIPPING COMPANIES In a relationship- and people-based industry, leadership is everything. And good leadership is more. Shipping companies are no longer pure family businesses of small scale and ambition, but more professional companies with increasingly demanding ownerships. Complexity, short-term challenges, difficult discussions with financial partners, difficult and demanding customers, volatility, globalisation and so on – the list of challenges and seemingly contradictory demands is long and underlines the need for leadership of the highest calibre. We do expect the shipping companies to have a different kind of leadership mix in the future: Non-industry leaders In almost all shipping companies the management team consists of managers raised in the company – or at the very least in the industry. The list of non-industry leaders is short. The reasons are many – conservatism, tradition, the importance of relationships, Shipping 1.0 sentimentality, and moreover, the feeling that shipping is a special and unique type of industry. Increasing importance of the paper markets and the complexity of tools and tactics related to financial modelling of the company promote the need for managers with different backgrounds. The whole area of financials and financial markets has become much more sophisticated in recent years and being a shipping manager calls for competences and knowledge in this field. This is not related to the shipping industry as such but more to the fact that the industry is capital-intensive and that this area has grown in importance and complexity over the last 10–15 years. Not from the inside of the company Due to the importance of values and history in shipping companies there has been a tendency to appoint managers from inside. Managers that are already “part of the family” are preferred, and with good reason. However, as we expect the magnitude and speed of change in most shipping companies to increase, we also expect more managers to come from outside. In general, it is easier to put to rest the most sacred and holy traditions from the Shipping 1.0 era if you as a manager have not been part of it for many years.

Outsourcing, closing down segments, dispersing power to new geographical markets, balancing operational and asset strategies etc. can be difficult for “one of the family”, while it might be easier for a newcomer to see the long-term implications and make necessary changes to the business model. As change requirements increase, so does the need for managers without a backpack of history and belonging. Not from Scandinavia In a global company, managers are global. Already, we see an increase in the number of non-Scandinavians in key management positions. And we do expect this to continue. The pool of management talent in a growth industry must be expanded and fertilised. Implicitly, there is also an expectation that leadership structures will be more decentralised and non-hierarchical. Given the fact that speed is everything and companies are becoming more dispersed, we expect shipping companies of the future to have a flat structure, with strong local management that does not have to “ask the Scandinavian HQ for permission” but can make decisions and close deals. Not necessarily men In our interviews we met only one woman. Shipping is still a male-orientated industry and it makes good sense to expand the pool of talent by looking beyond the gender border. Summing up, we believe that all of these factors are positive, and we think that it might be the best and most secure way of rapid change. Does it sound like a small matter – a different kind of leadership? A more diversified kind of leadership? It is not. It might end up being the most challenging and – for some – even painful element on the transformation journey of the Scandinavian shipping industry. The above is not about bad or good leadership but the right leadership that fits the challenges of the era.


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CLEARER AND SIMPLER BUSINESS MODEL AND STRATEGY

In many ways, the 1.0 and 2.0 strategies were not really strategies. Shipping 1.0 was about tradition and 2.0 was about growth. Shipping companies are traditionally not driven by the formal strategy of the company, but by the values. Management and employees are – in general – not guided in their daily decisions by the strategy, but by the values. There are many reasons for this, one being the lack of tradition for developing formal strategies. Often alienated by the tools, language and assumptions underlying strategic planning – for example in the form of 5-year market predictions or value chain analyses – managers have adopted a more intuition-based approach to setting the long-term direction of the company. Moreover, the ownership and industry structures have also promoted a more value-orientated form of direction-setting. In our opinion, this fluid and highly adoptive way of handling strategies – with long-term and short-term views at the same time – is something that other industries could learn a lot from. It is structured but unstructured, it has clear directions and goals, but with room for acting on opportunities. Moreover, it is both fact-based and intuitive; in short, it is contemporary strategy-making. The priorities in most shipping companies in recent years have not been on long-term strategies but more on operational and tactical issues, which makes good sense. After the super cycle, it again makes a difference whether you are actually performing well or not. In the good years everyone made money – and lots of it, but now the design and execution of a strategy actually make a measurable difference. We believe that shipping strategies will be changed in several ways in the future: 1. Strategies must be simpler The more complex the environment and context, the simpler the strategy. There is a tendency toward answering complex and unpredictable conditions with complex and overlong strategies that cannot be implemented. Therefore, making strategies simple but not simplistic is the key to successful implementation. In a faster-changing and in general more risky business environment the need for strategies that guide decentralised units and front-line managers is even more important than

