Startups

Note/Disclaimer:

1. This blog post represents my opinions only. It does not represent the opinions of my teammates at Particle Ventures (formerly known as KEC Ventures), either individually or collectively.
2. This blog post does not represent the opinions of any one at Maritime Global Technologies Innovation Center (MGTIC), SUNY Maritime College, or any of their related affiliates.
3. This blog post does not represent the opinion of The New York Supply Chain Meetup (#TNYSCM), nor does it represent the opinion of any of my co-organizers at #TNYSCM.
4. This blog post does not represent the opinions of any of the individuals or companies that is specifically mentioned as a result of their participation at the event that this article covers.
5. Where I felt it would be helpful, in some cases, I have added supplementary background that wasn’t part of the presentation.

This blog post is the third in a series that I have been writing about our effort to create a maritime technology innovation hub in New York City. You can read the preceding instalments here and here, respectively. You can also read my blog posts on trucking; here, and an update here, as well as shipping; here, with an update here.

We finally held the kickoff event for Maritime Global Technologies Innovation Center (MGTIC) at SUNY Maritime College on Thursday, March 15, 2018. It was a reverse pitch that brought together maritime industry professionals and entrepreneurs, developers, journalists, and investors. The reverse pitch format involved leaders from the industry pitching pain points for which their companies are looking for innovative solutions – naturally the unspoken assumption is that these are problems faced by the maritime shipping industry as a whole. Therefore responding to these reverse pitches would be the first step in an entrepreneur’s effort to prove the market.

This is my recap of the reverse pitch.

Background: What Does MGTIC Do?

MGTIC’s goal is to help turn challenges faced by the global maritime industry into profitable opportunities for incumbent companies AND new entrant software technology startups. Basically, MGTIC connects the maritime industry, technology startups, and investors in a neutral and collaborative environment in which they can pursue mutually beneficial relationships and partnerships. The center hopes to accomplish this goal by marshalling the extensive resources available through the State University of New York network, as well as the resources and professional expertise available because of its location in New York City.

Opening Remarks & Keynote

MGTIC is founded by two members of the faculty at SUNY Maritime College;

1. Dr. Christopher Clott, ABS Chair of Marine Transportation and Logistics at SUNY Maritime College, and
2. Dr. Richard Burke, ABS Professor of Naval Architecture and Marine Engineering.

They reminded the audience of MGTIC’s goals, and set the stage for the remainder of the event. Dr. Michael A. Alfultis, 11th President of SUNY Maritime College welcomed us to the campus, and emphasized that SUNY Maritime College must play a role in shaping the future of the global maritime industry give the role it plays in training men and women who go on to fill positions of leadership in the industry. MGTIC is the first step in the effort to harness the changes that the industry must inevitably grapple with as time progresses.

The keynote address was delivered by Roger Matus. He walked us through the basic highlights of Prof. Clayton Christensen’s process of Disruptive Innovation, ending with the following summarizing points;

• Tech startups seek markets that they can disrupt. The purpose of a reverse pitch is to educate entrepreneurs, founders, and technologists about markets that may be ripe for a disruptive new product or business model.
• The initial goal a startup should pursue is a proof-of-concept, or a minimum viable product that early-adopter customers are willing to pay for in order to prove that a market exists.
• A successful proof-of-concept should lead to a iterative and circular process of hypothesis development, creation, and learning . . . Customer development, basically, to use the term of art.
• Many startups will lose money, but some will get acquired if they successfully prove the existence of a new market.
• The pay-off entrepreneurs and investors is in the form of equity. If things work out then that equity undergoes a substantial increase in value.

Pitch #01: Fuel Analysis Automation – Bunker Procurement & Oil Data

Josh Shapiro, Chief Operating Officer at Liberty Maritime Corporation, delivered the first reverse pitch. Liberty is a New York-based commercial shipping company which operates a fleet of 6 U.S. flag and various foreign flag vessels that transport ” . . . bulk, break bulk and bagged commodities as well as a variety of Roll On/Roll Off (Ro/Ro) cargos around the world for the U.S. Government, the United Nations, Private Voluntary Organizations (PVO’s) and private commercial entities.” ((Quoting from Liberty Maritime’s website. Accessed Saturday, Mar 31, 2018.))

