WHY MARINE BUSINESSES FAIL

Each time I use the exit of my office building, my attention gets drawn to the jetty close by and all I see there are offshore service vessels looking distraught like sheep without a shepherd. While some of them have come because they have become broken by the powers of the sea, others have called in because the global oil economic crunch, among other factors, has taken their lunch away. Please spare some time as I take you through my thoughts on running a marine business.

First and foremost, a mistake many make is thinking that marine business is a cheap business. It never was, isn’t, and will never be. Ship business is capital intensive. The least one can get a functional second hand tonnage crew boat (which is about the smallest of equipment) for is about a million USD, and that does not guarantee that there would be no refits to do. The logistics cost of delivery (where you are buying outside your location), cost of de- registering and re- registering, cost of surveys, cost of legal rites, and so on could ‘wake a dead man’. High as the costs are, you rarely have the guaranty that your ship will ‘hit the ground running’. She is going to have the ‘old hands’ to deal with, and where you, the owner, don’t know the ways and manners with the end users, you are going to have sleepless nights because your vessel is going to sleep at the jetty a long while with the attendant running costs of keeping her afloat at someone’s jetty. For thoughtless investors, the business is as good as dead on arrival. So, think twice before you hop in.

Management problem is another reason why marine businesses fail. Have you seen someone who would brave it to invest 50 million USD into buying a vessel, and then would be miserly to spend money for her maintenance? Maybe they didn’t count the cost earlier on. Then, they begin to jump maintenance schedules, they start running from surveys, they quit hiring good hands, not knowing that they are gradually killing their business. The best of ships are those maintained as and when due. I know marine companies which would rather do preventive maintenance than corrective ones. For efficiency and effectiveness, good management practice demands that machinery is not allowed to over- flog itself. Like the human being, abuse and misuse are a quick way to the grave.

A third challenge I see is the inability of ship owners or their managers to diversify their portfolio. An uninformed look at the business would make any ambitious business man consider buying a fleet load of same type of vessels. So you see a firm owning quite a number of one type offshore support vessels or a number of Tankers and so on. Wisdom of portfolio management would teach that high risks attend to having same stock all the way. Whatever happens in the case where the unexpected happens and the bubble bursts as it has just happened in the oil industry? Now, imagine the fate that has befallen a firm with a fleet full of OSVs or oil Tankers. The fact that ship demand is a derived demand means that as long as oil is down, the offshore sector of the business will stay down. And same will go for the Tanker sector. For crying out loud, it does not have to be all marine. Mearsk has shown that it is possible to spread one’s risks by diversifying; perhaps that, coupled with good management, is why they never die.

My fourth thought is on the dearth of maritime analysts- at least in Africa or my Nigeria, or patronage for them. Very few people know how to analyze the business and make forecasts necessary for their companies’ future existence. But worse still is the fact that most marine companies do not even give a hoot about these guys. Ship owners/ managers just think that things will go as usual, even though that is an uneducated position.

Now, just not to be one who only talks about problems but never proffer solutions, I suggest the following that will surely help in no mean measures. 

One, seek professional help. There is nothing as good as seeking the help of individuals who have built their knowledge base with good learning and experience. Get them to handle all your internal business processes and external relations. That help may come at a price, but such price is so small compared to the loss incurred for running alone.

Two, be disciplined. Discipline in this regard involves holding to the promises you make to partners in the business. Stories abound of people who default on agreements with foreign and local partners. Such people are the real losers in the long run. In marine business, you need to seek out an edge over competitions and some of such are people’s connections. You will do well to be disciplined to honour the terms of the deal. Also, discipline yourself and your management to keep to your maintenance schedules; even if the heavens will fall (and they don’t fall, anyways). Then, be disciplined in the way you handle business finances. Don’t throw money parties; spend only on things that can push the frontiers of the business.

Three, don’t put all your eggs in one basket. Diversify. There are a number of diversification strategies that can be used. You may consider going into other areas of the maritime market where you think you may compete well, even your starting point in the marine business or going into what is naturally the next thing in the line of marine business, say crewing or brokering, which you already have capacity for would help; or you may consider doing other things like supply of consumables to your clients; you may even consider going completely outside the circle to do other things like real estate, manufacturing and the likes.

And lastly, perhaps it is high time we built the capabilities to think long term. Back in the days, ships used oars and coal, respectively. But people who thought far ahead had few troubles when ships started using fuel oil. They saw far and made themselves ready. Today, ships are going on diesel electric propulsion and unless you are ready, the new technology may sweep you off as some countries and international agencies now propose a cut on sulfur emission from ships. Right now, some ships have been built to run on liquefied natural gas. Indeed, researches have gone on to design ships that will run on alternative sources of power like bio-gas and the likes instead of fossil fuel. When, not if, that happens oil will be doomed and so may all businesses and nations that depend on it. Unless one gets along, he will definitely get aground when that time comes.

Thanks for your time.