Mainstream investment news has created a narrative around supply chain being a specific sector in the economy. The reality is that it's not any one sector, but an umbrella term for a system that impacts all sectors of the economy. During COVID, supply chain became an increasingly hot investment topic because investors (and everyone else) were living the challenges: Amazon packages got delayed, Uber Eats and Instacart became lifelines, and everyday items became harder to find.
If we think of supply chain as an interconnected web of systems, the piece that operates within the worlds’ oceans - aka “Maritime” or the “blue economy” - is a sub-web that has been neglected by investors in recent years. Maritime is a critical part of the supply chain, but is often less visible than trucking and harder to understand than logistics. It's not as trendy as those mainstream topics - but it is equally ripe for technology.
Maritime accounts for more than 80% of trade volume - and it is one of the oldest and most significant industries in world history. The world operates on the boat - and when ships don’t sail, global trade grinds to a halt.
Today, maritime - like other parts of the supply chain - is experiencing several shifts. However, maritime has some unique challenges that require nuanced and specialized solutions. When a part breaks down in a factory, a supply chain manager can order a new piece on Volition. When a route for a truck gets changed, the driver can use route optimization software and change their path. When you are operating a 1,200-foot-long container ship traveling across the North Atlantic and you’re headed for rough seas, hundreds of miles from shore? There is no easy answer. You are at Mother Nature’s whim while trying to keep your cargo and crew safe and on schedule.
Maritime is an industry with complex, fragmented players, extremely high stakes, and layers and layers of regulations. The barriers to entry are high, ships are expensive to build and run, and the slow adoption of technology has created deep pockets of inefficiency and damaging pain points for those who work within and depend on our maritime systems.
These challenges include:
Aging fleets: US fleets are old, Average life of a serviceable ship is 35 years with the majority of the US navy being 15 years. Shipowners are starting to think about retrofitting their vessels which are largely using outdated communication equipment, analog clunky hardware, and sometimes still use old sailing methods to travel the ocean. But retrofitting in this sector can be pricey, costing nearly 30M USD for one container ship.
Decarbonization: The shipping industry is responsible for 3% of all carbon emissions and those emissions are projected to increase by roughly 1.5% on average annually. The Carbon Intensity Indicator (CII) is an ongoing, annual measure of the carbon intensity of a ship’s operations. The International Marine Organization (IMO), an international agency responsible for regulating ocean trading, aims to reduce the carbon intensity of all ships by 40% by 2030 and 70% by 2050 (as against 2008 levels). The European Union is also working on new regulations for shipping vessels - regardless of the flag of the ship. All of this focus on decarbonization is requiring ports, shipowners, and fleet operators to rethink how they equip and run their vessels.
Chief engineers are retiring: According to the Maritime Industry Foundation's Maritime Knowledge Center, there are approximately 1.2 million people currently employed at sea in the maritime industry. When looking at who makes decisions it is usually shipowners, chief engineers, captains, and on-land, in-office operators, many of which are growing close to retirement age and have been using offline processes like spreadsheets, pen, and paper, and fax machines for day to day business. The next wave of decision-makers will take their place, but be disadvantaged by the long history of legacy methods that these organizations are accustomed to. New leaders will have to learn the old ways to survive current business conditions, while they drive the change toward new technologies including digital logbooks and automated engine rooms in order to stay competitive.
Growing adoption of port automation & hardware: If you look at ports around the world they are slowly becoming more automated with large hardware. As globalization has grown, ships have gotten bigger to carry more cargo. Ports have been forced to accommodate these needs by investing in automated cranes, dredging equipment, and more. Heavy large equipment is being welcomed at ports with open arms yet processes are still offline. Similar to manufacturing with automated factories, we see hardware being the entry point for the ocean sector to start to think through innovation.
Poor data: Although hardware is becoming wildly acceptable, software is still in the early days. Data silos are a problem as in other industrial sectors, and data is all over the place from a vessel's main office in Singapore to a file cabinet in a dry dock in Bayonne, NJ. As we have seen in areas like construction or manufacturing, standards, formats, and structures may be misaligned or even wholly absent, so operators can’t collect and exchange data efficiently. Advancement in a more standardized data infrastructure could result in a HUGE opportunity for the ocean sector, leading increased visibility around necessary, scheduled maintenance, vessel route planning, and real-time visibility into yard operations.
National security threats: In addition to the import/export of goods, there are hundreds of oil & gas rigs off the coast as well as underwater internet cables that connect the worlds of both energy and internet. As cybersecurity threats begin to grow and shipping companies begin to digitize, ocean players need to think critically about their cybersecurity capabilities. This is especially critical for old ships with zero or outdated cybersecurity tools.
NVP’s supply chain thesis recognizes that innovation and outside factors are rapidly changing how companies move goods and operate around the world. This is especially critical within the maritime space. We believe that this industry will see an advancement in technology efficiency, safety, and sustainability in its shipping, port, and offshore operations in the next 5-10 years - and that’s why we've been investing in companies like FleetOps, OFE, and Freightflows.
We are currently on the lookout for innovators as well as new resources and experts in the maritime world. If you’re working on something we should know about, reach out to Sean (Sean@Newark.vc) for a conversation.