6 November 2008
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Tough economic times float ShipServ’s boat – Lloyd’s List, 28 October 2008.
With saving rather than spending set to dominate companies’ corporate strategies, chief executive Paul Ostergaard is confident the e-commerce platform will benefit from the financial downturn, writes Neville Smith
Few players in the maritime industry are looking forward to the downturn that now seems inevitable. Lawyers and arbitrators will continue to work but for most buyers and sellers, the prospect of a serious and long-lasting correction in shipping markets promises more threat than opportunity.
Shipowners with a strong balance sheet might talk of swooping on distressed assets but for most companies, saving rather than spending will be the focus. That is music to the ears of ShipServ, which has spent the last eight years cementing its position as a platform to connect buyers and suppliers of ships’ equipment,
stores and chandlery.
It has been a slog at times as founder Paul Ostergaard admits, growing from a low base and battling the suspicion of e-commerce. For the last few years, ShipServ’s message that using its TradeNet platform could improve relationships and save money has struggled against the roar of charter earnings.
Agreeing the past few years have been ones when “owners haven’t been extremely focused on cost”, Mr Ostergaard is confident that tough times for the industry equals good times for ShipServ.
“From having to really establish ourselves, there is now a market trend that’s really going to play to our strengths. That more companies have vice-president level people whose job is to manage operations is a good thing for us.”
Mr Ostergaard is not worried about consolidation either, since in the past it has brought more business —notably with OSG’s takeover of Stelmar—and with it fresh business as aggressive companies continued to grow.
“Often the challenge our customers want to address is to cope with more and more ships,” says vice-president, marketing, John Watton “It’s not that they want to take people out of the business or reduce the fleet. Maybe its indicative that the sort of company we attract is the well-performing one that makes the acquisitions.”
That makes the ShipServ sell as much about demonstrating that its platform can drive growth as about saving costs through automation, though here too it has a strong story. The 8,000 ship suppliers on the system are entirely driven by owners who trade with them but Mr Ostergaard points out that once suppliers get on the system, they channel all their business through TradeNet, from large concerns to mom and pop shops.
On the buy side, ShipServ has “a good chunk” of the world’s biggest shipmanagers alongside its shipowner clients, a key strength in getting penetration. “There’s no doubt at a shipmanager the chief executive cares about the things we care about, whereas in a shipping company he cares about buying and selling ships,” says Mr Ostergaard.
Just how to measure the benefits of e-commerce ShipServ’s research shows easy savings of between 2%-5% to upwards of 20% in a few cases of close collaboration. Just a small fraction is actually saved by process automation.
“More and more buyers are finding that suppliers are willing to negotiate better prices because they are guaranteed a flow of orders through the system, which reduces contract leakage,” he says
At the high end, Mr Watton says the discount that suppliers are prepared to grant buyers comes from having a certain degree of order flow guaranteed.
“The supplier that makes savings is willing to pass them back. We have anecdotal evidence that at the higher end 20% is possible”.
Working on figures from Moore Stephens’ benchmark OpCost report, he puts an annual $600,000 price tag on ship supplies that can be sourced through TradeNet.
“We can probably reduce that by $50,000-$100,000 per ship per year. So on a fleet of 30 ships, that’s $1.5m straight to the bottom line. We have 4,000 ships now managed through ShipServ, spending about $1bn per anum. On those sort of numbers we are driving around $200m of savings into those 4,000 ships.”
While taking out costs is one side of the equation, improving relationships is the other, not with ShipServ, but between buyer and seller, giving them time to strengthen business relationships.
“What you don’t get from a report is how people describe life before ShipServ as chaos, with purchasing departments just pushing paper around,” says Mr Ostergaard.
Mr Watton tells the story of a Singapore supplier who spent eight hours a day pushing paper but now spends an hour on administration and the rest looking for new business.
TradeNet provides buyers with a dashboard displaying contract performance, price history and fulfilment data, providing them with a benchmark that helps future decisions. The discrete improvements include standardisation and better compliance but Mr Watton says the testaments from buyers speak for themselves.
“OSG say their buyers spend time being buyers. Holland America Lines said they have information where before they were working on gut feel and intuition. As well as freeing up time, they are building up a view of their spending patterns that they can analyse and use for decisions.”
It is perhaps not so surprising that ShipServ’s survey of its users found job satisfaction high on the list of positives. Mr Ostergaard says ship supply is no different to the wider industry: companies of all sizes are struggling to attract and retain high quality staff. Having modern, efficient systems is an important part of the mix.
“Things like job satisfaction and time saving are not always what gets people out of their chair, but now that we are able to quantify savings it becomes more interesting. While you are making $100,000 a day on your ship our message that you can save $50,000 a year can quickly get lost in the board meeting.”
Those days are over, for now at least, and though the pair do not want to be characterised as agents of doom and gloom, there is a tangible feeling that ShipServ’s time has come.
“The way we tell it is, do you believe you are a company where in the next five years, you are going to have to manage your costs?” says Mr Ostergaard. “If you believe that, then now is the time to make tough changes, not when everything is falling apart around you. Fortunately, we do not see the downturn as a disaster, but rather as an impetus for some nice business. A prudent company should spend some time thinking about it too.”