Erasmus University Rotterdam

MSc in Maritime Economics and Logistics

2002/2004

by

Gert-Jan Huisink

ii

Acknowledgements
To increase understanding in the economics of the maritime industry, I had the
pleasure and privilege to participate in the Master of Science programme of
Maritime Economics and Logistics at the Erasmus University in Rotterdam.
Many people made this route possible; I would like to thank a few of them.
First, my managing director Pieter van Agtmaal, who stimulated me to start this
programme. Thanks also to my colleagues Riet Vink, Tjitso Westra and Evert Staal,
who kept the work going when this was needed and to Marja Brokaar for her
editorial comments.
Thanks to the MEL team, especially Frans Waals, the supervisor of this thesis. A
warm thanks to my fellow students from different parts of the world, who I hope to
meet at their places of domicile in the future.
Then off course my family and friends, who many of them, have not a single clue
what I was learning, but always interesting in the development and stimulating to
succeed.
Saving the best for last; my wife Janneke, for her endless support and
understanding, discussions and suggestions to both this thesis and the programme
as a whole. Facing a similar route herself, I will now be able to support her in return.

iii

iv

Abstract
Innovation is the successful implementation of a new product, market, service,
practice or system, creating commercial benefits. Innovation capacity is the ability to
recognise, implement and manage innovations. The following question was
paramount in this research: How important is innovation to the Dutch shipping
sector? In order to accommodate this research question, the following scope was
chosen: The Dutch shipping sector that is formed by companies, located in the
Netherlands, owning, operating or managing seagoing ships as a transport service.
Twenty-five areas of innovation have been identified in the study. The market survey
showed that many of these areas are considered important. It was interesting to see
that most firms did not considered themselves to be innovative, but were in fact front
runners in many areas. Shipping companies are trendsetters in exploiting
international opportunities. There appears to be a general misconception that
shipping is a non-innovative industry, whereas the market survey shows the
opposite. Dutch shipping companies are being maintained in an atmosphere of
relative free competition, without continuous government support unlike agriculture
and rail transport.
The following elements were identified by the survey:
Innovation is still being associated with technical renewal. Most innovation
areas identified are not technical, but related to the companys organisation;
With regard to the innovation climate, regulations are seen as the main
obstacle to innovate;
Innovation failures are not related to technical malfunction, but to limitations
in the regulatory framework, protective policies or lack of market knowledge;
Shipping companies are capable to adjust to changes in their environment
by the way they are organised;
Shipping companies have a short horizon;
Innovation subsidies are not regarded as user friendly and are rarely used,
mostly because of few or unfortunate experiences;
Shipping companies are proud, but all have their own culture;
The Dutch innovation policy is related to an European strategy. The current
innovation policy is subject to criticism by many organisations and is not supportive
to shipping.
Based on the innovation areas identified, the market survey and the current
innovation policies, the research indicates that innovation is vital to the Dutch
shipping sector. Innovation as such is however not a goal, but an instrument for
survival. Dutch shipping companies will need to adapt to new changes in the future.
This can be on a re-active basis (innovation dominated by suppliers, clients or
environment), or on a pro-active basis (innovation from inside or via services).
In conclusion, four recommendations are proposed:
1. Use additional indicators to measure innovation;
2. Market the industrys performance, improve image;
3. Focus innovation policies on the business climate, not on the company;
4. Improve access to existing subsidies.

Table of Contents
Acknowledgements...................................................................................................iii
Abstract........................................................................................................................v
Table of Contents ......................................................................................................vi
List of Figures ..........................................................................................................viii
List of Tables............................................................................................................viii
List of Abbreviations .................................................................................................ix
Chapter 1
Introduction to this thesis ................................................................. 1
1.1. Why innovation? ........................................................................................ 1
1.2. Research objective ................................................................................... 2
1.3. Study overview .......................................................................................... 2
Chapter 2
Scope of the Dutch shipping sector ............................................... 3
2.1. Ship types................................................................................................... 3
2.2. Sea transport ............................................................................................. 4
2.3. Shipping companies ................................................................................. 5
2.4. Conclusion.................................................................................................. 6
Chapter 3
Definition of innovation..................................................................... 7
3.1. Introduction ................................................................................................ 7
3.2. Innovation capacity................................................................................... 9
3.3. Conclusion................................................................................................10
Chapter 4
Innovation areas in shipping..........................................................11
4.1. 400 years of shipping innovation..........................................................11
4.2. Reducing costs ........................................................................................14
4.3. Increasing revenues ...............................................................................18
4.4. Reacting to the environment .................................................................23
4.5. Emotion.....................................................................................................25
4.6. Conclusion................................................................................................26
Chapter 5
Current innovation policies ............................................................27
5.1. Europe ......................................................................................................27
5.2. The Netherlands ......................................................................................29
5.3. Conclusion................................................................................................31
Chapter 6
Market survey..................................................................................33
6.1. Innovation areas and relevance............................................................34
6.2. Innovation climate ...................................................................................35

vi

6.3.
6.4.

