Today, shipping is marked by rapidly changing realities: a highly competitive market environment, responsible risk taking and a complex regulatory framework. Martin Krafft, Vice-President, Shipowning and Technical Services, of Fednav, talks to Dry Bulk about how the company is creating synergies to address today's challenges.
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Fednav operates in a constantly evolving industry. Tell us more about this, and your group and services.
Fednav, as shipowners, is faced with changing realities, competitive markets and intricate regulatory frameworks, in addition to satisfying our key stakeholders – those living off the oceans, seafarers, the communities in which we trade, NGOs, industry associations, governmental agencies and policy makers – and especially our clients. To top it off, we, as well as our stakeholders, are adapting increasingly sophisticated sustainability strategies and environmental stewardship programmes that must align with all supply chain partners to further reduce the already superior ecological footprint of ocean transportation. To deal with all this, the onus is on shipowners to meet the highly regulated demands (think ballast water management, global sulfur cap; digitalisation; polar code; NOX neutral; integrated waste stream management; bio-fouling; and so on). This is no easy feat and our industry has come a long way from a business conducted in proverbial privacy from behind mahogany desks, with a ship’s bell on the wall, and surrounded by 1:100 models of the company’s fleet plowing the Seven Seas in pursuit of commerce.
Fednav is Canada’s largest ocean-going dry bulk shipowning and chartering group. For close to 75 years, we have been delivering practical, innovative maritime transportation solutions as a pioneer in the international shipping industry. With offices on four continents and a reputation built on a commitment to customer care and reliability, Fednav is the leader in international shipping in the Great Lakes as well as the Canadian Arctic, boasting the world’s largest fleet of ice-class bulk carriers. Today Fednav operates a fleet of around 100 ships – of which 58 are owned – and another 10 Great Lakes-capable bulk carriers on order for the ongoing fleet rejuvenation to further improve our ecological footprint through greater fuel efficiency and significantly lower emissions.
What is your main focus? And how is Fednav addressing the challenges of today?
Our expertise is shipping. We read the market and devise bespoke shipping solutions for our customers. But when it comes to facing up-and-coming regulations while remaining in full compliance anytime and everywhere, we need support. We need to partner with the best of the best – ship managers, shipyards, classification societies, flag states, and suppliers. This is exactly what Fednav has done and how we will continue to conduct our business. I'd like to showcase Fednav’s approach of addressing new challenges with two key partners: ship managers and shipyards.
Ship management is a fundamental function within the shipping industry, and if shipowners are asked what they look for in a ship manager, they will usually say the priorities include reliable service delivery, a close eye on operational costs, access to a stable, high-quality crew base and good communication channels. To face today’s realities, it is not at all sufficient to crew the ships according to their Safe Manning Certificate, to line up spare parts, and to plan and oversee dry dockings. We need the ship manager to be our eyes, ears and hands on site. We need them fully engaged to find smart solutions every day to complement and support our core business of ocean transportation.
We recently saw an increased consolidation between major providers of third party ship management. The immediate positive effect on the profit and loss account through economies of scale and purchasing power as well as synergies and efficiencies are usually quoted as explanations for this trend. Ship management is a highly (and increasingly) regulated, low-profit margin and high-risk business model. It is therefore surprising that the proportion of the world merchant fleet entrusted to third party ship managers – although continuously growing – is typically estimated to cover only 10 – 20% of all seagoing vessels.
A lot of discussions on the topic have recently been triggered by ship managers and we feel it is worthwhile to offer an owner’s perspective to complement the overall picture.
Operating in our clearly defined niche markets and with the day-to-day technical management of our fleet fully outsourced, our service requirements are fairly unique and very specific. The pristine environments of the Canadian Arctic and the Great Lakes-St Lawrence Seaway System have a zero-failure tolerance. An average operating quality would consequently not make the mark to meet and exceed the high expectations our clients, who entrust their cargos to us – often under multiyear contracts and founded on trustful relationships enjoyed over decades.
Tasked with achieving a greater unity of purpose (working toward the same overall goal), continuous improvement, and a clear focus on people and culture, we recently took the decision to club our ship management requirements for the international flag fleet through a strategic alliance with newly merged Anglo-Eastern Group. We believe that this move will further improve the overall service quality through a greater integration of systems, operating protocols and staff. As owners, we want to focus on where we add value in translating our commercial mission into technical deliverables and to eliminate the duplication of tasks.
