From LevelSeas to today
A few days ago, VesselBot hosted a meeting with the representatives of a large shipping company. Our purpose was to discuss the problems they face when undertaking and executing transactions for their vessels and present our solution.
The main focus of our discussion was technology, and whether this is the answer to the operational struggles. As always, we ended up with the classic question: Yes, but are you aware of LevelSea’s initiative and its failure a few years back?
Understandably, almost 90% of our discussion reverted to this question, thus we decided to write this article so as to present our mindset in regards to where technology stands and its potential to change the way the Chartering business is carried out today.
Although the story began back in the year 2000 when it was clear to all market participants that the problems which existed when executing a seaborne freight transaction needed to be solved, it continues to exist today, but what was the proposed solution?
As per a press release issued back then which quoted:
“LevelSeas will offer voyage chartering systems and comprehensive voyage management services for the bulk ocean shipping market. The company is building chartering tools online, as well as pre- and post-fixture software applications, and special risk management and trading tools.”
Who backed it up?
Twenty-six companies joined the initial investors including some of the market heavyweights from both market segments (supply and demand) including BP, Cargill, Clarksons, Shell and venture capital company and eVolution Global Partners.
Some other partners were Alcoa Steamship Company, Lauritzen Bulkers, ADM, Mitsubishi Corporation, AP Moller, BHP Transport and Logistics Pty Ltd, AM Nomikos, Norden, Bocimar, Pan Ocean Shipping, Chevron Transport Corporation Ltd, Rio Tinto Shipping, Louis Dreyfus, Coeclerici Armatori, Teekay Shipping, Vale, Glencore, FedNav, Western Bulk, Torm, Fairmont.
According to the press release issued back then and relative information circulating the market, approximately forty million dollars was raised, the precise amount of funding raised however is unknown.
What was the result?
On a technical front the venture had no foundations. According to files deposited at UK Companies House $13 million had been spent, out of which $7 million had been paid out to a third party to develop a trading platform. The platform was junked as useless and realizing the situation had to be changed, they headhunted Deutsch Bank’s chief of applied technology to start again from scratch.
To make matters worse it proved difficult to get shareholders lined up to back the same project, creating further problems especially strategical ones. This led to even more delays and significantly dented the progress of the project.
If all the constituents were in place then why did LevelSeas fail?
- 1. Lack of technology penetration in the market
Up until the year 2000 most Shipping companies, because they hadn’t yet incorporated technology into their business model, carried out their operations manually. Furthermore, technology was not as advanced as it is today making it difficult for potential users to shift from 100% manual operations to a totally digital one.
- 2. Lack of data in the market
In 2000 the Maritime market not only significantly lacked datasets but also data in an organized and systemic digital manner. This data was and is fundamental to building a tool/system similar or even the same as the one envisioned that would function properly and be of value to its users.
- 3. High burn rate of ~$1,75M per month
Basing itself in high-tech offices in the City of London and employing highly paid staff significantly increased LevelSeas Fixed Overheads. This, combined with the slow speed of technological development at that time and the need to employ a third party to establish the platform increased LevelSeas running costs to an unfeasible level.
- 4. Difficulties managing the expectations and interests of the many shareholders
Valuable time was lost and progress hindered due to the large number of stakeholders who in many cases had conflicting interests resulting in priority being given to managing the political issues raised by many of its stakeholders rather than focusing on the business itself. In essence, an organization that should have been lean and agile slowly became weak and sluggish.
There is no doubt in my mind that you are now thinking, ok, enough with the history lesson, let’s fast forward to today. Has the situation changed enough to justify the introduction of a new service/platform into the marketplace and can it obtain a significant market share?
I have no doubt that if you haven’t already thought of these questions, they come to mind when you consider the current situation.
The problem stands, and is evident by discussions we are having with a number of market stakeholders. You only have to look at the recent press release “Agribusinesses Seek to Modernize Global Agricultural Commodity Trade Operations: issued by ADM, Bunge, Cargill and LDC (ABCD) to see that their intention is to digitize the Agri shipping process utilizing technologies such as Blockchain and Artificial Intelligence.
While both sides look at the problems from different angles and want for different solutions their common goal is to solve problems such as transparency, manual operations and inefficiencies as well as enhancing their bottom line by taking data driven decisions utilizing decision support systems, higher utilization rates and reduce inefficiencies in operations.
