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McKinsey & Company: How to transform your shipping company

03 Jan 2023

Global management consulting firm McKinsey & Company on Thursday (1 December) published an article on how digitalisation can help the shipping industry cope with uncertainties and help streamline bunkering costs. The following are excerpts from the article:

Players in most shipping subsectors have enjoyed a profitable couple of years. However, the industry faces a complex, rapidly changing environment. Macro uncertainties—the threat of recession, geopolitical volatility, crew shortages, escalation of operational costs, and fluctuations in cargo demand—affect all aspects of operations. In addition, there is increased environmental regulation to get to grips with, and much uncertainty around decarbonisation pathways.

Crucially, the shipping industry lags behind in digitisation, a key enabler for prompt decision making, operational and cost efficiencies, and improved performance. This article introduces a transformation framework to help shipping companies navigate these choppy waters. In particular, it explores how data and analytics can be leveraged to gain competitive advantage and unlock value.

Cost optimisation

Cost-optimisation levers can be enabled by collecting and analysing data and building digital applications to inform decision making. Digital tools can help to identify trends, optimise crewing spend and the overall procurement envelope (spares, stores, provisions), and streamline repair, maintenance, port, drydocking, and bunkering costs.

Client experience has shown that various levers can improve cost performance in specific areas of shipping:

Crewing: Shipowners could leverage analytical tools to identify the right talent, improve ship-to-shore communications, and revamp safety- and quality-assurance procedures. Data tools could aid in optimising factors such as crew remuneration, number of crew onboard, nationality mix, medical claims and welfare, travel scheduling, training, and recruiting.

Procurement: A spend-intelligence dashboard could provide real-time insights and transparency. Further, digital tools could standardise the procurement process, define supplier-specific strategy, consolidate purchases, and reduce unplanned spend.

Shipping companies that rely on manual processes often struggle to track their expenditure by supplier, location, or even product or service type. This can cause a lack of comprehensive planning of purchases such as spare parts. Suppliers cannot be selected in a systematic way, and companies miss out on volume discounts and delivery-pool savings. They may also incur higher operating expenses with emergency procurement and repairs.

Such companies could invest in technology that provides digital dashboards. Here, real-time insights and analysis across key metrics can be accessed easily. Spend details can be sorted by type, category or organisation, and details made instantly available by clicking on a specific deep-dive area (Exhibit 5).

Dry docking: Digital solutions are now available to optimise dry-docking processes and ensure full transparency. These can help to standardise processes, gain greater negotiation power with suppliers, optimise timing and location, pool vessels to benefit from scale and synergies, and increase the vendor pool.

Bunkering: Digital techniques can be used to implement vessel upgrades, find optimal bunkering locations, obtain better bunkering bids, execute hedging strategy, and review vendor contracts.

Consumption can be reduced with optimised vessel execution and performance-management mechanisms. For example, one shipping operator was looking to optimise varying fuel consumption. However, fuel and emission data were lacking. There was also a lack of transparency about captains’ voyage decisions, and no comparisons of their performance. The solution was the installation of a new data interface between vessels and central IT. This created transparency around key levers, such as speed, slip, trim, and fuel type, and leveraged automatic identification systems (AIS) and weather data for route mapping and fuel-type usage. A dashboard was developed to report key metrics to fleet operations and captains (Exhibit 6).

Note: The full article titled “How to transform your shipping company” can be found here


Photo credit: Chris Pagan on Unsplash / McKinsey & Company
Published: 3 January, 2022

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