Riding the Violent Waves of a Downturn: Advice from three different segments
“We know maritime is a cyclical industry and we always come out of every down cycle stronger,” said Michael Chia, managing director of Keppel Offshore & Marine Ltd. “Opportunities are there in shipping and further ocean industries.”
“We are addressing the elephant in the room,” said Walter Qvam, president and chief executive of Kongsberg Gruppen. “Conferences like this are important so we can talk to each other about which buttons to push, which is better than trying to solve these problems in isolation. I am what we would call a paranoid optimist about the future of the industry because the big question is how long will the downturn last. I think shipping will come out of this cycle structurally different than we came into it. You have to prioritise where to put your resources in order to survive.”
Sturla Henriksen, chief executive of the Norwegian Shipowners’ Association called for perspective on the matter.
“I think it’s important to realise we are captured by what is close to us, which for Norwegians shipowners is the collapse in oil prices that has hit our industry very hard,” he said. “The reason is the composition of our fleet is different from that of the other maritime majors. Typically if you look at the fleet of other leading shipping countries, they have 40-80% of their fleet transporting large commodities through tankers and bulkers. That segment makes up less than 10% of the Norwegian fleet.”
“We are very heavy on the offshore side, with about one-third of our fleet and one-half of our companies related to that sector. So low oil prices are affecting us disproportionately. But lower commodity prices will be a challenge for the whole industry.
“This year and next are gone for all practical purposes, with a major restructuring of the offshore sector expected. We will see some mergers and others will go out of business. There is a major structural overcapacity that has to be dealt with, though we are hopeful in a few years activity will pick up again. It will take time for the rates to rise again because of this overcapacity.
“Norway has been a maritime nation for years so it is used to riding the waves of violent business cycles. But we will maintain the same advantage Singapore also has even in down times: high-level competency in a very wide maritime sector. Though Norway is heavy on offshore, it has a very specialised but also diversified fleet, which means there is an element of hedging there.”
Mr Chia said deciding on the right size for the industry can be tricky.
“It is hard to speculate how long the down cycle will last, but what is important is to ask what we can do,” he said. “When demand is weak how are you going to cope? You have to be very careful not to cut into the bone because you still need your competencies to carry you into the future.”
“We have lots more shipyards coming into the market as people who made money in the property market in China decided to invest in shipyards. We have investors who don’t know anything about drilling — we have 80 rigs in China without contracts. That is a desperate market, but it is a reality.
“The market is already restructuring and some of the speculators are dropping out. This is healthy for the market.
“Both Norwegian and Singaporean companies are niche players meaning we have to have comparative advantages that will allow us to be winners in the industry. One of those advantages is technology, and that should be a first priority for these companies.”
Mr Qvam said Kongsberg spends 10% of its budget on research and development, much higher than most companies, because it is the lifeblood of the company. “For us it is a holy rule to stay invested in technology and R&D. But in such lean times, it can certainly lead to interesting discussions while determining the budget,” he said.
“I do not agree with the sentiment that you need to stay put in times like this — you have to get more creative. You have to get closer to your customers and partners to survive; you have to be more active.
“The biggest technological opportunity we see for the maritime industry is optimisation using digitalisation and big data analytics. You need to look at this from the client’s perspective, and in our case our biggest clients are oil and gas companies. They have already cut costs by 25-30%, but we see this in every downturn. Then oil prices eventually go up and they ramp up everything again and haven’t learned anything.
“This time is different, as oil companies look like they need to cut 4060% of costs. You can’t take that high of a percentage out of the supply chain and still survive. So oil companies need to make these leaner changes permanent. And there are new technological solutions already out there, but the oil companies have been so conservative they haven’t adopted many of them yet.
“We believe industrial digitalisation can make a big difference in the maritime sector as advances in connectivity, software, 3D printing,