Virtual consolidation: how digitalisation eases the pain when tanker companies merge

The expansion of digitalisation in shipping could offer another way to consolidate without loss of ownership or brand

In the April/May issue of Tanker Shipping and Trade, I reported on the 12th Annual Capital Link International Shipping & Offshore Forum during which Robert Bugbee, (president, Scorpio Tankers), a group that has undergone its fair share of mergers and acquisitions, made a remark that set me thinking about the possible leverage digitalisation offers to shipping.

Mr Bugbee said, “You need a certain critical mass to [gather market] information and win charters.” He also warned that the MR2 market is more consolidated than it appears, as a number of companies that operate MR2s also run pools. The inference is that this gives them crucial assess to market data, more so than if they were independent of pools.

The traditional approach is the physical merger of two companies, such as Euronav and Gener8, or the pool structure to create a critical mass of information as described above. Pools and mergers create scale, but there is a physical limit to the expansion. As it stands at the moment, Frontline has the largest market cap of any pure tanker company at US$956M. The combined market cap of all the publicly quoted crude oil and product tanker companies quoted by Bloomberg is US$3.75Bn – still puny compared to just one of the tanker industries’ major clients, such as ExxonMobil (market cap of US$423Bn). Although the value of the whole tanker fleet is US$196.3Bn (according to VesselsValue), a global tanker fleet market cap would be lower and far below the market cap of Exxon Mobile.

Physical mergers are hugely expensive in management time, and do not always achieve the advertised synergies. Many, many, many years ago I was reporting on the takeover of US liner SeaLand by AP Moller-Maersk. Some of the executives I met at the time, from both parties, were almost in tears over the struggle to integrate IT systems and cultures. No tanker company is safe from a takeover or a merger, but consolidation in the tanker sector need not be painful.

If consolidation in the tanker sector seems inevitable, can digitalisation create the scale and crucial mass without the physical merger of companies? It could be done through the horizontal merger across companies of duplicated functions: commercial, accounting, purchasing, and HR, to name a few. We are already seeing this with the formation of purchasing companies, but often these are new brands.

The idea of virtual consolidation came from the presentations given by Thome, V.Ships and Eniram I saw at CMA, but expanded to encompass tens, if not hundreds, of shipping companies, each retaining ownership and brand, but using digitalisation (blockchain, common data formats, high-speed satellite links, and so on) to share common front and back office functions to reap marginal gains in cost saving and data gathering.

A concept such as virtual consolidation is just one of the many ways digitalisation may benefit the tanker industry.

For more information on digitalisation and high-speed data links, see Tanker Shipping and Trade’s sister publication, Marine Electronics and Communications.