General Forum: Monday 2nd October

09.50 - 11.20 Karl Jeffrey - Compuship

Are your days numbered?

Dolly Robinson and Karl Jeffery, Digital Ship magazine

www.thedigitalship.com

Hello, my name’s Karl Jeffery, editor of Digital Ship magazine, a new magazine about maritime IT, and this is my deputy editor, Dolly Robinson. What we are going to do is present some of the ideas we have about the future of ship broking and the maritime industry, which should help you form some conclusions about your own future and help you decide what to do about it.

Information technology and computers, as we all know, are very limited in what they can do. They can only do tasks which can be automated, or reduced to simple series of steps. They are very good at distributing and managing information, but they can’t actually think, and they’ll never be able to.

The maritime industry and the people associated with it, by contrast, is comprised of many individuals, all thinking independently and acting pretty much in their own interests, whatever that may be. Creating business between these people, as you all know, is not a simple exercise. It takes a lot of guts, to start off with, to counter all the bluffing and double-bluffing which goes on; it is very complex and involved, and ultimately you have to really feel your way through it, because you can’t rely on mere logic to work out whether a deal is a good one.

So here we come to the introduction of computers into ship broking. Which aspects of ship broking can computers do, and which aspects can’t they do?

Certainly ship broking involves a lot of mundane communication, faxes, telexes and phone calls. If we could get rid of all that with quick and easy e-mails, or better still, just let the computers talk to each other without our involvement, that would be great.

On the other hand, ship broking involves a great deal of personal contact, as we put together complex deals and find out what is going on. Computers cannot do this, and we certainly wouldn’t want them to try.

How much can computers achieve?

The big question is how much of a shipbroker’s role computers can ultimately achieve.

Do you think charterers and ship owners will ever be able to agree with each other on a price, using only automated auction tools to thrash out the deal? Or do you think they will always need knowledgeable and mutually respected human intermediaries, who probably know more about the market and what would constitute a fair deal than either party?

Do you think that the business of connecting buyers and sellers, and putting together all of the complex documentation involved in a deal, could ever be automated?

Do you think that charterers and ship owners will ever feel comfortable giving all their fleet data to a computer system?

The answer to all of these questions, I would say, is no.

Agreeing on a price

The first way a shipbroker adds value to a deal is helping charterers and owners agree on a price. Through your years of experience, you get an instinctive feel for the value of vessels and how the prices are probably going to change in the next few months. You also get a feel for who is telling the truth and who isn’t. Having charterers and owners agree on pricing without the benefit of a human intermediary sounds almost impossible.

Many people in the industry think that the auction model, where charterers bid for vessels or owners bid for cargo, is feasible for shipping, and allows an automated system for charterers and owners to agree on a price to be created.

Certainly it is a simple model that people can understand. But there are many drawbacks with it..

For this model to work it requires fairly widespread and open distribution of data about vessels available and cargoes looking for loads, which no one feels very comfortable about releasing.

Auction tools are very harsh on people with very little knowledge of the market, who can easily end up getting paid too little or paying too much. Most charterers and ship owners do not put as much effort into keeping up with the latest market trends and pricing as most shipbrokers do...

It is very hard to incorporate the lack of standardisation in vessels and cargoes into an auction model. It is very hard to compare one ship with another without a great deal of intimate knowledge, which a computer system would find very hard to process.

Eg. I know it’s a large oil tanker, but how old is it? Will it pass its next survey? How fast does it go? Is the shipowner trustworthy?

Knowledge of the market

The second most important way a shipbroker adds value to a deal is by applying knowledge of the market, gained through conversations with others in the industry, reading printed material and simply knowing how the shipping industry can behave.

Applying knowledge is a great deal more complex than simply having knowledge. Whilst computers are good at storing knowledge, they are not very good at applying it.

Whilst the internet can be very helpful for distributing and managing enormous amounts of different information between many different people, it can only do this if the companies, which generate and are featured in the information are happy about this. There is no reason why they should be.

Even if the information is made available, enormous amounts of brainpower are required to interpret it and work out what it means. Charterers and ship owners do not generally have people around who can do this, coming again to the importance of a broker.

In any case, why should all of this information be made freely available on the internet? Most of the information exchange takes place between people who trust each other and have done business together on a face to face basis, and the information is exchanged on a face to face basis, or possibly down the telephone. No written record exists of the information exchange, and there is no possibility for other people to access it.

The internet has none of these benefits. The standard means of communication, the e-mail, creates essentially a written document with the same legal weight as a fax, which can easily be dredged out of a corporate e-mail archive and brought up in court. There are always possibilities that e-mails can end up somewhere very different from where you expect; they are far to easy to forward between people and we all have experiences of a slip of the button on the "to" list in the address book, or e-mail programs playing up. These things are not reliable.

Its safe to say that whilst there are plenty of opportunities for the internet to be used to disseminate information, it will never be able to present enough information, in a manageable enough format, to threaten the value of a shipbroker’s skills.

Being discrete

One of the most important attributes of a good shipbroker is discretion, the ability to keep secrets and also to be trusted to do so.