Innovation cases - lessons learned ......................................................36

Conclusion................................................................................................38

Chapter 7
Role of KVNR...................................................................................39
7.1. Collective action ......................................................................................39
7.2. Individual opportunity..............................................................................42
7.3. KVNR strategy paper ..............................................................................42
7.4. Conclusion................................................................................................46
Chapter 8
Conclusion and recommendations ...............................................47
8.1. Measuring innovation..............................................................................47
8.2. The importance of innovation ................................................................49
8.3. Innovation policies...................................................................................51
8.4. Recommendations ..................................................................................52
Bibliography..............................................................................................................54
Annex ........................................................................................................................57

vii

List of Figures
Figure 1: Innovation is more than just a scientific discovery .......................................8
Figure 2: S-curve ..........................................................................................................8
Figure 3: Succession of sail, steam and diesel S-curves..........................................12
Figure 4: Dutch merchant fleet over the period 1852-1934.......................................12
Figure 5: Transport cost of coal 1950-2002 in real prices .........................................14
Figure 6: Short run freight rate equilibrium ................................................................20
Figure 7: Consolidation in Dutch liner shipping 1856 - 1981 .....................................24
Figure 8: Overall country trend by Summary Innovation Index .................................30
Figure 9: Innovation indicators based on Input, process and output.........................48

List of Tables
Table 1: Shipping services ...........................................................................................3
Table 2: Companies in the shipping industry...............................................................5
Table 3: Innovation patterns in service sector .............................................................9
Table 4: Development of world fleet and Dutch fleet .................................................13
Table 5: Operational costs..........................................................................................15
Table 6: Main commodity trades in shipping..............................................................19
Table 7: Typical Ocean Freight Levels of container ship...........................................22
Table 8: Possible innovation areas ............................................................................26
Table 9: Absolute responses with regard to reducing cost........................................34
Table 10: Absolute responses with regard to increasing benefits .............................34
Table 11: Absolute responses with regard to environment .......................................35
Table 12: Innovation areas KVNR strategy paper .....................................................46

viii

List of Abbreviations
CV
Dwt
EC
EU
FPSO
GT
HME
ILO
IMO
IT
KVNR
MEL
NVOCC
Paris MOU
PSD
R&D
SER
SII-2
TEU
ULCC
VLCC
VNO-NCW
VNSI
VOC

Limited Partnership
Deadweight
European Commission
European Union consisting of 25 member states
Floating Production and Storage Offloading unit
Gross Tonnage
Holland Marine Equipment Association
International Labour Organisation
International Maritime Organisation
Information Technology
Royal Associations of Netherlands Shipowners
Maritime Economics and Logistics programme
Non Vessel Owning Common Carrier
Paris Memorandum of Understanding on Port State Control
Parcel Size Distribution
Research and Development
Social Economic Council
Summary Innovation Index
Twenty Equivalent Unit
Ultra Large Crude oil Carrier
Very Large Crude oil Carrier
Confederation of Netherlands Industry and Employers
Netherlands' Shipbuilding Industry Association
United Dutch East Asia Company

ix

Chapter 1

Introduction to this thesis

To increase understanding in the economics of the maritime industry, I had the

pleasure and privilege to study two years with fellow students from different parts of
the world. This thesis complements the Master of Science programme of Maritime
Economics and Logistics at the Erasmus University in Rotterdam.

1.1.

Why innovation?

Innovation seems to be a politically hot item. It is hard to open a newspaper without

