Business of Shipbuilding and Profitability of Sustainability

Two weeks ago, I attended COFES (The Congress on the Future of Engineering Software). I have blogged about the conference before: Technology Resistance, COFES 2015 Revenge of the Thought Leaders, Mindset Change Required for Future Technology.

As usual, there were many good discussions around all sorts of technology, success stories, epic failures and how we as leaders in each of our industries can learn from them. There were some talks about sustainability and/or resiliency which got me thinking about how it relates to the business of shipbuilding.

The discussion started on what we can do in our everyday life to reduce energy, water, other resources and waste. I do believe that if everyone does something small it can have a positive outcome. However, for us to see significant progress it will require a significant shift in behavior which is very difficult.

The interesting thing that was touched on but I felt sometimes was forgotten in the discussions was that “profit” or money is always the major factor of any global change we want to make. We all like to think that we can prioritize the collective society or look at long term effects over short term gains. The reality is that the general population might agree with their words but not by their actions/choices.

I recall from last year’s COFES that the top 16 ships produce more pollutants than the emissions from all autos in the world. This number absolutely blew my mind. This is largely because these ships use the dirtiest and cheapest fuel there is. The question I asked myself was, “Is there a financial benefit for our industry to change?”

Business of Shipbuilding and Profitability of Sustainability

How can the business of shipbuilding improve their negative impacts on the environment and remain as profitable or even more profitable?

We need to take a systems level view of a ship (asset) and try to better understand the entire lifecycle of the asset which will last 30+ years. It is well understood that the cost of any vessel is very small (<25%) compared to the operating cost of most ships. The operating costs coincides with the fact that the largest effect on the environment/ecosystem is during the 30+ years of its life. This is good news as the area that can have the biggest benefit to the operators’ bottom line (increased profits) is the same area where we can have the most impact on the environment.

The challenge is, in our industry and in most others, the organization building the asset is not the consumer of that product. That means that they will take shortcuts which will improve the profitability of creating the product but potentially increasing the cost and environmental impact of that asset.

If we would be able to make it standard practice that we involve the people/company who will operate the asset at the very beginning of the design phase all the way to delivery, we would have a much better product from an operational perspective. There is no doubt that this most likely will increase the cost of the product. However, for the lifecycle of the asset it will be cheaper. This means that the shipyard will make more money and the operator/owner would save more money during operations.

I know that most of us can agree with the above in theory but in reality there are many factors why this does not happen. I am not stating that I have the answers but I am hoping some of you may have some ideas to change the behaviors of our industry to value the input of the operators/owners early in the design as well as the appreciation that a more cost effective asset which will save the owner operator more $ long term will simply cost more to build.

There are other factors such as regulation which are forcing our industry to improve our designs and use more eco-friendly fuel. I am not deeply familiar with the exact regulations but I do know there are many companies stating they are “forced” to reduce emissions as early as 2020. I do think this can be good and will only strengthen my point of having the owner/operator and the shipbuilder to work more closely together.

Closing Remarks

The shipping industry is one of the most important transportation industries in our global economy. It is also one of the most polluting industries. Reducing pollutants in the air can only be good for us and our great grandchildren.

To make a significance difference in a reasonable time frame we will need it to make it financially rewarding for companies to change behaviors. There are many regulations that are being put in place that will financially benefit the ships that are “eco” friendlier. This is definitely a start and will make a difference.

Regulations are more of a stick 🙂 and I believe that there is a carrot method as well. If operators and shipbuilders work more closely together from when the ship is designed and built there will be many decisions that will significantly improve the operation/maintainability/etc. and therefore save a lot of $’s. For this situation to work, the ship owners and the shipbuilder need to have a good relationship as some of the “improvements” will not be required to meet the ship building contract and therefore there may need to be remuneration for the improved design.

For those not familiar with COFES its official description is:

COFES is the engineering software industry’s only annual think tank event which brings executives from design, engineering, architectural, development and technology companies together to understand the role engineering technology will play in the future survival and success of your business.

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