Fuel costs can account for as much as 50 to 60 percent of operating costs for a shipping company. Generally, this means that shipping companies are constantly under pressure from rising costs of crude oil, and try as much as possible to pass these costs on to their customers. However, more pressing is the announcement by the International Maritime Organization that its regulations to limit sulphur oxide emissions will come into effect on January 1, 2020. The current limit is 3.50% m/m (mass by mass). Come January 2020, the new limit will be 0.5% m/m. You can read more about this here: IMO Sulphur 2020 – Cutting Sulphur Oxide Emissions.

As one might imagine, given that fuel costs account for such a significant chunk of a shipping company’s operating costs, carriers like Liberty Maritime Corporation gather a lot of market data about fuel. Among other things, they;

• Gather general data about heavy fuel oil (HFO) and Marine Gas Oil (MGO),
• Gather data on futures, forwards, and other financial derivatives related to the fuel markets,
• Perform hedging, speculation, and correlation analyses, and
• Use their data to customize advantageous fuel procurement or fuel hedging strategies.

Unfortunately the state of the art for this kind of work is not user-friendly. So the need here is for a system that;

• Has an easy to use, easy to understand general user interface that does not require years and years of training, and that will minimize mistakes,
• Can run and report on various future scenarios based on previously established criteria,
• Can combine proprietary, open source, and other third-party data to perform the analyses required,
• Is customizable given the needs of a specific customer, and
• Is affordably priced, with add-ons and upgrades that can be purchased at extra cost.

Pitch #02: Blockchain in Logistics

Josh Shapiro presented the second reverse pitch as well, this time he focused on blockchain in logistics. This is a topic I have previously blogged about here: Update #01: White Paper | Towards A Supply Chain Operating System and as I highlighted, it was a major topic of discussion at #TPM2018: The Woodstock Of International Container Shipping & Logistics.

Josh highlighted the following problems and opportunities;

• Recording the quantity and transfer of assets like pallets, trailers, containers, etc,
• Tracking purchase orders, shipment notifications, or other trade-related documentation,
• Assigning or verifying the provenance and integrity of products
• Linking goods in the physical world with a virtual or digital twin in order to enable tracking using serial numbers, barcodes, RFID, etc,
• Sharing information about processes like manufacturing, product assembly, delivery, and maintenance.

This touches on two themes that have been repeated in conversations I have had with people in the maritime industry about the role that distributed ledgers might play in how the industry operates in the future;  The first is Supply Chain Transparency: This is the extent to which information about every organizational entity in a supply chain is readily available to every other participant in the supply chain. The second is Supply Chain Visibility: This is the extent to which all participants in a supply chain can track the movement of parts, components, materials, and finished products as they travel in all directions within the supply chain as goods travel from suppliers to the end-use customer. Taken together, increased Supply Chain Transparency and Supply Chain Visibility reduces operational risk and increases customer satisfaction.

Pitch #03: Cybersecurity in the Maritime Industry

Anthony Patti, Vice President of Global Cybersecurity Services at Duff & Phelps delivered the third reverse pitch. Duff & Phelps is a global advisory firm which assists its “. . . clients in the areas of valuation, corporate finance, disputes and investigations, compliance and regulatory matters, and other governance-related issues.”

After a brief overview of the basics of a corporate cybersecurity program. Anthony discussed the state of cybersecurity in the maritime industry and why it’s vulnerable to attacks;

• Increased use of computer services, technology, and automation,
• Lack of encryption,
• Across the board, there’s a lack of cybersecurity awareness and training,
• Safeguarding against cyber attacks can be expensive, and finally
• People in the industry feel that there’s a low risk and they do not understand the threat.

As the maritime industry continues to embrace automation and software technology the systems he thinks are most vulnerable to attack include, but are not limited to;

• Bridge Systems – these are the interconnected systems that enable centralized monitoring of various navigational, propulsion, engine, and other operating information about a ship. This is usually accomplished by gathering and presenting the information from a ship’s systems to a group of screens from which personnel monitor the ship.
• Global Positioning Systems
• Cargo Handling & Management Systems
• Propulsion and Machinery Management & Power Control Systems
• Access Control Systems
• Passenger Servicing & Management Systems
• Passenger Facing Public Networks
• Administrative & Crew Welfare Systems
• Communication Systems

As an example, he discussed one scenario that could arise from a cyber-attack; A collision could be initiated after a ships navigation system is hacked. This could lead to;

• Physical loss of, or severe damage to ships and other equipment,
• Physical injury to crew, and possible loss of life,
• Loss of cargo through damage, or theft,
• Pollution,
• Business interruption,
• Disruption to port and terminal activities leading to broader, economy-wide aftershocks and losses due to interruptions in the flow of trade and commerce.