spotting an article, column or background story, referring to innovation or the
knowledge economy. European Politicians have high ambitions to create the
worlds most competitive knowledge economy, with innovation as a driving force.
In shipping, innovation seems to be a non-item. The author is employed by the
Royal Associations of Netherlands Shipowners KVNR. Innovation is not on the
agenda of the board of directors. Furthermore, the MEL programme hardly touched
upon the issue of innovation. Perhaps it is not considered important or there is a
lack of understanding to the issue.
I want to explore the subject of innovation in shipping, because it seems to be a
white spot and it has captured my interest. Many innovation initiatives have been
taken in the past, although not all of them have been successful. Nevertheless,
shipping has evolved significantly by using new technologies and reacting to market
demands. Surely, shipping will continue to evolve in the future.
Personally, I would say that innovation is an element of entrepreneurship, something
that is dealt with individually by smart and keen entrepreneurs. However, to be able
to innovate, some infrastructure might be needed. Looking at all the supporting
programmes at both national and European level, it seems to be a shame that so
few subsidies for research and development are being allotted to shipping
companies to develop new logistic systems, ships or services. Instead, aviation and
rail transport enjoy most of the support.
There also seems a dearth of available knowledge on shipping innovation, in
comparison to for instance shipping finance or supply chain management. An
extensive knowledge of different finance systems is readily available and the
infrastructure has been worked out. What is the innovation infrastructure like in
shipping? Is it only a technical issue? Why are there no dedicated shipping
innovation companies to assist owners or builders? Is there no market or is
innovation considered unimportant to the industry? Is there perhaps no need to be in
the forefront of new technologies and is it considered better to follow the rest after
successful implementation by others? There is perhaps little to innovate, when you
transport cargo from port A to port B. Nevertheless, history shows some impressive
changes over the years, many of them with a huge impact on the industry. Some of
these changes, Dutch shipping companies were unable to follow; how could this
happen? This kind of questions made me decide to build my thesis around this item.
I think that this research could help the KVNR to define their strategy on innovation.

1.2.

Research objective

With this thesis I hope to achieve better understanding of the (un)importance of

innovation in shipping. The research field is the Netherlands shipping industry and
the Netherlands/European innovation climate. The main research question is as
follows:
How important is innovation to the Dutch shipping sector?
This question has been approached in two ways: theoretically and empirically. The
theoretical part comprises a literature study of the industry and innovation in
general. The empirical approach consists of a market survey involving leading
companies in the Dutch shipping sector, as well as an overview of innovation
successes in the past. The market survey has been used to validate the conclusions
found in the theoretical part.
In order to be able to accommodate the research results, a formal conclusion has
been included to identify potential policy measures to increase the innovation
capacity of Dutch shipping companies, if deemed relevant.

1.3.

Study overview

Chapter 1 introduced this thesis and research objective. Chapter 2 will define the
scope of the Dutch shipping sector. A definition on innovation will be given in
Chapter 3. Chapter 4 explores the possible innovation areas in shipping and gives a
brief overview of some historical shipping innovations. Chapter 5 assesses the
European and Netherlands innovation policies.
Chapter 6 consists of a qualitative market survey. Interviews with leading shipping
companies in the Netherlands have been held during the summer period and results
are being presented. The aim is to validate the identified innovation areas and
investigates the innovation capacity of the shipping companies. Since the industry
consists of many unique companies, active in different markets with different
strategies, a quantities research was not considered useful.
Chapter 7 will describe the role of the Royal Association of Netherlands Shipowners
in relation to innovation. Conclusions and recommendations are given in Chapter 8.

Chapter 2

Scope of the Dutch shipping sector

Shipping is considered the world trade facilitator and a catalyst of economic growth
and development. There are around 80,000 vessels worldwide, 26,000 of which are
deep-sea merchant ships providing a transport service for 6.2 billion tonnes of cargo
(Clarkson 2004). Since this research relates to the Dutch Shipping sector, the scope
of this industry needs to be identified.
The Dutch shipping sector may be categorised in a number of ways. The following
route will be used. First, relevant ship types are identified. From thereon, ships are
linked to the relevant market segments and shipping companies who operate them.
Finally, the Dutch shipping sector as a whole is identified.

2.1.

Ship types

Definitions of ships can be found in several international conventions, set up by the

International Maritime Organisation1 (IMO). The Convention on the International
Regulations for preventing Collisions at Sea, 1972 states the following: The word
vessel includes every description of water craft, including non-displacement craft
and seaplanes, used or capable of being used as a means of transportation on
water. The international Convention for the Prevention of Pollution from Ships, 1973
states that a ship means a vessel of any type whatsoever operating in the marine
environment and includes hydrofoil boats, air-cushion vehicles, submersibles,
floating craft and fixed or floating platforms. At national level, The Netherlands
Shipping Act limits the definition of the ship to sea going vessels. Inland barges are
therefore not included.
transport service
bulk transport
- dry bulk
- (crude) oil
- combined carrier
specialised shipping
- chemicals
- gas
- general cargo
- heavy lift
- livestock transport
- multi purpose
- ocean towage
- offshore/supply
- reefers
- sea-river
liner shipping
- containers
- ferries
- ro/ro

non-transport service
cable-laying
cruise
diving/support
dredging
fishery
floating (production) storage
ice breaking
navy
port services (incl. harbour towage)
research
salvage

Table 1: Shipping services

1

The United Nations adopted in 1948 a convention establishing the International Maritime Organization (IMO) as
the international body devoted exclusively to maritime matters.