it used to be. Mistakes are more risky, missed opportunities due to slow reaction and bureaucracy are more costly. By “simple” we mean a strategy that is broad enough to take changes and shifts in the environment into account, so that a new strategy is not irrelevant a few days after it was designed, and at the same time specific enough to influence and guide day-to-day decision-making. Strategy is all about influencing the daily behaviour of employees and managers. In order to do so, the strategy must have a form and a content that makes it possible to communicate. In order to communicate something, it must be simple and short but also relevant. Books have been written about this type of strategy – actually by one of us – but here we will limit ourselves to underlining the need for simple but meaningful strategies in the shipping sector. Strategies need to be simple to be global. Since shipping companies will have to become more global they will have to take into account the global scope of the strategies. The ability to adapt to changes in the marketplace is a fundamental characteristic of Shipping 3.0. Doing business in China – as only one example – requires an organisational fluidity as conditions, requirements, behaviour, attitudes and actions are in many ways ever-changing and unpredictable. The obvious risk, on one hand, is setting everything free, while on the other hand, one risks being too restricted. Therefore, strategy; development, implementation and correction, is a company-wide project. Increased size and complexity makes a company rigid and slow. Hierarchy and control mechanisms do the same. Consequently, these effects need to be fought with focus on execution, speed, commercial flexibility and simplicity. 2. Strategies will be based on four contemporary but generic business models Traditionally, owning or not owning ships has been the pivotal question for shipping companies and their strategic choices. Shipping Strategy 1.0 was actually all about the number of vessels owned by the company – the more the better. This no longer holds true. Shipping 3.0 is much more than that. There are more parameters to work with


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when designing the strategy and the business model than the number of vessels, and the balance between the asset strategy and the operational strategy. In our view, four generic shipping business model designs are crystallising. They are archetypes or end-games rather than clear-cut-fits-all business models. The archetypes build on the fact that no company can level out or avoid the volatility. However, they can design the strategy and business model to benefit more or less from it. The business model archetypes. On the basis of the general direction mentioned above – the focus, leadership, etc. – we have identified four archetype business models (see figure 3). We see the key parameters and strategic choices in two dimensions:

Where to compete? This regards the range of segments in which a company seeks to compete. Is it single segment – e.g. Handysize Bulk, container traffic in one or two main lanes, MR product tankers, or is it multiple segments – e.g. Handysize Bulk and MR Product Tankers, LR1, LR2 and MR product tankers and Project Cargo etc?

How to compete? This is the key choice of core competences; the discussion of which functions and tasks in the full value chain that the company wishes to pursue itself and which of them that might be out- sourced (or left) to partners and external companies. This is not only about the organisation of the affinity of the technical department but also about whether to operate only owned vessels, or to have vessels in on charter, long- or short-term. For liners, it very much concerns the parts of the value chain that

BROAD SCOPE NARROW SCOPE

WHERE TO COMPETE

FIG. 3 - BUSINESS MODEL ARCHETYPES

THE TRADITIONALIST

THE FUNCTIONALIST

THE NICHE COMPANY

THE SPECIALIST

INTEGRATED

DECOMPOSED HOW TO COMPETE

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covers for example network ownership, sales and customer services and ship ownership. For tramp shipping companies, the key question is what to do and what not to do. Moreover, even though the industry is changing, the key strategic questions on short/long and in/out are still valid.