To wrap things up Anthony suggests that the perfect cybersecurity solution for the maritime industry would;

• Automatically track all information technology and operating technology systems,
• Automatically monitor for all vulnerabilities,
• Automatically track patch management,
• Automatically monitor access controls and audit/log access,
• Automatically monitor ship-to-shore interfaces, and all systems connected to the internet,
• Automatically monitor all systems, especially those supplied by third parties, for unauthorized access and entry to shipboard equipments and network systems,
• Train personnel to correctly use and monitor systems connected to the internet, and
• Provide a command-center-style dashboard for shoreside and onboard personnel to understand if there are any issues that require special attention, assessment, or remediation.

As is the case with fuel regulations, cybersecurity is an issue that the International Maritime Organization is taking seriously – new regulations come into effect on January 1, 2021. You can read more here: Maritime Cyber Risk. Also, The Baltic and International Maritime Council’s Joint Industry Guidelines On Cyber Security.

Pitch #04: Port Trucking & Terminals

Chris Gabarino, Vice President of Operations at Port Newark Container Terminal (PNCT) delivered the fourth reverse pitch. PNCT “. . . located in Port Newark, New Jersey occupies 267 acres, handling over 700,000 containers annually. PNCT secured a long-term extension of its lease agreement with the Port Authority of New York/New Jersey with options through 2050.

As one of the largest infrastructure projects in New Jersey, PNCT will invest $500 million into the expansion before the year 2030. The expansion is expected to double the number of containers moving through the terminal, creating significant economic growth within the region.

PNCT has already doubled its on-dock rail capacity, purchased three (3) super post-Panamax ship-to-shore cranes and has significantly expanded and improved its fleet of container handling equipment and support yard. PNCT is ready today for the ultra large container vessels which will be calling the Port of NY/NJ once the Bayonne Bridge is raised.

Further expansion plans include the development of 74 additional acres, a new gate facility, additional berth deepening and upgraded container handling equipment including additional super post-Panamax ship-to-shore cranes.” ((Quoting from PNCT’s website. Accessed on Saturday, Mar 31, 2018.))

The problem: Terminal operators lack visibility into what is happening at the ports. As a result there are significant, and many believe unnecessary delays in getting goods in and out of the port as quickly as possible.

This is a major problem, since nearly 80 percent – measured in tons, if not more, of trade between the United States and its international trading partners passes through the nations ports. Ports work in tandem with carriers, labor, logistics service providers, professional services providers – like finance, contract lawyers, etc., government agencies, local communities, importers and exporters, rail operators, and others.

The opportunity: A product that reduces trucker wait time and increases trucker turn time at a terminal by linking terminals with the greater shipping and trucking community by;

• Providing visibility into a terminal’s real-time inventory for the port drayage, trucking, and shipping community,
• Matching real-time shipper needs with top-box inventory at the terminal,
• Enabling truckers to react in a timely manner to changes in freight status.

Pitch #05: Compliance

Kelly Raia, a trade compliance and supply chain specialist at Blue Tiger International, presented the fifth reverse pitch.

International supply chain trade compliance is the process that ensures that goods leaving or entering a country’s borders comply with all relevant rules, regulations, and laws. So the goal of international trade compliance is maximizing the adherence to relevant rules, regulations, and laws while simultaneously facilitating the free flow of goods across national and international borders. According to Crane Worldwide Logistics; Trade compliance includes export control and reporting, import clearance, anti-bribery, antitrust and competition analysis, third-party agent vetting and management, supply chain security, and overall assessment and management of trade and regulatory risk. Trade compliance is interactive and all-inclusive. ((Lightly paraphrased from http://www.craneww.com/what-is-trade-compliance/. Accessed Saturday, Mar 31, 2018.))

The product for this market would;

• Enable companies to maintain good trade compliance policies for the aspects of their business that involve international trade,
• Enable companies to implement, maintain, and monitor standard operating procedures for parts of their business that involve international trade.

