Disruption is here: the horse has bolted

Three out-of-the-box thinkers are taking part in the debates at this year’s Nor-Shipping. Paul Berrill discovers the visionary ideas held by the gurus of connectivity and disruption that can shake up shipping

Shipowners would be better off investing in companies like Amazon that are set to expand into shipping, rather than sinking money into new vessels, claims the guru of disruption, Tony Seba.

The keynote speaker at this year’s Nor-Shipping is in no doubt. Disruption of the shipping industry is already happening — and if you haven’t responded by the time the tipping point arrives, you are on your way to extinction.

“Moving things from A to B is just one thing you will do. But if you only think of yourself as one piece of the puzzle [of the supply chain] you are already obsolete,” he tells TW+.

Seba, a lecturer at Stanford University in California, mentor of start-up companies, private investor and corporate adviser, says the changes coming to shipping are caused by the same things as the changes transforming every other major industry.

“Does that mean industry players should just give up? No. They should invest in some of the technologies and organisations that might disrupt them while they are in their early stages,” he advises.

Seba’s 2014 book Clean Disruption of Energy and Transportation predicted that all new vehicles would be electric and self-driving by 2030 and that the interlocking technological advances which made that possible also meant oil, natural gas, coal and nuclear would be obsolete energy sources.

In a lecture last year, he pointed to a 1900 photograph of a New York street and asked the audience to spot the one car among a sea of horse-drawn traffic. Then he showed a picture of the street in 1913 and asked if they could see the one horse in a sea of automobiles.

A similar tipping point came in 2007 when smartphones appeared on the market. Even if you could not initially see why you should pay $600 for an iPhone when you could buy a standard mobile for $100, it was already too late for BlackBerry and Nokia. Why? Because technological progress had converged with a workable business model.

Seba predicts that by 2025 almost every new vehicle sold will be powered by electricity. Why? Because electric motors are 90% efficient, compared with about 20% for internal-combustion engines; batteries can now provide the same distance range; electricity is cheaper than gasoline; and major manufacturers will be producing wide ranges of electric vehicles (EVs) for the same price as conventional cars.

With the same usability, better performance, cheaper fuel and maintenance (a Tesla has far fewer moving parts than a conventional car) buying an EV becomes a no-brainer — particularly with utility-scale solar power having fallen to a price equivalent to oil at $10 per barrel.

What does that mean for shipping? Well, if you are shipping cars, you could build a vessel that is powered by its cargo.

“You would charge the EVs and essentially your ship would have one huge battery consisting of hundreds or thousands of electric vehicles. So the cost of fuel is effectively zero,” says Seba. “If all vehicles are electric, then oil consumption will go down.”

He estimates oil demand will peak in 2020, followed by “a dramatic fall”. That means oil tankers being ordered now “will be stranded” and investment in them will be wiped out.

But that’s not all. “Everything is connected. You cannot separate yourself from disruption that is happening in other industries.” That means developments in artificial intelligence, energy storage, robotics, blockchain trading and 3D printing will all have an effect on shipping.

The cost of lidar, the remote sensing technology used in self-driving cars, fell from $70,000 in 2012 to $1,000 by 2014 and is likely to be $250 by 2020, Seba says. This implies a shift towards shared vehicle ownership because by far the biggest cost of owning a car becomes parking it. And that potentially leads to an 80% reduction in the need for cars: hard luck, car carriers.

That is still not all. The same technological developments two paragraphs above are bringing IT companies into vehicle production and propelling them into shipping. Amazon has signed up as a freight forwarder. Walmart is looking to take control of its own shipping. Alibaba has signed up with Maersk Line and CMA CGM.

“The concept of shipping of taking something from port A to port B is outdated. You will be disrupted.” And that means bulk as well as container shipping companies.

“You should start thinking of yourself as an IT company, or an Amazon or a Google that is not just delivering stuff. Some of that you may even produce yourself, possibly on the ship.”

"You should start thinking of yourself as an IT company, or an Amazon or a Google that is not just delivering stuff. Some of that you may even produce yourself, possibly on the ship"

But definitely “you need to start thinking about integrating all these technologies into the business and expanding into the value chain of what today would be considered your supplier and your buyer — changing your business model”.

Seba cites his time at Cisco Systems when it had a venture capital unit that tracked companies which might become competitors — either to learn from them or to take them over.

“Keep your potential disruptors close, so you can learn about what is going on, what you can do better, or even acquire them. But you also need to change your culture, and that is probably the hardest thing to do: to create a culture that can innovate, experiment and self-disrupt.”

Critics of Seba claim that the changes he envisages are possible, just not likely to arrive so quickly. They point out that there may not be sufficient profitability in the wholesale replacement of the vehicle fleet, and huge investment is still needed in the infrastructure to power EVs. Solar energy at utility scale may also be further away than he forecasts.

Some guesstimates suggest it could take about a decade longer to get to Seba’s endpoint, but at the turn of the 19th century, blacksmiths probably did not expect the transport mode they had serviced for thousands of years would virtually disappear in a decade.

Seba says technological development is now moving at an unparalleled pace, with solar power and energy storage doubling in the US last year as an example.

He claims the speed of today’s high-end technological development is not unusual, and points out that it takes only seven doublings to go from 1% of a market to 100%.

“Companies don’t self-disrupt, because the reason they were successful in the past was they were doing certain things very well, they created a way of thinking, skills and capabilities that gain a cash flow,” he adds. “To get out of that is difficult.”

However, Seba says the answer is not to fear failure. If he is right, the warning signs are there but the shipping industry can adapt if it is prepared to undergo a radical learning process.