The range of services a ship can provide is extensive. A distinction can be made
between vessels that transfer goods or passengers as a transport service, and
vessels that are used for other types of activities. These are grouped in Table 1. The
left-hand column is separated in three main categories: liner shipping, bulk transport
and specialised shipping. Sub-categories are given to certain types of ships or
cargo. The right-hand column relates to non-cargo carrying ships. They do not offer
any transport service, but provide a certain product such as wreck salvaging or the
accommodation of leisure activities (cruise).
This thesis will only focus on the companies that are active as specified in the lefthand column, generally known as merchant shipping. This distinction has been
made, because companies active in non-transport services act in a very different
market. They also tend to make significant investments in research and
development. Lifting the Kursk submarine, obviously needed expertise and
innovative techniques. However, the activities are not representative of the
merchant industry: transporting cargo from port A to B. So including these activities
in the research could result in imbalanced conclusions, which is not the intention of
this research.

2.2.

Sea transport

The following step is to see how ships are operated. Again, there are several ways
of doing this; the choice has been made to use Martin Stopfords shipping market
segmentation model (Stopford 1997). In this model, the market has been divided
into three segments, based on the parcel size distribution (PSD). A parcel is an
individual consignment of cargo for shipment and the PSD function describes the
range of parcel sizes in which a particular commodity is transported.
The PSD provides the basis to the explanation of the economic organisation of the
shipping market. Large parcels, such as oil or coal, are shipped in different types of
vessels compared to smaller parcels like timber or textiles. The type of PSD for each
commodity is determined by the characteristics of the demand, including factors like
cargo value, inventory, plant production/consumption levels, port facilities and ship
availability and competitive pricing. Cargoes can be divided in three main
categories: big, small and difficult cargoes. This depends on the PSD function of
each commodity. Large parcels such as oil, coal and grain are carried by the bulk
shipping industry. Difficult cargoes such as refrigerated cargo, forest products,
project cargo, chemicals and gases transported as liquids travel in specialised
vessels. Small parcels, mostly transported in containers, are transported by the liner
shipping industry. Liner ships maintain a fixed service at regular intervals. The other
categories are active in tramp shipping, where ships sail where and when the cargo
leads them.
Dutch shipping companies are strong in the specialised market segment. They
transport cargoes with a relative high value. Especially cargoes such as forest
products, refrigerated cargoes, gas, chemicals and cargoes requiring heavy lift
operations, are transported by Dutch or Dutch controlled shipping companies. A
large part of the industry operates with relatively small vessels up to 20.000 dwt2 or
2

Deadweight: The weight a ship can load until the maximum allowable submersion is reached, consisting of weight
cargo, fuel, fresh water, stores and crew.

1.500 TEU3. Specialised niches such as sea-river ships are unique and not much
seen around the rest of the world. In contrast, there are no major Dutch players in
the bulk shipping industry, and only one major Dutch player in the intercontinental
liner shipping market. There are however many companies active in the liner feeder
services, predominately in the inter-European market.

2.3.

Shipping companies

There are many types of company active in the shipping industry. Table 2
categorises the most relevant ones.
Type
Captain owner
Cargo owner
Carrier
Charterer
Freight forwarder
NVOCC
Ship broker
Ship manager
Ship operator
Shipowner
Shipper
Shipping agent
Shipping company
Shipping line
Traders

Characteristics
Captain who sails and owns a ship. Predominantly in short sea
shipping.
Producers, manufacturers or wholesalers of goods
Operator of a liner vessel
Individual or company that hires a ship
Arranges transport for the cargo owner
Non vessel owning common carrier
Undertakes tasks involving ordering new ships, buying and selling
existing ships, and negotiating charters for the vessel
Undertakes technical, crewing or commercial management of ships
on behalf of the shipowner
A company who provides logistic services
Traditional shipowner who owns and operates a ship
Individual or company with cargo to transport
Local representative of the shipowner in a port
A company active in shipping
A liner shipping company
Buyers and sellers of commodities on a speculative basis
Table 2: Companies in the shipping industry

The industry has many players with different structures and connections between
parties per type or cargo. In most commodities, like bulk shipping, intermediate
players, such as traders, charterers and brokers, play an important role. In other
segments, like containers, the carriers play a dominant role, although freight
forwarders and NVOCCs try to manoeuvre themselves into logistic directors.
Since this thesis is essentially written for the Royal Association of Netherlands
Shipowners, the research will focus on shipping companies who own, operate or
manage ships. All third parties providing additional services, including other shipping
segments like shipbuilding or marine equipment companies, have been excluded. It
is however important to understand that the role of the shipowner or operator is in
many cases limited. Depending on the market segment, shipbuilders play a
dominant role in the construction of the ship, or charterers determine the innovation
strategy of a shipping company. This has to be taken into account.

