Green shipping calls for a holistic approach

June 23, 2021 Maritime Safety News

The shipping industry needs to look past zero carbon fuels to decarbonise the sector. ‘Circularity’ and ‘servitisation’ could be the new buzzwords to watch for, according to Danish Ship Finance (DSF).


In its latest Shipping Market Review, DSF offers up the idea of consolidated fleets of super standardised vessels as an attractive business case for circular maintenance where spare parts can be remanufactured, reused and recycled multiple times to save costs and reduce the environmental footprint.

The servitisation model – which DSF defines as where equipment manufacturers extend their business to include the use of their equipment instead of selling it – allows for optimal data extraction from the standardised fleet of vessels, which in turn allows the equipment manufacturer to improve performance and optimise the vessel.

DSF acknowledges that circular maintenance is not a new notion with some vehicle and industrial plant manufacturers employing the same to refurbish, reuse and recycle their used products and parts. But combine this circularity with the standardised fleet concept and vessels can be provided as a service at a fixed, all-inclusive price per minute with circular maintenance lowering costs. With an eye on the far horizon, DSF notes that all elements of a vessel, its maintenance and its demolition could be designed for circularity, with all materials and components designed to be recycled, remanufactured and reused.

The vessel-as-a-service concept opens up new value drivers for operators

Market models

But this level of change will not happen overnight. “This kind of change will require not only shipowners but also equipment manufacturers to change their go-to market model to one that sells ‘time in traffic’ rather than a product,” DSF said. Currently, most vessels are operated under a business model where “the asset play guides decision making”, it added. Therefore, retrofits and operational upgrades are only done if they deliver immediate cost savings without the need for long payback investments. An asset play model seeks to take advantage of short-term market imbalances, whereas DSF’s proposed servitisation model aims to improve the long term efficiency of the assets. “The servitisation model allows investments with long repayment periods to be made maybe even stretching to the next lifetime,” said DSF.

Another benefit of the servitisation model is that the risk of stranded assets is reduced because equipment manufacturers can upgrade the performance of a vessel when needed – as long as those upgrades do not increase the cost of its use.

DSF spins out this model even further, suggesting that vessel ownership could be aggregated across fewer entities, even across ship segments. “Vessel operation could remain fragmented but may over time consolidate in line with the application of new technologies that are likely to reduce margins and increase competition,” it said.

The vessel-as-a-service concept opens up new value drivers for operators. Whereas traditional players generate income through freight rates alone, those utilising this new business model can also generate revenue from trading zero carbon fuels and data from vessel operation. “Traditional players may struggle to compete on costs, since the new players can reduce costs via circular maintenance and economies of scale while offering additional services through the advanced vessel connectivity system that has been scaled across the centralised ownership base,” said DSF.

Shared ownership

Building on the centralised ownership model proposal, DSF asks whether there is potential in a scenario where individual operators book cargo transportation on vessels shared between many to optimise capacity utilisation and reduce their environmental footprint. “Experience from other industries (the telecommunications industry, for example) suggests that structural separation can allow more value to be created if infrastructure sharing allows massive scaling on a larger customer base,” it says.

The success of alliances and pools already alludes to the potential here. This next step will support an asset owners’ ability to scale and harvest economies of scale through standardisation, allowing them to establish a critical asset base that allows major investments in new digital technologies.

“Initial investments will be aimed at increasing operational efficiency and routing (in order to lower fuel consumption), but the focus will soon shift to moving into adjacent domains to establish a platform-based ecosystem play that orchestrates data driven insights across supply chains to optimise value creation and develop new revenue streams,” said DSF.

The overarching aim here is to create a “fully integrated transport as a service transit system that includes a digital platform, access to the latest cargo mobility offerings, incentives (eg lower costs, zero carbon mobility, transparency), and measurement tools (including CO2 to ensure that all transport services are running at full efficiency”.

DSF points to experience from other industries to support its theory that a service model that is fuelled by the data from operating the standardised asset base could become at least as valuable as asset operation itself. “The vessel as a service model will allow players to focus on data monetisation throughout the lifecycle of vessels through recurring revenues and paid over the air upgrades, which may eventually include those related to autonomous vessel capabilities,” DSF said. “In today’s market, the absence of an established ecosystem often results in hard to scale island solutions between few players, which end up generating significantly less value than they would have done with a scaled solution.”
Source: The Baltic Briefing