Our decision aims at procuring a world-class ship management service that will enable us to continuously deliver a higher standard. We expect that the ability to draw from a joint talent pool while working on often complex and exhaustive projects will bring us to the next level.
Another close relationship/partnership that we believe to be a cornerstone of our success is with Japan’s Oshima Shipbuilding, from where ten 34 500 DWT Great Lakes-capable bulk carriers will deliver to our owned fleet between 2018 and 2021. The company’s relationship with Japanese shipyards is a longstanding one, which goes back over 50 years through our strategic partner, Sumitomo Corp. Fednav ships are typically acquired from newbuild and traded right up until they are recycled in an environmentally friendly way. From the design phase, Fednav’s in-house naval architects, marine engineers and mariners work closely with our ship manager’s newbuilding department and the design team at the shipyard to devise the vessels with our highly specific commercial needs in mind. From there, the vessels are built under close supervision in order to feed the experience gained during construction and in service back to each and every newbuilding.
When we place an order at the shipyard, we know the product is tried, tested and true. Once delivered, the vessels are manned with seafarers from a dedicated talent pool. We have no trouble sleeping at night wondering whether the hull will withstand the ultimate duration test of the locks in the Great Lakes, allowing us the utmost confidence in the product we are offering to our clients, which we deliver at a higher standard, in line with the Fednav’s axiom.
As can be seen in your close ties with ship managers and shipbuilders, you place a high degree of importance on relationships and partnerships with customers, suppliers, and competitors alike. Tell us more about this.
We strongly believe that partnerships – across the supply chain – can result in significant benefits for all parties involved, by leveraging the strength and expertise of each involved entity.
This is what sets us apart: our strong relationships and alliances with world-class leaders in the industry. These relationships have been nurtured for decades and the degree of trust and goal alignment is not something we have been able to achieve overnight, but rather through a long-term affiliation with ups and downs – but always with a long-term goal of excellence. It is with these strategic relationships that we have been able to master the market disruptions and still be standing tall. Going forward, we believe very much in our networks to give us a competitive edge. We choose our partners from the top percentile of their respective field of expertise and we see our role as orchestrating these partnerships to achieve outstanding results.
Are strategic partnerships the way forward for improving a company’s network and creating sustainable operations?
Suppliers and customers in a free market will inherently aim at improving their own bottom line. Continuous cost-cutting and inflated billing to customers are just two common ways to boost the bottom line in the short term. But the long-term impact is often detrimental to a company in a transparent and competitive oligopolistic market environment. At Fednav, we wish to believe that strategic partnerships are key to conduct business in a fair and sustainable manner with long-term success of one’s entire network in mind. It is imperative that companies along the maritime value chain enjoy a fair remuneration and profit, and are willing to make concessions that will benefit the other parties in the long run, in part due to economies of scale. The decision to move toward long-term partnerships has several key advantages, one of the main ones being the minimal upfront cost in entering into these arrangements, while simultaneously offering an easy exit if the venture does not work out as planned.
What is your view on the shipping market and where do you see it heading?
Shipowning is a risky business – one in which we are at the mercy of the market. When times are bad, the impact is felt across the shipping sector, as was witnessed throughout the doom-and-gloom period of the 1990s, and more recently, since 2008, in what some market participants refer to as the most severe dry bulk shipping crisis in a lifetime. Shipowners and shipbuilders alike went out of business in droves and we believe that having partnerships mitigates some of the risks while helping us gain at least some control in this market turmoil.
Moving forward, I personally believe that no mainstream ship operator and/or owner is big enough to master all known and anticipated market-related, regulatory and technology challenges on their own. Even if they were, it would be inefficient to maintain all knowledge and expertise in-house. Instead, I believe you need great partners with shared values and beliefs to inspire you, to foster innovation, and to help you win within your markets. The importance and value of strategic networks will thus further increase, and the quality of these relationships and the reputation that any given market participant enjoys, will greatly determine their future preparedness. For Fednav, it therefore isn’t a matter of whether we will form another partnership or alliance, but when and with whom.
To sum it all up: we shipowners care about our container ships, general cargo ships and cruise ships, but most of all, we care about our partnerships.
This article first appeared in World Coal November/December. To read this and much more, register to receive a copy here.
Read the article online at: https://www.drybulkmagazine.com/special-reports/29122017/strategic-alliances-all-in-the-same-boat/