Loading capacity for container vessels is expressed in Twenty Equivalent Units.

2.4.

Conclusion

For the purpose of this research, the following scope will be used throughout this
thesis, in order to accommodate the research question:
The Dutch shipping sector that is formed by companies,
located in the Netherlands, owning, operating or managing
seagoing ships as a transport service.
The scope chosen excludes companies operating, owning or managing ships active
in cruise, salvage, dredging and similar activities. It also excludes companies
providing services, not directly related to operating a ship, such as financial
services, brokerage and NVOCCs. Chartering and trading likewise are excluded in
this research.

Chapter 3

Definition of innovation

What is innovation and how does innovation affect a companys performance? This
chapter will identify useful definitions for both innovation and innovation capacity.

3.1.

Introduction

There are several definitions of innovation. Some scientists regard innovation as

technological renewal (ESB, 2004). This approach is commonly accepted; many
people relate innovation to technical development. There are however also other
perceptions such as the application of new technologies in new products, services
and processes (ESB, 2004). Others leave the relation with technology, but regard
innovation as the development of new products, services or processes (ESB 2004).
For the purpose of this thesis, a definition of innovation will be distilled, based on
different existing definitions used in recent publications. Starting in the dictionary,
the following entry is found: Innovation is making changes by introducing something
new, e.g. new practices or ideas (Penguin, 2001). This is a rather broad definition,
and can be used to suit almost any circumstance. What is clear however is that
innovation has to be something new. Adjusting systems or practices to become
more effective or efficient do not fall under this definition.
The definition of innovation used by the Dutch Innovation Platform4 is more specific.
Innovation is the renewal in products, services, processes or forms in an
organisation (IP 2004). Innovation leads to sustainable economical added value
and uses knowledge to solve social bottlenecks. Innovation is the work of humans
and does not only need the development of technology. Innovation depends on
management, logistics and marketing. Innovation can be imagined like a circular
process in which interactive activities take place. These interactions can be seen as
a team play with different players and is, for example, comparable with an orchestra.
This approach is from a macro-economic point of view, where the results of
innovation lead to prosperity in society.
A different approach, focused on enterprises, is taken by the Dutch Maritime
Network5. In a study, executed by EIM in 2000, it is stated that one of the major
factors of the international competitive edge of Dutch enterprises is innovativeness.
The innovativeness of Dutch enterprises is of substantial significance since in
foreign markets they increasingly have to distinguish themselves from foreign
competitors by quality and knowledge, rather than price. This holds true in particular
for the maritime cluster in view of its objective to realize higher than average
(Netherlands) economic growth.
Michael Porter 6 relates innovation to productivity and combines the two approaches.
Productivity fundamentally increases through innovation. Innovation involves more
4

The Dutch Innovation Platform is set up in September 2003 by the Dutch Government and chaired by the Prime
Minister. Its task is to develop proposals to increase the innovation strength of the Netherlands.
5
The Dutch Maritime Network is an independent foundation which has been founded to reinforce and promote the
Dutch Maritime Cluster, and to increase the cohesion and visibility of its eleven maritime sectors.
6
Harvard University, USA.

than just science and technology. It also involves improvements in marketing,

services, branding and the way a product is delivered to the customer. Innovation
drives productivity, which increases wages and returns to capital. Over time, the
standard of living rises. This will take many years of investments in innovation
capacity.

Figure 1: Innovation is more than just a scientific discovery

Research and Development are complements to innovation. Research and

development lead to more or better knowledge of a specific topic, whereas
innovation is the implementation of such knowledge to create (financial) profit. R&D
investments are therefore often used as an indicator of ones innovation capacity.
New ideas and inventions alone do not yet constitute innovation. Only when a
successful implementation is achieved, innovation is accomplished.
S-curve theory
Figure 2 shows the relationship between the effort put into improving a product or
process and the results achieved by that investment. This is like the normal life cycle
of any product, with a start, growth period and consolidation moment. Initially, a lot
of effort is needed, while the development of performance is slow. At some point,
this development lifts off and outperforms the existing ones. Finally, this new
technology or system reaches its physical limits and the performance levels off.

Figure 2: S-curve (Wijnolst 1993)

Some companies continue to invest heavily in existing technology or systems, with

relatively low return on investment. Others, the innovative ones, look for a radically
new approach, which in the end, may outperform the existing one. The original Scurve is replaced by another.

3.2.

