November 06, 2008

Nuts before winter

Call it a slowdown or a recession, financial meltdown or a depression. Petty arguments about semantics aside, the crash in the Baltic Dry Index, coupled with the drying up of credit including for shipbuilding and letters of credit as well as the worldwide collapse of commodity prices, has hit the maritime world with the same sledgehammer that has hit everything else in the financial markets. Along with plummeting freight and hire rates, the few hundred billion dollars required over the next few years to service existing shipbuilding order books will not be available too easily to an industry long considered a bellwether for the state of the world economy and trade.

The convenient year old theme of the ‘Indian economy decoupled from the world economy’ has now been confined to the dustbin of hype and nonsense; crudely put, it may be decoupled, but it still got rogered, and will continue to go up and down along with the rest of the world. Thanks to the RBI’s last governor Mr. Reddy, our banking institutions may be in better shape, but the days of easy credit are over.

We in the shipping industry have had a poor formula for tackling recession thus far. I should say, right off, that when I say ‘we’, I exclude the fly by night operators who crawl out of the woodwork at the first sign of a boom and invest hot money in shipping like they would invest in pork belly futures; as far as I am concerned, they can live and die with the fluctuations of the marketplace.

That aside, it would be good for the rest of us, professionals and companies in it for the long haul, to examine what needs to be done (and, indeed, done differently this time) to ensure minimum present damage while positioning ourselves for long term advantage. We are fortunate, in a way, that we have not yet been overrun by Business school graduates and consultancy companies, both of whom have often never even run a tea stall down the road but try to advise long standing corporations on how to run their businesses. Jargon aside, they often do not have much to offer, have been complicit and sometimes criminal, and, indeed, have been the ones largely responsible for the present self made worldwide financial mess.

HRD aside (more on this later), we are fortunate that we are staffed by professionals with a lot of experience in the industry; knowledgeable people who understand what it will take and what needs to be done to distinguish the professionals from the amateurs. I will ignore the present credit crisis as it pertains to letters of credit and short term finance for now. This is really a crisis of confidence; countries worldwide are trying to address it in different ways and the immediate liquidity problem will probably sort themselves out sooner rather than later. The longer term credit problems we will face as regards to shipbuilding activity will almost certainly not be easy, though. Smaller companies have already started cancelling build orders worldwide, though the bigger Indian boys are saying that they are sticking to their expansion plans. So far.

Incidentally, it will be interesting to see how the regulatory and ownership legs of the industry marry the double hulled tanker requirements with difficulties in shipbuilding costs and credit in a changed scenario. It may well be that many companies cannot digest these costs at a time of plummeting revenues.

Anyway and all that aside, here is a short list of what we need to do differently this time. I have avoided some stuff that is a given: as examples, salaries ashore and at sea respond to the market and business models are reworked anyway. Instead, I have concentrated on the ‘differently this time’ initiatives, keeping in mind that some of our responses to the last recession were long term disastrous in many ways. Many of the measures I recommend should have be taken anyway; a slowdown is not a bad time to begin, as many of these promote efficiency and therefore raise revenues or cut costs.

· Form a working an efficient industry body (aka NASSCOM) to coordinate with and pressurise the Government to address industry issues. I restress the ‘working and efficient’, which would rule out most existing ones.
· Reorganise shore and support establishments. Consider leaner organisations with consequently smaller commercial real estate requirements. Consider relocation to smaller or less expensive locations.
· Do not cut back on essential or long term shipboard maintenance.
· Owners should always keep in mind that ship management companies will look at their own interests before that of the owners, and that keeping it cheap is not always synonymous with keeping it efficient. In many areas of maintenance and machinery longevity, keeping it cheap harms owners’ long term interests directly and sometimes irreparably.
· Reduce needless administration. Reduce supervisory functions unless necessary.
· Reduce needless communication. Besides being useless, it costs money in terms of time and energy and shipboard communication costs. It also contributes to overworked and fatigued crews.
· Avoid brainless cost cutting on ships; it is counterproductive in the long haul. (Yes, in the long haul we are all dead, but not necessarily our companies!). Attack wastages, leakages, overstoring and cosmetic expenses instead.
· Consider outsourcing payroll and similar functions to promote efficiency.
· Cut down on expenses on feel good exercises like useless seminars and such. They do not fool too many.
· Keep the organisational chin up. Downturns usually sap initiative and morale. Ironically, a slowdown is the time when these are needed the most; booms are heady in themselves.

Recruitment and Human Resource Development:

It is critical that this ignored but essential component of our industry be strengthened immediately; history proves that we have usually been wrong footed and clueless here. With analysts projecting a slowdown across all sectors of the Indian economy, the impact of which will be greater in the FY09/10, we have an excellent opportunity to attract suitable fresh talent. The slowdown will affect jobs across the board in India, giving us access to youngsters who may well contemplate a career in a profession they disregarded earlier.

However, to take advantage of this opportunity, we must be smart and focused. We have probably breathing space of a year or two, but we must, right now and even as we tighten our belts elsewhere, fund recruitment programmes. The money required is not huge, and it can well be smart money that gets maximum bang for the buck, but it is critical that we do not fall into the well known trap of across the board cost cutting and thereby decimate our future workforce before it is born.

In my opinion, the following needs to be done yesterday:

· Project company seagoing requirements for the next year, for the next three years and for the next five. This should be a rolling exercise. The advantages are obvious.
· Recruit an excellent and experienced HRD person and ask him/her to budget for HRD after explaining your requirements. Factor this budget into your business model. Revamp the entire HRD function to exclude ticketing and other functions of seafarers joining ships; these are administrative issues and have no place in HRD. The HRD department should be, additionally, lean, focused and concentrating only on the recruitment, retention and development of persons both at sea and ashore. This should including incentives, career paths and professional evaluations. Sorry to burst the bubble here, but a Master Mariner sitting in an office releasing some advertising is not HRD.
· Treat people professionally even when you ask them to go. Keep in mind that the goodwill lost by many companies in the last recession has still not been regained.
· Recruit fresh and smart trainees keeping projections in mind. They do not cost as much and you will be better positioned to deal with future demand.

Most importantly, rack your brains and HRD expertise to come up with a workable proposition, in this contract infested industry, wherein these fresh trainees end up as long term employees. Get out of the contract rut with this first batch. Great thought will be required here, because to do this long term the proposition has to should work for both the employee and the employer. Tough one, yes. However, all critical issues are never easy, and just because it hasn’t been done before is not a good enough excuse.

Our HRD policies, so far, have been a joke. There has been an automatic assumption that spending here is money wasted, while spending on seminars and five star get togethers somehow raises the profile of the company. This, in my view, is shortsighted and may even be erroneous. We may be surprised to find, after the cessation of stupidity, that we are now able to recruit and retain seafarers of our choosing at a similar or comparable cost to what we did earlier.

We have a little time to set things up. There will be a time lag before the winter of discontent hits us fully. What we need to remember, however and above all else, that this winter, like all others, will be followed by spring. We must act now to set ourselves up to maximise the next harvest.

Time to be creative, folks. As Einstein said, you can never solve a problem on the level that it was created.


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