Hellenic shipping companies are investing in their competitiveness, enhancing their contribution to the economy
A few days back, leading consulting group BCG presented its research on the Hellenic shipping industry’s contribution to the local economy. The findings are rather impressive as it was shown that the shipping industry represents over 7% of the GDP, accounts for 165k to 200k jobs impacting over 500k people. In an exclusive interview with Hellenic Shipping News Worldwide, Camille Egloff-Ghicas, Partner and Managing Director in BCG (Boston Consulting Group) Athens and leading the BCG Shipping practice in Hellas, says that the rate of competitiveness of Hellenic shipping companies is – in most cases – higher than their global counterparts. This comes as a result of a tight running of business and an attention to costs, combined with an effectiveness of day to day operations. “To sustain and even enhance this competitiveness, there is a need to build sustainable management platforms, modern family businesses in other words”, she notes.
Based on your research’s findings, how important is the role of ocean going shipping in the Hellenic economy?
Shipping is a critical sector for the Greek economy in many different aspects. Just looking at the numbers, the BCG study shows that Shipping represents over 7% of the GDP, accounts for 165k to 200k jobs impacting over 500k people, it contributed to Services Balance of Payments €140B during 2002-2012. But beyond that, it plays an important role because it is a globally competitive industry which invests in the broader economy (think of how many companies in the energy, tourism, transportation, financial services or retail sectors have been fueled by shipping capital). Shipping also gives back to the community through significant philanthropic activities.
In particular, could you highlight the indirect benefits, in terms of the growing industry of product and services offered towards the maritime industry?
Indeed, for the first time, the BCG study shows the holistic impact of Shipping on the economy. The ‘Shipping Cluster’ indeed comprises not only of ship owners and ship management companies, it also comprises of all the services and products offered to shipping companies, e.g. ranging from shipyards, to ship chandlers, brokers, legal service or insurers. Out of the €13B annual impact of Shipping on GDP, we estimate the direct impact of Ship management companies and ports to be of €8B, the indirect contribution of the extended cluster to be an additional €2B. The remaining €3B comes from the induced impact, i.e. the additional consumption generated by the direct and indirect products.
A common issue has been that a large part of shipping funds in the balance of payments is been redirected overseas, towards fleet renewal and other investments by Hellenic ship owners. Based on this, could you define the percentage of money leaving Hellas?
This is a very difficult number to isolate, but BCG study identifies some clear levers to increase the percentage of money that could be invested and stay in Greece. The heart of the matter is to provide the most fertile environment to incentivize this money to be spent locally and generate further positive ripples and impact across sectors of the economy.
How has the crisis in the Hellenic economy affected the way that ship owners are conducting their business in Hellas? Do you see a shift in spending, or a reduction in staff?
Greek shipping has historically been very efficient at managing costs while providing a high-quality service, and while being mindful of the residual value of the vessels. Today, Greek Shipping companies pay even more attention to costs, but less because of the local challenges of the Greek economy and more because of the global challenges of low shipping markets combined with high bunker costs. Besides, the above is true for daily running costs of vessels (OPEX) and bunker costs; regarding the shore, it is less true and Greek companies are very mindful of preserving their operations. They prefer to keep investing in making the shore more efficient and equipped to make the operations globally competitive. In particular, they don’t take the short-term view of cutting staff and prefer to invest in developing capabilities and systems that will give them a competitive edge when markets increase again.
During your presentation of the research, you noted that an average Hellenic-owned MR tanker is 23% more competitive in terms of daily operating costs (crew fees aside) compared to the world average. A similar case can be made in other ship types as well as you noted. How did you reach this conclusion and why is this the case? Does it have to do with the fleet profile, i.e. younger and more efficient vessels, or with the onshore operations?
This piece of insight comes from BCG’s proprietary benchmark; a database running for 4 years now, with data of over 40 shipping global companies and over 2500 vessels across segments. The cost advantage in MR tankers also proves true in different segments. The reasons for this cost advantage have to be found in a combination of various elements. It comes from the historical know-how accumulated generation after generation. It is also related to the tight management style of family businesses where every dollar spent needs to be well-spent. It is also the longer-term view on the industry allowing to stay the course when markets are tough and invest in continuous improvements. It has more to do with how operations are run, on-board of vessels, on-shore and in the interface between both, and less with the age or profile of the fleet. We indeed see such cost advantage when comparing Greek-managed with vessels of similar age or similar technology.
How can this competitiveness be further enhanced and thus benefiting the economy as well?
How to maintain the competitive advantage when the environment is tough and challenges are many. There are indeed external challenges: low shipping markets globally, increased bunker costs or increased regulatory pressure. There are also internal challenges, challenges inherent to the structure of the Greek shipping industry: family businesses, tightly managed. To sustain and even enhance this competitiveness, there is a need to build sustainable management platforms, modern family businesses in other words. Some are already doing it and they have developed cutting-edge capabilities supported by the right systems and organization to save on bunkers, procure cheaper, get the best crews onboard their vessels or thrive through commercial excellence. Shipping is by essence a global business and others abroad are modernizing quickly their operations to build competitive advantage, so this is a path Greek Shipping companies have to get on as well; those that do not embark on such an endeavor may be left behind.
What can be done to increase the amount of shipping funds invested in the Hellenic economy?
It is like for any other investment: you need to provide stability: political, institutional , regulatory and fiscal stability. Simplifying the process to start a new business is a straightforward yet powerful example.
Further to the previous question, you noted five key steps towards achieving an increased role of the shipping industry in the Hellenic economy. Could you elaborate on those? For instance, a lot has been debated about the forming of a true maritime cluster in Piraeus. Is a new shipping legislative framework the answer?
The BCG study identifies five key levers to increase further the impact of Greek shipping on the economy. First off, it is about integrating Shipping into the national strategy, with an action plan, a set of top-priority initiatives to be implemented. Second, it is about stabilizing the institutional framework to attract further shipping activities. Third, simplify processes and institutions to start a new business will help keep Shipping capital in Greece to fuel local investments in shipping and outside shipping. Fourth, BCG believes a lot in taking maritime education to the next level, increasing enrollment in public maritime schools and upgrading educational quality, but also establishing private maritime schools. In a country where unemployment touches so many young people, sea-going careers as well as careers on shore can offer great opportunities. Fifth, shipping companies themselves need to invest and modernize to keep up with growing international competition.
In conclusion, forming a true maritime cluster in Pireaus is certainly a good plan, but it will have to go along with institutional stability to really attract players from abroad and create a globally competitive cluster. And it will have to go with making Greece a global centre of Shipping excellence, with cutting-edge education to develop specific competences.
In what ways will the ongoing transition from one generation to another, within traditional family owned shipping companies in Hellas, affect the sector’s contribution to the economy? For instance, do you think that the new generation, often educated abroad, be more inclined to take their business elsewhere, where tax benefits are greater?
I am very confident that the transition you mention will not only help sustain but also enhance the contribution of Greek shipping on the economy. Many of those young leaders are very passionate about contributing to the recovery of the country. They may have been educated abroad, they really want to make best use of their competences to make a difference, be it for shipping, but also for the society at large, through their economic but also social and philanthropic contribution, in the pure tradition of Greek Shipping.
Nikos Roussanoglou, Hellenic Shipping News Worldwide