Trust is the intangible glue that binds companies and their customers. It’s the unwritten contract that ensures consumers keep engaging with their suppliers. Without trust, businesses cannot hope to survive.
Key to winning trust is openness. In business as in life, a willingness to divulge close information -- however uncomfortable – helps strengthen relationships. Secrecy, on the other hand, allows suspicion to fester and undermines alliances.
As the broader business environment has strengthened those bonds of trust by yielding to demands for more transparency and accountability, and better corporate governance, some parts of the shipping and bunkering industry remain guarded and secretive. The fact is, they can’t afford to be. Openness on details of beneficial control, strategy, financial performance and credit history, offers a competitive advantage in dealing with increasingly selective counterparties that enables a risk-adjusted premium to be secured for some, and critical access to liquidity for others.
Transparency has long been a dirty word in shipping. Acquiesced by a trading community parts of which are willing to tolerate poor practices in the name of keeping trade moving, even the biggest players have either kept something hidden or survived on a system of insider discretion to get deals done. In certain areas of the marine industry, business practices have been at best opaque, at worst, criminal.
Consequently, stakeholders and the public have – often rightly – regarded shipping with suspicion. The traditional (i.e. post 1960s) structures of the sector, flags of convenience, high-profile entrepreneurs and equally high-profile defaults, all reinforce a notion that some parts of the sector still wilfully operate in grey areas, knowing that the arm of the law isn’t long enough to reach them in offshore or legally “challenging” jurisdictions.
The fact that’s still the case should be cause for concern among shipping executives because, simply put, times have changed.
While emerging technologies such as blockchain and smart contracts seek to enforce the transparency and security of transactions, economic uncertainty, depressed earnings, stymied cash flow and tougher regulations have forced business decision makers to move beyond these tools, and consider more seriously the creditworthiness and compliance records of the companies they trade with. Further accelerating the disruption of old practices are growing demands for better corporate governance, fostered largely by exposés of corruption such as those of the Panama and Paradise Papers, and governmental initiatives such as MiFID II.
These changes have raised the expectation that shipping and bunkering companies fall into line with other industries and open up their activities to wider scrutiny. As a means of restoring and maintaining bonds of trust, increased transparency has become not only a competitive advantage, it’s become mission critical.
Indeed, a proactive transformation towards more transparency will be rewarded reputationally, boosting the perception of a company’s professionalism and competence. Even better, change can be made without blunting a company’s competitive edge or compromising the limitations of liability.
Stakeholders would welcome details on complex corporate structures, managerial experience and reliance on key trading partners. Openness on audited financials, available capital and buffers, access to liquidity and credit as well as records on success in meeting obligations would further strengthen a company’s perception of good stewardship.
As the global economy becomes more open, a lack of transparency is increasingly seen as a financial and reputational risk that counterparties are unwilling to take. Large, regulated companies with reputations to protect won’t shy away from using their financial clout to demand greater clarity from their trading partners. If they don’t get what they want, they’ll walk away to a competitor that is more transparent.
From a purely transactional point of view and in the name of an efficient and functioning market, shipping companies cannot afford to be complacent. The industry already has a reputational problem and as the business environment gets tighter, clinging to the old opaque ways of doing things is no longer an option. Transformation isn’t impossible. With authorised and expert analysis, companies can begin making the changes necessary for their survival right now.
It’s not too late for the shipping and commodities industries to satisfy the demands of the reshaped business environment.