Innovation capacity

This leads us to the basic conditions that have to be met before innovation can
occur (Wijnolst 1993).
1. A market demand for the innovation;
2. Availability of knowledge or technology to meet the market demand;
3. Financial means to combine the above two factors;
4. An entrepreneur who can combine the above three factors into a commercial
application.
Innovation is often seen as a linear process. It follows certain fixed phases of
knowledge production, from knowledge development to commercial execution. This
approach however is not accurate, since several cycles of changing processes are
often interlinked. Innovation therefore may be better imagined as a circular process
in which continuous interactions between players take place.
In order to be able to innovate, certain conditions should be available. At first, a
company should have access to new knowledge, either in-house or external. R&D
programmes and knowledge centres play an important role in this respect.
Secondly, a company should be able to take risks. Innovation involves taking risks.
This means that companies should be able to overcome (financial) failures. Third,
financial means have to be available to implement the new process, service or
equipment. Fourth, a company has to be able to manage an innovation, both with
competent personnel and personnel that are open to change. Finally, the
environment -such as customers and rule makers- should be willing to accept
innovation.
Innovation pattern
1. Innovation dominated by
suppliers
2. Innovation from the inside

3. Client driven innovation

4. Innovation via services

5. Paradigmatic innovation

Description
A shipping company adopts new technologies developed by
suppliers. They have little influence on the shape and content
of the product. R&D effort lay outside the organisation.
The initiative for innovation comes from a shipping company.
Mostly because employers spot opportunities for renewal and
have the freedom to explore them.
A shipping company innovates because of client demand.
Although every innovation is in someway related to market
demand, in some cases it is an explicit expressed need.
The shipping company influences the innovation process at
the costumer en visa versa. The shipping company plays a
supporting role to its costumer, in which knowledge flows
both ways. (also the shipping company renews)
Some innovations influence the whole supply chain. Mostly
driven by radical new technology (technological revolutions),
but also via regulations, lack of resources or other dramatic
changes. It implies the shape of new infrastructures, new
kinds of knowledge and different roles of players within the
supply chain.

Table 3: Innovation patterns in service sector

Innovation patterns
An important element in innovation is the vertical interaction between supplier,
service provider and costumer. Segmenting the service sector from an innovation
perspective can be found in Table 3. A translation is made from the original general

segmentation, as described in a SIID report (Ark 2003), to the shipping industry. The
segmentation is related to the dominancy of a shipping company. This influence will
gradually increase from 1 (dominated by supplier), to 4 (dominated by shipping
company). Pattern 5 varies in this respect from the others.
Innovation as the key to success
The question remains whether a connection exists between the capacity to innovate
and commercial success. According to VNO-NCW 7, innovative companies are
generally more successful than non-innovative ones (VNO-NCW 1999). Continued
innovation, either alone or in partnership with others, seems to be of great
importance as the basis for more and especially, continued success, for both large
and small companies. Companies with their own research and development
sources, create higher turnovers and more added value to the company.
Furthermore, it seems that these companies also achieve better utilisation of
research results from others, for their own benefit.
Example: Thomas Edison
One of the most successful innovators was Thomas Edison. He realised that a technical idea
alone was not enough, but commercial and marketing elements were equally important. He
not only developed an electrical long-lasting lamp, he also invested in production facilities for
both the lamps and electricity, including the necessary distribution infrastructure and
suppliers.

3.3.

Conclusion

Based on the above information and the relevance for this research, the following
definitions are used throughout this thesis.
Innovation is the successful implementation of a new product, market, service,
practice or system, creating commercial benefits.
Innovation capacity is the ability to recognise, implement and manage innovations.

The first definition, states that an invention or something new as such is not a goal,
but a means to create benefits. It follows that innovations can only be identified,
after a successful implementation.

The Confederation of Netherlands Industry and Employers (VNO-NCW) is the largest employers organisation in
the Netherlands. It has 170 (branch) associations, representing more than 115,000 enterprises covering almost all
sectors of the economy, including more than 80% of all medium-sized companies in the Netherlands and almost all
of the larger, corporate institutions.

10

Chapter 4

Innovation areas in shipping

To be able to determine the importance of innovation in shipping, the need exists to

explore potential areas of innovation. These are investigated based on possible
innovation drivers. A driver is a reason why a shipping company needs to change
and therefore, needs to innovate. The following four drivers are considered:
Reducing costs
Increasing revenues
Reacting to the environment
Emotion
Before these innovation drivers are discussed, a brief look into history will be taken.
Over the years, the industry has changed considerably. Some of the major changes
will be discussed in the first paragraph, including its influences to the Dutch shipping
industry.
4.1.