When designing the business model of the future, we recommend using the archetypes as inspiration of where to head and not necessarily as clear ambitions or final end-games. One thing, however, must be underlined. Going for more than one at the same time or something in between the archetypes cannot be recommended. We are not saying that the models above are the winning business models – not at all. But we do believe in the need for clear and simple business model designs. Also, we must again highlight that within diversified shipping companies, different business models may be applied in different divisions. One corporation might have one division that builds on the traditional model and another one designed as a specialist. These autonomous divisions can very well be focused and specialised even though they belong to a larger brand. However, they must be free to act and not spend too much time on cross-divisional activities and concerns that could alter their focus. We are not saying that all companies should be in only one segment or outsource everything. Our point is that more companies should look at opportunities for a reduction of the operational and commercial width of the company and/or division as this is almost the only way to reduce the increased complexity that, if left alone, could make the company slow. Clearly, this has further impact on how to differentiate, how to handle the business cycle, where to generate profit, etc. We list a few keywords on each model below: The traditionalists continue as broad companies. They will have most functions in-house and will be the closest to Shipping 1.0 out of the four archetypes – but still they will work to reduce the number of segments in which they are active. These companies will think long-term and seek to differentiate themselves on long-term relationships and “name and

history” in the industry. They will use a middle-of-the-road cycle management strategy where they are satisfied with not getting all of the highs and not suffering all the lows. Their asset strategy will be focused on building and owning the fleet – complemented with long term charters. Globalisation will be difficult as the broad-based model can be difficult to export. Key challenges will be how to drive growth and be flexible/fast enough. The functionalist will seek to focus on key competences across segments. Companies going this way will seek core competences and build differentiation in selected areas of “software” mastership. Asset strategy is subject to the operational strategies. The cycle management strategy is based on being the best at what one does, and thereby being first choice no matter where in the cycle the market is. Globalisation will be a matter of spreading knowledge. The niche companies focus on one segment. These companies might be divisions in bigger corporations working with different brands. They build their differentiation and basis of competition on their market position in the given niche market. They try to dominate the niche they have selected. They are integrated to ensure that the customer expectations toward quality and services are met, and will go global with the speed required by their customers. Relationships will be important but not key for success. Growth will be a key challenge for these companies – depending on the size of the niche they focus on. The specialist focuses on a few segments and areas of the value chain. This is both specialised and decomposed. Differentiation is based on specialisation “we only do this but we are the best in the world at it”. Globalisation will be relatively easy as this is a “narrow” company. Relationships will mean less and the company will seek to be the best at what they do. 3. Clearer differentiation In commoditised and atomistic industries the importance of excellence and mastering of skills is clear. Being third-best in a market with an oversupply of everything is not attractive. The consequence is that in a market of oversupply it is even more important to have a clear definition of the championship of the company. What makes it special and what differentiates it from other shipping companies? Only through sharp,


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demonstrated and felt differentiation can the company be heard and seen in the red ocean of similar companies, with similar vessels, similar seamen, similar technical set-up, similar quality – well, similar everything. In good times, everyone is a winner. In bad times, only the best win. Differentiation in this case is about two things: looking for the core of the company and evaluating how far you are from it. Is it the core technical management of vessels? Is it the number of vessels? Is it flexibility in operations? Is it the brand? And, secondly, how far from global championship are you in this or these core areas? Friendship and favours is one thing, a “nice to have”. Global excellence where the company is unbeatable in what it is doing is a different matter altogether. That is what should be the basis of a long term strategy. Furthermore, it is worth noting that Chinese companies prefer to make business with “winning” companies. When seeking a partner to do business with, many Chinese companies seek out players that are already the best as they – in general – seem to have a longer life and are thus perceived to be more attractive for companies to partner with. 4. More contemporary tools Strategy is not planning, strategy is doing. To continue the development in the sector, a number of contemporary strategy tools must be applied. SWOT and Value Chain analysis just do not make sense in a turbulent industry. Looking back does not provide a clear view of what lies ahead. In that sense, all shipping companies must become rule breakers. When designing a strategy, the shipping companies must involve the full organisation. This is not about strategy development, nor about strategy implementation. It is about both – at the same time. Speed, timing and agility are the key competences of the successful shipping company, and consequently, this requires involvement throughout the strategy formulation process.