Computer systems are very good at keeping secrets; they can easily be programmed to only provide information to certain parties who identify themselves with passwords. But whether people will feel able to trust computer systems, and the parties which run them, particularly given the enormous sums of money at stake if the secrets are revealed, is unlikely.

How much business can actually be transacted on a computer system if nobody wants to provide it with any information? How can a ship owner do business with a charterers if he doesn’t want to let everybody know about what vessels he has available and what price he is prepared to release them for? How can a charterers find vessels, without letting ship owners at large know about his cargoes? How can a ship owners and charterers stop competitors obtaining their business secrets, and more importantly, feel comfortable that competitors cannot obtain their secrets?

One solution to this problem, which ShipDesk is exploring, is for cargoes and vessels data to be revealed to shipbrokers only. Charterers can select specific shipbrokers they trust, and shipowners can select specific shipbrokers they trust. Shipbrokers can then use ShipDesk as their own tool, to put together deals on behalf of their clients. For this to work, of course, all three parties must feel able to trust ShipDesk to keep their business private.

The legal side of things

An important part of a shipbroker’s role is tying up the legal side of things, making sure the charterer and the shipbroker, who may not know each other, feel comfortable and safe about doing business together. This is the shipbroker acting as a lawyer.

Nobody has ever raised the prospect of lawyers being disintermediated by the internet. Everybody expects the internet to create far more work for lawyers, and push their prices up accordingly.

Computer programs can be used to put together mundane paperwork. But this essentially amounts to disintermediating the lowest legal secretary, not a shipbroker. The call for an expert eye to check things over will be greater. Shipbrokers are still in business.

If shipbrokers do find themselves with more time on their hands, after the internet has automated all their mundane tasks for them, they could also provide more of a service on the legal side. For example, for an additional fee, shipbrokers could guarantee a fixture, offering to provide compensation of the deal falls through and either principal loses out.

What the web can do

Whilst shipbrokers will probably be able to stay in business, they will certainly be radically changing the way they do business. And the shipbrokers which move the most quickly to take advantage of the tools will have a big business advantage over the ones which don’t, possibly putting them out of business.

A shipbroker’s extranet

The web creates a terrific means for a shipbroker to communicate with your own customers. You can give all of the charterers and ship owners you deal with their own personal page on your system, essentially building an extranet. So charterers can use the system to see how well you’re getting on to fix your cargoes, and ship owners can see what’s happening with their vessels. All this information, of course, is provided absolutely securely.

If you don’t want to go to the expense of building your own system, you can use a system like ShipDesk and put all your data on there. You can control what your charterers and ship owners can see all the time and what information they can access. But you still retain your control and involvement in the transaction.

Gathering information

The web creates terrific possibilities for gathering and putting together databases. The charterers and ship owners you deal with can automatic enter information about their requirements and availabilities, which can be put together on your system. Nobody gets to see anybody else’s information, but you get to be able to gather and manage it with more power than you did before.

If you can persuade charterers and ship owners to put their data into a larger database, then there are many new possibilities for both parties to do better. For example, a large database like ShipDesk can gather data about many different types of cargoes and vessels.

The ship owners and charterers concerned are likely to want a great deal of control over who is able to access the data; but that doesn’t mean they object to it being gathered in a database at all. If a well-respected shipbroker can be granted access to much more data than he can normally obtain, then he can do a great deal more with it and add a great deal more value.

The internet is a great means of distribution of less sensitive, general market data such as prices and vessel information. There are many companies, such as Drewry and Clarksons, which generate this data and are able to sell it over the web.

A communications tool

Lets not forget how helpful simple e-mail can be in helping two people around the world talk to each other. Its free, its quick, both parties get a permanent record of the communication, it enables many different people to talk to each other at once and much more quickly.. e-mail is certainly the most useful benefit the internet has brought.

Ship Desk: a case study

I have picked ShipDesk because I think it is probably the leading online shipbroking company at present, not because they advertise in our magazine or anything like that, I just think it has evolved more than any of the others.

ShipDesk builds its service on its acquisition of Netshipbrokers, a "first generation" bulletin board website based in Greece, which gathered together listings of cargoes and vessels available. Netshipbrokers was a very simple service from a technical point of view. It served specifically as a tool to shipbrokers, to help them obtain data, which they would not have otherwise obtained. It made its money by charging a flat yearly fee to make the information available.

ShipDesk takes the bulletin board system to the next generation. Sophisticated controls are built into the system, known as an "exchange," so people posting data can specify absolutely who they want to be able to access the data. The board automatically matches charterers and ship owners and notifies them where it sees a match and where they both agree for this notification to be made.

ShipDesk positions itself in the market very solidly as a tool for shipbrokers to use, not a tool to disintermediate shipbrokers. This is important; it respects the importance of shipbrokers in the industry and is not going to do anything which will upset them. The company takes a fee for any business transactions which are conducted over the exchange.

The company tells me that the most important aspect of its service, however, is not the exchange. It is the range of information and community services it is developing. The company is building up its own team of researchers, and may also buy in data from other sources, which will add to the service available. It hopes to build up online communities, for people to enter conversation about the cargoes, essentially building some kind of structure around the e-mail conversation which people engage in anyway.