For imports some of the activities that such a product would facilitate include; Classification, Valuation, Country of Origin Marking, Use of Trade Agreements, and Recordkeeping.

For exports some of the activities that such a product would facilitate include; Denied Part Screening, AES Filing, Export License Requirement Documentation, Use of Trade Agreements, and Recordkeeping.

Pitch #06: Maritime & Marine Risk Management

Scott Parry, Senior Marine Risk Consultant at Allianz Global Corporate & Specialty (AGCS), presented the sixth reverse pitch. “Allianz Global Corporate & Specialty (AGCS) is the Allianz center of expertise for large corporate, industrial and specialty insurance.” AGCS has a worldwide network in over 210 countries and territories, and it is one of the very few global insurers with an exclusive focus on the needs of global corporate and specialty clients.

At a high level;

• The world of insurance is changing, and data is becoming more important to the underwriting process than in the past because so much more data is now available.
• Insurance carriers need to adapt to emerging technology trends in order to increase their ability to more adequately tune their processes to match each clients unique business needs.
• The increasing trend towards mega-ships represents an accumulation of risk and uncertainty. How should insurers prepare to face this development?
• How can insurers do a better job of harnessing real-time supply chain data?
• How should the trends in cybersecurity risk factor into an insurers underwriting processes?
• What technology can be developed to reduce loss due to cargo theft?

Pitch #07: Electronic Logging in Trucking

Matt Guasco, Owner, INF Marketing and Logistics discussed issues facing the drayage and long-haul trucking markets. Matt’s company represents Logistic Services USA, a company that “specializes in providing true “End to End” logistics solutions. We utilize our companies assets (fleet of trucks, warehousing, technology) and our non-asset partnerships to provide a truly seamless and flexible logistics solution. We simplify the process and give our customers world class reporting capabilities and real time tracking throughout the entire life-cycle.” ((Quoting from http://logisticservicesusa.com/. Accessed on Saturday, Mar 31, 2018.)) They provide port drayage, long-haul and short-haul trucking services, trans-loading and warehousing services throughout the United States.

According to Matt; The introduction of Electronic Logging Devices (ELD) and the attendant shortening of allowable hours has created a host of problems for his clients. However, ELDs are here to stay since the argument that we should return to an environment of less safety is an untenable one to make – ELDs permanently and automatically record a driver’s hours of service and rest periods. For example, a long-haul driver is allowed 11 hours of drive time over a consecutive 14 hours during which that driver is on duty. The introduction of ELDs has has caused an uptick in operating costs truckers of about $40 per truck per month. As a result of the ELD mandate, and other accompanying factors, American Truck Business Services (ATBS) predicts an eventual capacity shortage of between 200,000 and 300,000 trucks. Even before things get as bad as ATBS predicts, rates are already being driven up as some truckers can now pick and choose what freight to transport and some carriers simply refuse to honor existing contracts. Also, poor availability of equipment in the drayage markets eats away at precious time and exacerbates the problem. He admits that the ELD mandate will decrease truck accidents and reduce insurance costs.

The Need: Software that will enable trucking companies to increase capacity and decrease transit times, while adhering to the ELD mandates.

My additional comment; It would also be great if such software could increase fuel efficiency in the process – fuel costs account for about 30 – 40 percent of operating costs in the trucking industry.

Pitch #08: Ocean Carrier Differentiation & Marketing Strategy

The eighth, and final reverse pitch came from Peter Mastandrea, Port Captain and Manager of U.S. East Coast Marine and Terminal Operations for Hyundai Merchant Marine (HMM). HMM is the 14th largest container carrier in the world and is headquartered in Seoul, South Korea. According to HMM’s website;

• HMM is an integrated logistics company, operating around 130 state-of-the-art vessels. HMM worldwide global service networks, Diverse logistics facilities, leading IT shipping related systems, a professional highly trained staff, and continual effort to provide premier transportation services.
• HMM has formed a global business network with four international head-quarters, 27 subsidiaries, 76 branches, five overseas offices and 10 liaison offices. It is highly regarded as one of the world’s top integrated-logistics companies with its targeted market prospects, efficient organization, top personnel, and advanced internet systems.
• HMM transports nationally strategic materials such as crude oil, iron ore/coal and diverse special products as well as import/export goods. Earnings are eight trillion Korean won per year, clearly playing a major role in Korea as a vital economic artery.
• HMM invests to continuously expand vessel fleet, acquires container terminals in the worldwide primary location and inland logistics facilities, and develops premiere customer oriented IT system. As a result of these endeavors, HMM will become a world top integrated logistics company giving “Hope to shareholders, satisfaction to customers and pride to employees”.

