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Navigating a changing shipping industry

Industry players share their views on the opportunities and challenges ahead for the sector

Mr Sheshashayee: Ship owners need to evaluate markets with a shorter time-frame than in the past, with higher standards for return and curtailed depreciation periods.

Mr Basma: As with preceding revolutions, ship owners must adapt very quickly by building new vessels, training and upgrading staff skills, and by the way they transact and regulate.

Mr Pany: The primary strategy is to cut costs using new technologies and digitalisation. Some owners are investing in newer vessels with better technology and moving towards the use of LNG.

Mr Elwert: It is all about expanding network and creating new business models. Ship owners must understand the importance of stronger collaborations with bankers and shippers.

Roundtable participants:

  • Venkatraman Sheshashayee, CEO, Miclyn Express Offshore, Singapore
  • Hassan Basma, Founder and CEO, HBA Offshore, Singapore
  • Murali Pany, Managing Partner, Joseph Tan Jude Benny LLP, Singapore
  • Michael P. Elwert, Group CEO, Elektrans Group

Moderator: Francis Kan
The Business Times

The Business Times: What are the key challenges ahead for ship owners in South-east Asia, such as the 2020 global sulphur limits on marine fuel oil?

Murali Pany: Two key challenges are regulatory in origin as they will have a major impact on operating costs. The new global sulphur cap will come into effect on Jan 1, 2020. Currently, fuel oil that is compliant with the proposed cap costs around 50 per cent more than the usual fuel oil as used by ships. So operating costs will increase. The alternative to using this more expensive fuel oil is to install scrubbers, which are also costly.

Secondly, the Ballast Water Convention came into effect on Sept 8, 2017. The Convention requires all ships to implement a "Ballast water management plan" including a ballast water record book and carrying out ballast water management and treatment procedures to a given standard.

I understand that industry watchers expect that the global maritime industry will spend upwards of US$75 billion on equipping their vessels with ballast water treatment systems and estimates show that the cost of implementation of the treatment systems can range from US$500,000 to US$5 million per vessel.

Venkatraman Sheshashayee: Some of the main challenges for ship owners in South-east Asia are an oversupply of vessels, exacerbated by insufficient scrapping; changing global trade patterns; insufficient talent; technological disruption, and increasing regulatory constraints and costs, some which are not always meaningful.

Hassan Basma: The shipping and offshore industry is undergoing a paradigm shift akin to the changes that occurred when we changed from sails to steam engines and from steam engines to marine fuels and now to LNG (liquefied natural gas) fuel.

The changes today stem from emissions control, automation and digitalisation. These changes are not just in the engine room but on the bridge and on deck.

Michael P. Elwert: The main challenge for ship owners will be adapting to demand and supply and creating sustainable businesses to somehow harvest opportunities that are isolated from the volatility.

There is also the challenge of embracing new technologies and being agile enough to deal with disruption. The shipping sector has been very slow initially compared to other industries in adopting new technologies but there is a lot more focus on it now.

As for the sulphur limits, it looks like there will be no change to the deadline and everyone will have to meet the requirements.

There is a lot of discussion on whether there will be sufficient fuel available. You also need to have the fuel where the ships are, as distribution to the point of bunker can be a challenge.

BT: What strategies are ship owners employing to help overcome these challenges?

Murali Pany: The primary strategy we have seen is to cut costs using new technologies and digitalisation. This is not just on the operational side. Some owners are investing in newer vessels with better technology while scrapping older vessels and moving towards the use of LNG instead of fuel oil.

Venkatraman Sheshashayee: Ship owners need to evaluate markets with a shorter time-frame than in the past, with higher standards for return and curtailed depreciation periods.

Traditional estimates of economic lives of 20-25 years are becoming increasingly unrealistic; business cases based on such foundations are inherently weak. A more stringent approach should help scale back on new-building orders thus helping balance supply and demand more optimally.

Ship owners should also invest in a better understanding of global economic scenarios. The process of looking for, investigating and evaluating economic and political trends and patterns should find its place in the C-suites and the boardrooms of ship owners as a matter of course.

Efforts to invest in talent are also insufficient. In particular, industry players need to invest in economists and data-analytics professionals in addition to investing in training supply chain, fleet management and service delivery professionals. They should also be investing in business technology teams today.

