Intermediaries (brokers or middlemen as it is more commonly known) have fulfilled a critical function in human and commercial interaction since early times. They facilitated deal making between demand and supply of all sorts ranging from the seedy part to high-end finance. Technology has changed and is continuing to change the business of brokering in new creative ways. Early technology like email and telex initially just helped smooth communication but it is the humble web browser that shook the business model of intermediation. Airline portals decimated the travel agent industry as customers started booking directly. When mobile apps came along it transformed intermediation with the likes of Uber and Airbnb impacting taxi companies and the travel agent and hotel industry. The march of technology did not stop there.
During SAP’s annual SAPphire event (a global software jamboree with customers and partners) in Orlando mid-May a new digital innovation suite was showed off called SAP Leonardo. This came on top of a whole gamut of technologies that recently made their debut – amongst these SAP’s High Performance Analytics (HANA), the Internet of Things (IOT), Machine learning (ML), Blockchain (BC) and Artificial Intelligence (AI). SAP Leonardo sits inside the SAP Cloud Platform (SCP) which in turn is natively designed for a HANA database. SAP HANA – an elusive database technology so profoundly advanced that Oracle boss Larry Ellison once famously rubbished it during a live interview as “complete fantasy” https://www.youtube.com/watch?v=4vKOb6HAz-8. It is however very real and capable of high speed in-memory computing that allows for until now unimaginable business models that previously was impossible. SAP Leonardo is now streamlining the new technologies and adding new capabilities in the areas of machine learning and Predictive Analytics.
During a workshop, last week at SAP headquarters in Walldorf where next generation business models are incubated by highly specialized teams supported by industries, the threats to intermediation were abundantly clear. New industry specific platform solutions are taking shape using SAP Leonardo technologies that will radically transform intermediation in industries like Agriculture, Steel trading and Shipbroking.
Shipbrokers traditionally play three cards very well to their advantage: (1) Knowing the specifics of demand and supply, (2) Expert knowledge about the freight market and its trends and (3) Dispute resolution using their solid grasp of the business at hand and its risk exposures combined with diplomatic and legal skills.
The new technologies result in key information not just available in real time but also extremely context aware. With ships, ports and cargo connected to the grid – the information about demand and supply is available 24/7 for deal making. SAP HANA can churn real-time through numerous voyage profitability calculations as circumstances like weather, port congestion, equipment failure, cargo quantities, product grades are continuously changing. Based on these dynamic changes it can propose commercially more optimum deals like intra or inter fleet vessel swaps to meet transport demand. SAP Leonardo is able to “learn” the commercial utilization and performance data of ships. Against these it can then propose fixtures based on predictive analytics. Re-positioning of ships in anticipation of demand, or based on bunker prices (a major cost driver in bulk shipping) or even allocating ad hoc unplanned demand to a vessel on its back-haul (empty) leg is now a real possibility. Market information from indices like the Baltic Dry Index and market trends particular to the trade being done can be intelligently rendered by the SAP Cloud Platform in rich visualized format around transactions which previously brokers were relied on to provide. Even when voyages are in execution the value opportunities extend to adjusting a vessel’s speed in accordance with port congestion or bunker fuel prices en route.
With fixtures ultimately largely left to machines configured to accept offers within a pre-set range, it leaves brokers with less areas to add meaningful value. Even dispute resolution between charter parties is targeted by technology. SAP Leonardo has state of the art block chain technology built in which means that when parties trade and events are linked up to the transaction chain there will be in principle at least – less room for interpretation resulting in less disputes.
Technology has accelerated a trend whereby the shipbroking market stakeholders most exposed to risk (the shippers and vessel owners) employ brokers in-house to create and and manage fixtures. With technology, this trend likely will accelerate and in the process help return value to the owner of capital that seek a decent return for the risk of deploying capital.
Shipbrokers understandably deny vehemently that technology can replace them entirely and indeed can take comfort that they can never be entirely removed from the transaction chain considering the risk involved of high value assets. Unfortunately for them the low cost of technology and the scale of the value it delivers in what is known as the “network effect” will mean that it is just too compelling for asset owners to ignore. It is not any individual technology so much as the combination of these that stack formidable odds against an existing “pre-technology” age of doing business. The axe will fall on the number of independent brokers as they move into new business models that will now take shape. A main feature would be brokers migrating to the back offices of the vessel owners and shippers where technology will result in managing more assets with far less effort. The disruption will continue ultimately to a more optimized global ocean merchant fleet that earn a decent return on capital vs the post-financial crisis oversupply of recent years. Additionally, there can be major supply chain benefits for shippers when dealing with a more streamlined fleet of transportation supply.
Nothing will take place overnight as key dependencies the “machines” will depend on like vessel connectivity and the IOT for cargo still largely need to be installed and reach a level of maturity, however the bedrock for change is there and for ship brokers the writing is on the wall – it is not a matter of “if” anymore but “when” their intermediation industry will undergo a very invasive digital transformation.
SAP Marine Trading Exchange (MTX) Cloud Innovation Owner