But, enough with the propaganda . . . You want to know what Peter had to say. 

The container shipping industry is largely built around alliances. For background on shipping alliances you can read this blog post from Xeneta.

In a world in which each of the 10 biggest container shipping companies belongs to one of 3 alliances, how does HMM survive as an independent player?

What strategic messaging should HMM develop to set itself apart from the hordes, in a good way? Is there are marketing strategy that HMM ought to be deploying if it is convinced that operating outside the alliance structure is the path it should pursue?

There are bigger ideological issues at play here. For example, conversations I have had with people since I wrote the two shipping blog posts that I referred to at the beginning of this article suggest that the Chinese government has decided that it is in China’s national interest to enable a Chinese shipping companies to become big enough to dominate global maritime trade. After all, the thinking goes, if China is the world’s factory, why should the goods it ships to the rest of the world travel on ships owned by Europeans. Early steps in this direction may be seen in the merger between COSCO – a Chinese state-owned shipping carrier, and the Hong Kong-based Orient Overseas International Line (OOIL) and its container shipping subsidiary, Orient Overseas Container Line (OOCL). According to this article by Bill Mongelluzo in the Journal of Commerce, the merger will make the combined entity the largest carrier of US imports.

Similar nationalistic tendencies may be the driver behind the decision by Japanese shipping lines Kawasaki Kisen Kaisha (K Line), Nippon Yusen Kabushiki Kaisha (NYK), and Mitsui O.S.K. Lines (MOL) to operate jointly as the Ocean Network Express (ONE), which began operations in April 2018.

So, what is Korea to do? Does she draw a line in the sand and put full force of the power and might of the government of Korea behind Korea’s shipping companies, enabling them to operate as HMM would like to operate, or does she let the markets dictate what will happen with the possibility that Maersk, or another of the top 10 shipping companies by market share comes in and acquires HMM and other Korean carriers? How would the current geopolitical situation between North and South Korea affect thinking around this topic.

To wrap up the discussion about the reverse pitches, I will borrow the advice Josh Shapiro gave entrepreneurs in the audience; Focus on products that

• Increase profitability,
• Reduce operating costs,
• Increase operating efficiency and supply chain information integrity, or
• Simplify regulatory compliance.

Next Steps

MGTIC is now collecting proposals for presentations for possible inclusion at an event to be held during the Marine Money Conference. This would be on Tuesday June 19, 2018 at The Pierre Hotel in New York City.

The team is most interested in proposals that respond specifically to the areas pitched at this March 15, 2018 Reverse Pitch. However, they will consider other proposals too. 

The proposals should be brief, clear and to the point, no more than 2-5 pages. They will create a proposal template that will be published on MGTIC’s website but in the meantime proposals should at a minimum provide the teams’ preliminary thinking about the following areas:

• Overview
• How it works
• Business model
• Customer segments
• Revenue streams

Proposals should be sent to mgtic@sunymaritime.edu.

They’d like proposals as soon as possible but will consider all entries up to Thursday, April 12.  Include a point of contact. Given the tight turnaround time, feel free to ask about an extension of the timeline. I assume they’ll consider such requests on a case-by-case basis.

Good luck.

MGTIC is a joint-initiative by SUNY Maritime and EEX Maritime to create a maritime technology center in New York City. This center will benefit from the central position that SUNY Maritime occupies in the global shipping industry, the network and know-how that EEX Maritime is building as a connector between technology startups and the shipping industry, and the prominent role that New York City occupies in the global supply chain market.

About SUNY Maritime: SUNY Maritime College is one of six state maritime academies in the United States. Located 30 minutes from mid-town Manhattan, Maritime College educates dynamic leaders for the global maritime industry.

About EEX Maritime: EEX Maritime is a joint-venture between MarineCycles and EEX. EEX Maritime helps startups gain access to the global shipping market through its hubs of activity in Helsinki, New York, and Singapore.