What price to put on value?

When price alone determines contract success, purchasers beware, writes Mattias Gunnarsson, Vice President, MacGregor Cargo Handling. Price-driven selection rarely yields economic value throughout the lifecycle and ultimately suffocates innovation.

The challenges posed by the rapidly changing landscape of the merchant shipping industry from both regulatory and technological perspectives are well-documented, but the undercurrent of historically low order volumes and pressure from low operating margins, provides another. This has served to create an environment where short-term gains typically prevail at the expense of longer-term profitability and sustainability.

However, if we all want value for money, where marine equipment is concerned getting it is rarely just about the lowest price. The view at MacGregor Cargo Handling is that there is an urgent need to put value back into the decision-making equation.

‘What is of value’ depends on the customer and market segment in which they operate. For example, a shipowner will value a product or service that can enhance payload capacity, safety, equipment reliability, operational efficiency and environmental sustainability. A shipbuilder, on the other hand, might prioritise process efficiency and reduction in total installed costs.

Accessing critical information

Fully understanding what shipowners, operators and shipbuilders value the most therefore demands working closely with them over time and striving to deliver against and adapt to their expectations. However, in the current climate it is sometimes difficult to initiate important conversations based on through-life value, as the purchasing focus is very much on unit cost.

Yet, if it is possible to demonstrate that a solution will not only pay for itself in three years but continue to deliver the desired value over for longer than a competing, less expensive solution, good business sense suggests that the longer-lasting option should prevail. It has been due to our experience of working closely with owners, operators and yards that we conclude that our industry needs to consider the true value of a product or service as what it ultimately delivers to a business. Part of that value rests in the knowledge and expertise that goes into creating it, and the cost of developing and bringing it to market.

Patent protection: asset or burden?

So should we look to patent-protect our solutions from being copied? In many cases, but not all, this is actually a hindrance more than an asset. This is because most contracts are now awarded through a tendering process, where equipment or systems must be directly comparable with other bidders; being unique can potentially be a disqualifier.

If there is a risk of being excluded from a competitive tender because there is no direct comparison to your offering, where is the incentive to innovate? To compound this dilemma, producing a copy is considerably less expensive than developing something new. However, this will not be taken into consideration during a simplistic, like-for-like cost comparison where products from original equipment manufacturers (OEMs) are compared to similar ones, leaving the OEM struggling to factor a product’s true cost into its price.

In the most extreme sense, simply focusing on price prevents both suppliers and end-users from developing. If the industry becomes so squeezed that the leaders no longer have the resources available to undertake research and development or set new standards, where will innovation and progression come from?

The expertise and hard-earned knowledge that goes into product development are valuable and intrinsic to the cost of a product. Added to these are elements such as quality, reliability and longevity, service support and tailored training programmes. These are all widely-accepted as valuable; however, the industry seems unwilling to pay for them and an over-simplified, competitive bidding process does not take them fully into account.

Adding value to different shiptypes

We also know from experience that operational value can be added by considering each vessel as one holistic system, regardless of type. This is an approach that RoRo vessel owners, for example, have always taken as vehicle access equipment needs to be properly integrated and therefore considered early in the design phase.

This way of thinking is behind the MacGregor PlusPartner concept, where all parts of the cargo handling system are considered and designed as a whole. Early involvement in a newbuild project to gain a full understanding of the operating profile, which is then incorporated into the cargo system planning phase, ensures that a containership’s utilisation rate and earning capabilities can be maximised.

For containerships already in service, MacGregor has developed Cargo Boost to enable the shipowner to re-design the cargo system to maximise capacity on a specific route. Cargo Boost is a proven example of an upgrade offering that is delivering significant customer value, with more than 100 upgrades completed over the past three years.

Identifying and responding to market needs

We believe that MacGregor has fully earned its reputation in the market through its commitment to develop and deliver market-leading engineering solutions that overcome challenges and solve operational problems, from critical safety developments to enhancing cargo system efficiency.

Exemplary has been our focus on developing our electric drive portfolio for all ship types, where variable frequency drives offer significant environmental benefits, eliminating hydraulic oil and demanding very low power consumption, as well as efficiency and installation cost savings. For example, the MacRack electric drive system for bulk carriers combines drive and lift operations for side-rolling hatch covers whilst eliminating the need for separate hatch cover lifters and hydraulic pipework.

The growth in electric drives has taken place in parallel with the development of our digital technology-enabled cargo handling capabilities. This includes the introduction of a bulk handling crane with autonomous discharging technology. Designed to improve the safety and efficiency of dry bulk handling, it is now being tested on board a new liquefied natural gas (LNG)-powered bulk carrier.

Building on experience and by taking an industry-wide perspective, MacGregor’s aim is to deliver the highest lifecycle value for shipowners and operators and provide shipbuilders with the lowest total installed costs. We also work hard to ensure that the solutions and operational benefits we provide are proven in service.

Adherence to tight budgets is of course important and we understand why cost has been placed under ever-increasing levels of scrutiny, but we are convinced that customers and suppliers need to maintain a collective competitiveness to ensure mutual long-term sustainability.

After all, if we continue with an over-emphasis on cost, the incentive and resources available to fund new developments, which are crucial to meeting the challenges of tomorrow and supporting the future growth of our industry, will be diminished.

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