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ROUND-UP

We spent 100 days reading and analysing. We spoke to the top CEOs of the main shipping companies in Scandinavia. Together, they represent roughly 15% of the global shipping capacity across the main segments, arguably the highest concentration of shipping managers in the world. The CEOs confirmed that these are interesting, challenging and important times for the Scandinavian shipping industry. Four major trends were identified and their consequences for Shipping Strategy 3.0 have been described and condensed into five major strategic changes for the Scandinavian shipping industry. The consequences are many. We now move from a situation of strategy by tradition – Shipping 1.0 – toward a strategy by choice and design. Moreover, the whole idea of national shipping clusters will in time come under severe pressure as the importance of nations is more or less replaced by the importance of competence. Will the Scandinavian region continue to have a substantial overrepresentation of shipping companies in a global world where China is expected to become the biggest economy in 10 years time? Will national cluster synergies based on historic competences continue to outweigh whatever global development that is taking place? The global division of labour and specialisation will develop in unpredictable ways, and it remains to be seen whether the Scandinavian position is sustainable. It is, however, clear that in order to maintain a sustainable position, it takes great efforts. As mentioned earlier we do expect a transformation of the shipping industry, and this implies dramatic changes – but we still do not know exactly how and when. In such a situation it often makes sense to look outside the industry. Take for example the airline industry. Here we have seen the introduction of game-changing business models in the form of low-cost no-frills carriers. What about the use of technology in the publishing industry? Is there something to learn from the use of collaboration, customer implants and partnerships in the retail and fast moving consumer goods industry? These and other

examples might uncover some new and different ways of being a shipping company. Moreover, shipping companies might believe that the business models invented more than 100 years ago are so solid that they can last another century. Other industries have shown that this is rarely the case. Obviously, we have simplified matters and, we are sure, overlooked details. But hopefully the conclusions can inspire as well as generate discussions within companies. We are well aware that we are sticking our necks out with strong and clear conclusions in such a complex and unpredictable industry, but this is how we view the world and hopefully it is worth the while for the participants in the analysis and readers.


THANK YOU

Clearly, this report would not be of any interest without the generous and open response from the companies involved. Thus we want to thank each and everyone on the list below for their inspiring and clear-sighted views and for sharing their valuable time and extensive insights with us – and now with you. • • • • • • • • • • • • • • • • • • • • • •

Andreas Nordseth, CEO, Danish Maritime Authority Birgit Sølling Olsen, Deputy Director-General, Danish Maritime Authority Carsten Mortensen, CEO Norden Claes Devantier, Senior Vice President, Maersk Broker Eivind Kolding, CEO Container Business, A.P. Moller - Maersk Frank G. Jensen, Partner, Chairman and CEO, Clipper Henrik Ramskov, Managing Director, Handytankers Jacob Melgaard, CEO, TORM Jens Martin Jensen, Managing Director and CEO, Frontline Management AS Kim Ullman, Senior Vice President and Chief Strategic Officer, Stena Bulk Klaus Kjærulff, Chairman of the Board Lars Pedersen, Head of Fleet Management, Höegh Fleet Services Mikael Skov, CEO, Tankers inc. Niels Smedegaard, President and CEO, DFDS Per Gullestrup, Partner, CEO Clipper Ferries/Ro-Ro Peter Lorange, Professor, International shipping expert Robert M. Uggla, Managing Director, Broström Roland M. Andersen, CFO TORM Tommy Thomsen, CEO, Nordic Tankers Tony Fang, PhD – International Business Torben Janholt, CEO, J. Lauritzen Trond H. Klaveness, President and CEO, The Torvald Klaveness Group

Moreover, in Quartz+Co, Mogens Holm and Anja Chemnitz

Thygesen went to the limit and then some in order to collect data and analyse the shipping industry. Further, Claus Weye and Jakob Grane provided valuable input and assistance to the conclusions. Thank you for that. Contact For further information on the whitepaper, please contact Lars Bo Hansen, Partner and shipping expert in Quartz+Co at lars.bo.hansen@quartzco.com.


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