Hassan Basma: As with preceding revolutions, ship owners must adapt very quickly by building new vessels, training and upgrading staff skills, and by the way we transact and regulate.

Michael P. Elwert: It is all about expanding your network and creating new business models. Ship owners must understand the importance of stronger collaborations with bankers and shippers.

Stronger alliances will bring more cost competitiveness and offers a better value proposition to customers.

BT: How will the Belt & Road (B&R) initiative, which includes port developments and the opening of new trade routes, affect the maritime sector in the region?

Murali Pany: B&R is in essence an ambitious global infrastructure project. It has the potential to jumpstart economies and increase multilateral trade. Apart from the increase in infrastructure projects, which by itself will fuel short-term demand, new lines or trade routes will open up new opportunities for ship owners.

Ship owners have to watch belt and road developments closely and be ready to move quickly. They will have to be flexible, nimble and prepared to operate out of their comfort zones.

Venkatraman Sheshashayee: I believe that it is too early to forecast realistic outcomes at this stage, as much of B&R is conceptual today. More ports and more trade routes sound very encouraging, but these must be balanced with the possibility of more pipelines and railway tracks and international roadways, which can be quite inimical to shipping.

Having said this, I reiterate the need for ship owners to invest in understanding economic scenarios better, in evaluating the impacts of new political and technological disruptions faster and building these capabilities into their strategic planning at board and senior management levels.

This will give them the ability to anticipate and plan for different futures, thus increasing the probability of successful outcomes.

Hassan Basma: It is difficult to predict but we certainly hope that new maritime infrastructure will be a catalyst for more trade and better interconnectedness, which in turn could impact, say, the concept of hub-and-spoke to point-to-point. It could also lead to smaller but more efficient ships, and perhaps more specialised ships for specific trades.

Michael P. Elwert: It is definitely going to change the industry; new trading routes will emerge in the region. One possible game changer is the proposed Kra Canal project in Thailand, which would slash by many days sea transport and provide a strong alternative to the Straits of Malacca.

BT: How will B&R affect Singapore's role in the industry and strategic maritime location?

Murali Pany: Singapore is in many ways, uniquely and favourably positioned to take advantage of a successful B&R initiative.

Although the initiative is centred on China, Singapore can serve as a connecting hub for the potential burgeoning trade relationship between China, South-east Asia, South Asia and Oceania. To do so, Singapore will have to maintain its attractiveness as a maritime hub and a container port.

Venkatraman Sheshashayee: While I believe it is too early to tell, based on what I have understood of the strategic imperatives that drive B&R, Singapore is not likely to be a beneficiary. Parallel trade, supply and engagement routes will detract from Singapore's current position as Asean's hub and arbiter. I believe Singapore is already preparing for this in diverse ways.

Hassan Basma: I think Singapore's strategic location will be a positive factor in maintaining its maritime importance, especially when coupled with its efficient and competitive services that is backed by current regulations and practices. Some examples of these services include LNG bunkering, specialist engine repairs, maritime communication as well as a maritime insurance, finance and legał framework.

Michael P. Elwert: Singapore is still the top maritime hub in the world, and I don't see that changing. It needs to continue to adapt and constantly improve its offerings and be aware of what happens in the region when it comes to B&R.

BT: What are your plans to grow your business in light of the changes in the sector?

Venkatraman Sheshashayee: I work in the offshore services business, but if I were in shipping, I would first build a team that could help me understand the impacts that various political, economic and technological factors are having on the industry.

Based on the outcomes of this study, I would look at the opportunities that arise, and develop a business case that we substantiate and stand behind. If we are able to sell this to the board I would begin to implement the plan.

Hassan Basma: In the short term our focus is to return to profitability and higher utilisation. In the longer term, we aim to replace the fleet with fuel efficient, low emission, semi-automated and intelligent ships.

Michael P. Elwert: What we are doing is to become asset light, and to make sure our organisation is able to adapt to changes. The important part of being a successful ship owner is to do the asset play at the right time; buying at the right time and offloading at the right time. It is also about entering new collaborations so we are actively working to put ourselves in different strategic partnerships to give us a competitive edge.

We have also gone aggressively to the e-commerce side of the business by providing e-commerce solutions to the industry.

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