ON LONG-HAUL ROUTES AND IN CERTAIN MARKET ENVIRONMENTS, FUEL MAY REPRESENT MORE THAN 50% OF THE FREIGHT COST.


THE LENS OF FUTURE OPPORTUNITY Imagine, as a charterer back in 2019, you had a crystal ball with an insight into how the shipping market unfolded in 2021. Presumably, notwithstanding the daily business challenges then, you would have likely gone “long freight”, to build a cost advantage and compete more effectively this year. If you were a ship operator with a similar insight, you would have likely chartered ships for long-term time-charters, to carry you through the post-Covid recovery period with inexpensive ships on hand, giving you an edge over your competitors. In both cases, your advantage would have been based on building an edge around the cost of time charter rates which, next to the ports’ and fuel costs, is one of three pillars of variable voyage costs, driving freight rates. On long-haul routes and in certain market environments, fuel may represent more than 50% of the freight cost. For example, this would be the case for a voyage on a Panamax loaded with soybeans bound for China from Brazil a few years ago. And, even today, in an entirely different charter market, it is still about a third of the cost. Considering the marginal impact of freight volatility on what is otherwise a low-margin commodity business, an insight into the future direction of fuel costs could prove immensely helpful indeed.


While we do not have a crystal ball that offers us a perfect view into the future, given the certainty and increased pace of the energy transition and its estimated costs in the years to come, we can foresee, with reasonable certainty, that the cost of fuels will be affected in a major way. And, that CO2, in ways yet to be decided, will be factored in as the fourth pillar of voyage economics, significantly impacting freight rates.


Of course, this is a rather simplistic view, drawn to drive the point that those who have been able to factor decarbonization into their business models are likely to fare well, compared to those who have not done so. And, that the basis to compete will be affected in a variety of other material ways; access to capital, retention and attraction of talent, brand recognition and the capacity to retain and grow the customer base. What is certain is that this transition, and the new technologies and innovative business models whose development it will catalyse, will offer some companies an unassailable competitive edge, while placing others at a significant competitive disadvantage.


THE ONE INVESTMENT OPPORTUNITY NO SHIPPING COMPANY OR A


CHARTERER CAN AFFORD TO MISS What assets should you be investing in most? When asked that question, Warren Buffet had a simple answer: “By far the best investment you can make is in yourself. Address whatever you feel your weaknesses are, and do it now. Whatever you want to learn more, start doing it today.’


Because of the inherent uncertainties, positioning vis-a-vis decarbonization is anything but easy. But, it does not mean companies that have yet to start their journey or those that did but got stuck due to the complexity and the scale of the challenge, don’t have a choice. The choice is, as I see it, between embracing change and embarking on a journey towards “a tsunami”, or holding on to the illusive safety of the harbour and facing far greater consequences later.


But, what does embracing change in the above context, actually entail? It means creating a culture of sustainability and placing it at the core of your business; building up the necessary knowledge capital, reimagining your business in a decarbonized world and crafting a strategy and a roadmap to take you there. It also means forming alliances and roundtables with your customers and other stakeholders in the industry and beyond, to learn and identify collaborative growth opportunities.


Finally, it means appreciating that all of the above does take time, which is quickly running out. This transition will be messy. But, failure to lead during these defining moments will cost far more than not getting everything perfectly right. And, it will define the level of confidence your employees and stakeholders have in you. They will have an inevitable right to ask you at some point: What did you do for our company, once you knew that shipping would decarbonise?


Voytek Chelkowski E: voytek.chelkowski@seamind-blueocean.com


15 | ADMISI - The Ghost In The Machine | Q4 Edition 2021


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