400 years of shipping innovation

VOC
Since this thesis focuses on the Netherlands shipping industry, we will start this brief
overview with one of the most successful enterprises in Dutch history ever: the
VOC. The United Dutch East Asia Company (VOC) was established in 1602, with
the aim of sending ships to Asia to buy pepper and spices. The foundation for the
company was the effective use of information and knowledge. It gathered
experiences from Portuguese routes to the East and published essential information
into pilots and merchants guides. Apart from nautical data, these also contained
information regarding the Asian nations and their inhabitants.
The VOC was able to develop into a multinational company with branches in a
dozen Asian countries. Halfway through the 18th century the company employed
36.000 people, about 20.000 of whom worked in European offices. The company
became successful because of the scale of its activities, its modern and innovative
way of financing ships, its long-term company policy and global trade strategy.
Management and administration for such a large number of employers was equally
impressive but until today, remains disputed from the ethical point of view.
New ships were introduced, such as the Pinnace and the Fluit. These ships were
faster, could carry more cargo and were more manoeuvrable (Hengst 2001). The
VOC built its own ships, some 1,500, which made some 5,000 journeys in total to
Asia, where a network of trading posts was founded from the Persian Gulf to the
China Sea. Through the journeys of the VOC, knowledge of geography, botany,
biology and oceanography increased. The VOC proved a need to invest in
knowledge and the relevance of international orientation, entrepreneurship,
craftsmanship and innovation.
Industrial revolution
The industrial revolution had a major impact on the shipping industry. Iron and steel
as well as mechanical propulsion entered the arena of shipbuilding. The first
application of steam power to a vessel took place in France, England and the USA
at the end of the 18th century. In 1820, the paddle steamer was developed. Around

11

1830, F.P. Smith invented the Archimedes propeller, which was linked to a steam
engine. Since wooden ships were unable to narrow at the stern to accommodate the
large power plant, steel was introduced in the construction around 1850.
Traditional shipowners were sceptical about these innovations. The wind was free of
charge, so why change to a fuel system that was both expensive and took a lot of
space? They developed faster and more efficient sailing ships, like the clipper. This
led to extreme ship types, such as the Thomas W. Lawson, a seven master sailing
ship, which capsized while at anchor in 1907. It marked the end of the sailing area,
which had already been accelerated by the opening of the Suez Canal in 1869.
Sailing ships could not use this route, in contrast to steam ships.
Further innovation of propulsion was developed at the end of the nineteenth century:
the diesel engine. This engine solved the problem of the voluminous space needed
for coalbunkers. The first marine application took place on a Danish ship, the
Selandia in 1912. It marked the beginning of our oil-powered motor ships still used
today. Figure 3 shows the succession of sail, steam, diesel S-curves over the period
1800-1920.

Number of ships

Figure 3: Succession of sail, steam and diesel S-curves over the period 1800-1920 (Wijnolst 1993).
2500
2000
1500
1000
500

18
52
18
58
18
64
18
70
18
76
18
82
18
88
18
94
19
00
19
06
19
12
19
18
19
24
19
30
19
36

sailing ship

stean ship

motor ship

Year

Figure 4: Dutch merchant fleet over the period 1852-1934 (Flierman 1980)8

It should be noted that although the fleet reduced in number of ships, the resulting transport capacity was greater
than those of the sailing as the productivity was larger.

12

The industrial revolution had a negative impact on the Dutch shipping community.
The implementation of fast sailing ships such as the clipper hardly took place in the
Netherlands. In addition, the transition from sail to steam powered ships took too
much time, in comparison to foreign fleets (Flierman 1980). Moreover, iron was only
slowly introduced in shipbuilding, after the knowledge and expertise had to be
imported from aboard.
Specialisation and economies of scale
One of the fundamental principles of shipping economics is that unit costs of
transported cargo can be reduced by increasing the size of the vessel. Economies
of scale were used throughout the shipping history, but they took a spectacular flight
after the Second World War. As the world economy grew in the second half of the
20th century, new trades appeared which could not be handled efficiently by the
conventional liner and tramp system. Bulk trades grew rapidly as heavy industry
started sourcing raw materials overseas. The development of new transport
techniques enhanced specialisation, in which the unit cost per tonne/mile could be
reduced significantly. Tankers and bulk carriers are prime examples, but the most
successful form of specialisation was probably the introduction of the container.
Other successful specialised ships were introduced, together with failures such as
the lighter aboard ship (lash) and the introduction of pallets.
Economies of scale and specialisation were also stimulated by the increasing labour
costs on board and within ports. Investments in (capital intensive) large ships and
equipment to simplify loading operations became essential.
Again, these new developments passed the Dutch shipping community by. The
Netherlands shipowners did not play a significant role in the tanker and bulk trade;
the fast growing markets where big changes took place. Similarly, new
developments in liner shipping were only slowly introduced. Table 4 shows the
development of the world fleet and the Dutch fleet from 1956-1980.
1956
World Fleet
Tankers
Bulk Carriers
Others
Total
Dutch Fleet
Tankers
Bulk Carriers
Others
Total
% of World Fleet