Is it now the right time for such a product? How are things different from 2000?
- 1. Technology has advanced in leaps and bounds over the last decade, but even more so over the past 5 years. This progress has transformed the way we build products, not only is it quicker but it is also more efficient, enabling the process from creation to launch to be completed within a much shorter time frame.
- 2. Further penetration of technology in both the Shipping and the Chartering industry.
- 3. Data exists and is becoming more and more available although there is still a long way to go in this respect (AIS, data about ports, distances between ports, etc.).
- 4. Market participants have already started to realize that digitalization is happening now and is something they need to deal with. It is the way of the future and if what has happened in other markets is anything to go by, will eventually affect their business models, operations and potentially even their strategies.
Today there is a range of different services catering to the needs of market stakeholder in both the shipping and chartering industries including support tools and team collaboration tools like AXS, Shipamax and OFE.
In addition to the above-mentioned tools there are now a few marketplaces such as VesselBot which have not only digitized the entire chartering process allowing its users to make data driven decisions at the click of a button, whilst at the same time protecting their confidentiality, but they also have an in-house team of professional personnel dedicated to supporting transactions.
The value of a product is always assessed by what it offers, whether it is a tangible product or a service. Where services are concerned prospective users want to know what they will gain from their implementation. By using such platforms which offer both parties an end to end service you would gain the following:
- 1. Supported decision making. The platform will undertake the mundane tasks which do not require critical thinking, allowing users to make better informed decision thanks to the sheer volume of digital information available.
- 2. Extracting information from multiple sources not only costs money in man hours but also leads to the accumulation of superfluous information. Using a digitalized platform will eradicate this time-consuming task as all the information required will be available at the click of a button, thus data fragmentation will be a thing of the past. Valuable time will be saved and will be used for those activities that really add value to the organization.
- 3. With the ability to target relevant information/opportunities only, the noise which arises from the huge volume of business proposals that are either duplicated or non-relevant will be eliminated.
- 4. Operational efficiencies because of automation.
- 5. Automation of calculations and estimations as well as consistency in regards to the way calculations are done by all departments and all employees of the company.
A number of companies have already started to realize the imminence of the above and have made the strategic decision required on the C-Level to slowly shift towards this digital direction. This is evident by initiatives like the one taken by BHP last year announcing that they have built an online bidding tool to trade the Seaborne Freight for their commodities etc.
As we move towards the digital direction there will be three main questions. Whether these services should be developed internally, in collaboration with startups/and other technology providers or should startups be an external service provider. As is the norm when making changes, there are a number of variables to be taken in consideration before making any decisions.
Internal skills and culture, whether the product is a key function for the organization or not, together with available resources and a cost benefit analysis for each of these initiatives, are some of the variables that should be taken into consideration. Today, because of digitalization there are many available opportunities and each company will need to understand that they will want to prepare for many of the future options. However, there are limited resources (R&D personnel, investment dollars, prototyping and testing facilities, etc.) available to allocate to those options. Hence, they must decide on the projects they will focus on to develop internally, usually core business projects, as well as how they will go about the non-core business projects; would they be utilizing existing services provided by technology companies or collaborating with startups?
Considering what happened with LevelSeas when many large enterprises decided to embark on this journey but develop everything themselves, and the current status of the market, we firmly believe that a coalition between the large multinationals and startup technology providers who are already actively offering tools in the market would be the optimal strategy. Startups that have already spent time developing their products by researching and identifying market needs will significantly reduce both time to market and resources that will be needed to develop these products. Moreover, due to their lean structure, agility and flexibility they are able to react quickly thus achieving faster product development. On the other hand, the large multinationals have the expertise market penetration and network to make these solutions a success; thus, by collaborating with startups they will save the resources that they would otherwise spend on developing these systems themselves making time available to concentrate on their core business.
Added to this, because they will be active participants during the development process, they will co- launch a product which will have been customized to their operations.
In other markets different tactics are employed in such cases such as using acquihires to get talent onboard that can assist in developing products or acquisitioning already developed products and embedding those in existing products and processes etc.
The question is no longer whether digital transformation will come to the Shipping industry or more specifically how companies will deal with this new Freight Brokerage process. It has already arrived and will further develop into something totally different from what it is today. The real question should be whether your company will be onboard from the beginning so as to stay ahead of developments or even instigate new ones or will it take a back seat watching others drive developments into the direction that best suits their organizations?