Is ship broking ready for the information revolution?
The internet increasingly reduces the time and cost of collecting information. For example, in recent years, Online Travel Agencies (OTA) have caused a shift in the airline industry, transforming it from an imperfect information provider to a perfect one. The internet allows information to move freely and unencumbered from buyer to seller, making transparency a key selling point. OTAs give customers price and non-price related information. Other industries such as the auto trading industry have seen similar developments. It is obvious that technological advances can help reduce information asymmetry. So, does this pose a potential threat to the ship broker function?
The problem with the ship broking industry
Research supervised by Dr Stephane Bignoux, course director of the Online Shipping and Logistics MBA from Middlesex University, and conducted by Hans Spliethoff, Commercial Director / Chartering Manager for Puyvast Chartering B.V. analysed the problems with the current system and how automation could help.
During the 10 in-depth interviews conducted in late 2016, respondents emphasised that:
• Intermediaries cause information asymmetry in the shipping chain by favouring a charterer to attract the charterer to the deal
• Intermediaries only reveal information that is in their favour
• Their criteria for selecting carriers can differ from the shippers’ criteria or vice versa.
Automation to the rescue
The existing remedies to information asymmetry – contingent contracts, liability contracts, warranties, signalling, certification and monitoring – work imperfectly. Respondents discussed their limited knowledge of existing online platforms that may have the potential to replace broking. Although aware of such platforms (online booking channels), most did not think that they were successful now and were hesitant about such technologies for the future.
The reason shipping operators struggle with these platforms is a lack of understanding and capability awareness. Findings of the 2016 study showed that most traditional operators could not imagine an online portal that would allow them to access the same information as given by brokers. However, they did see the success of UBER and Airbnb as an indicator that this was possible. Respondents spent 35% of their working week on collecting, analysing and distributing market information. Technology developments, especially as they relate to communication and standardisation would therefore be of great assistance in overcoming information asymmetry in dry bulk sector.
Moving forward with electronic intermediaries
So, can the sector benefit from this technology? From a technical point of view the answer is YES. However, resistance to change is an issue as the supply side has the most to lose from an electronic intermediary. For the demand side of the dry bulk sector, increased use of electronic intermediaries’ will increase market efficiency, reduce the cost of shipping and force shipping firms to provide higher services to maintain or achieve competitive advantage. These effects will have far reaching implications for this sector and for adjoining industries that work with the sector, such as Law firms, warehousing companies and insurance companies. By contrast, buyers in search of competitive advantage are looking for more efficiency and cost reduction. The technology is ready, now the ball is in the markets court.
Source: Lloyd’s Maritime Academy, Middlesex University, Hans Spliethoff, Commercial Director / Chartering Manager Puyvast Chartering B.V., Stephane Bignoux, Programme Leader Middlesex