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Shipping

Nearly every shipping segment is facing significant challenges that require immediate action.

Nearly every large shipping segment experiences significant challenges at this time. Flattening demand growth and a high volatility of financial results are common challenges. Overcapacities drive freight and charter rates down across container, dry-bulk, and tanker segments. Terminal operators in many locations face increasing competition and operational challenges related to ever-increasing vessel sizes particularly in container shipping. Winning companies in this environment have implemented bold transformation programs to address strategic, commercial, cost, and organizational differentiators.

Four Steps to Transforming Large Container Lines

Many of the toughest business challenges encountered by the container shipping industry today can be addressed only through organizational transformation. Here are four interconnected steps required for transformation projects in container shipping:

  1. Funding the Journey. This entails scoring short-term successes that go straight to the bottom line and that free up sources required for more fundamental and long-term change. Carriers will have to make a mind-set shift on five fronts: strategic focus, network design, pricing for profitability, procurement excellence, and project execution.
  2. Winning in the Medium Term. Use momentum gained in step one to achieve more enduring competitive advantage. Define a winning business model that spells out a clear and compelling value proposition. Then build the right operating model.
  3. Establishing the Right Team, Organization, and Culture. Design a flatter, more agile organization by simplifying reporting layers and defining the right spans of control for managers. Also, build a skilled transformation team and foster a performance culture by defining the right indicators and targets.
  4. Unlocking Alliance Synergies and Accelerating M&A. Get more from more sophisticated alliances models to capture synergies through extended joint procurement, joint operations, and equipment pooling. Carriers could achieve cost reductions of 2.5 to 3% of the overall cost base—the absolute value to be shared among the partners could exceed $1 billion per midsize alliance.

Cutting Bunker Costs: A Guide

Optimizing bunker cost is a key improvement opportunity for many shipping companies, given the magnitude of the cost category. Shipping companies wanting to optimize bunker costs aim for a holistic approach to improve planning, procurement, voyage execution, charter value, technical efficiency, and fleet optimization.

The Future of Marine Fuel

To build a competitive edge for the future, shipping companies need to decide which marine fuel option will provide the highest return in the coming years and how they will comply with the increasingly stringent rules and regulations imposed by regulators. The challenge is finding the best choice based on the relative benefits and drawbacks of each alternative.

  1. LNG. Natural gas that has been converted to liquid is the cleanest option from an environmental standpoint. However, it requires costly investments in new bunkering infrastructure. In addition, the performance of engines designed exclusively for LNG has not been fully tested at sea.
  2. Heavy Fuel Oil Cleaned by Scrubbers. This enables vessels to continue to use a cheap fuel oil. However, scrubbers require a significant investment and some components of the technology have not been fully proven.
  3. Distillate Oils. Marine gas oil and marine diesel oil are readily available and are cleaner than heavy fuel oils that haven’t been scrubbed. But distillates are much more expensive than other fuel options.

Bottom line: companies that take action now to evaluate their fuel options will be better positioned to reap the benefits of wise investments in the future.

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