1960

1964

1968

1972

1976

1980

28,2
77
105,2

41,5
88,3
129,8

50,6
16,7
85,8
153,1

69,2
34,9
90,1
194,2

105,1
63,5
99,7
268,3

168,2
91,7
112,1
372

175
109,6
135,3
419,9

1
3
4
3,8

1,4
3,5
4,9
3,8

1,6
0,3
3,2
5,1
3,3

1,9
0,5
2,9
5,3
2,7

1,9
0,5
2,6
5
1,9

2,8
0,6
2,5
5,9
1,6

2,5
0,7
2,5
5,7
1,4

Table 4: Development of world fleet and Dutch fleet in Gross Register Ton (Flierman 1980)9

Place of domicile
One of the more successful ways to reduce operating costs is the registration of
ships in a different country. Favourable fiscal climates can be found outside the
place of domicile, outside the traditional maritime countries. Changing a vessels
9

Note that Bulk Carriers were not separately classified before 1964.

13

registry from an expensive to a cheap flag has long been a worldwide

phenomenon. The first major open register was Panama, which was granted
permission to register American ships in 1922. The impact of open registers is
impressive. Through the benefits of lower crewing costs, tax exemptions and
minimal bureaucracy over technical compliance, the greatest proportion of the world
fleet is currently registered in open registers. As of January 2004, 64% of the total
tonnage (dwt) of the world fleet was not registered in the country of domicile of the
owner (ISL 2004).
The Dutch community, similar to the Western European industry, had again major
difficulties in reacting to these developments. Although the colour of the ships flag is
not essential for a Dutch shipping company, the development of the Dutch register is
used as an indicator of the performance of the sector. An increase in fleet tonnage
indicates a growing shipping industry.
A combined effort of the industry and the government was necessary to respond to
open registers. In the seventies and eighties, fiscal regimes were adopted, which
continued in the nineties. At this moment, a level playing field is more or less
established. Dutch ships can benefit tonnage tax, fiscal benefits, employ foreign
crew, officers and captains. However, the shipping climate is declining ones again
and there are difficulties to change this tide. This will be discussed in Chapter 7.

4.2.

Reducing costs

Coal $/ton (1948 prices)

Keeping costs at a minimum is essential to almost all companies. Shipping is a

highly competitive industry and, depending on the market segment, continual cost
reductions are needed. Figure 5. illustrates the average cost of transporting 1 tonne
of coal from the East Coast of America to Japan. It may be noticed that the transport
costs per tonne coal have decreased over the years, instead of increasing like other
products and services. Oil transports show similar trends. This means that shipping
companies need to follow this trend, in order to stay in the market.

25,0
20,0
15,0
10,0
5,0
0,0
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002

East Coast North America to Japan

Year

Figure 5: Transport cost of coal 1950-2002 in real prices. (Clarkson 2004)

The main costs for running a ship are operating costs, voyage costs, cargo-handling
costs and capital costs. These are categorised in Table 5.

14

Operating cost
Manning - Salaries, Social insurance, Pensions, Victuals, Repatriation and visa, Training
Stores and consumables - General stores, Cabin stores and water, Lubricating oil
Repair and maintenance - Breakdowns, Spare parts, Paint
Insurance - Protection and indemnity, Hull and machinery, War risk, Loss of Hire
Overhead - Administration, Communication, Owners port charges, Miscellaneous costs
Surveys - Dry docking, Special survey, Intermediate survey, Annual survey
Voyage cost
Fuel - Propulsion, Auxiliary, Boilers
Port costs - Port dues, Service charges such as pilotage, tugs, VTS charges etc.
Canal Dues - Suez Canal, Panama Canal
Cargo handling cost
Loading and Unloading
Cargo claims
Capital costs and repayments
Interest and Dividend
Dept repayment
Table 5: Operational costs

In principle, each cost element is a potential innovation area. Not all costs can be
influenced by a shipping company directly, or simply are of minor importance. This
part of the study will try to identify high potential innovation areas. In Chapter 6 of
this paper, these areas are assessed via a market survey.
Technical
One of the principles in shipping is the fact that new ships should have lower
operating costs then older ships. This is the only way in which new ships can
compete in the same market, given that their capital costs are higher. This means
that it is important that new ships are built to become more efficient than existing
ships, and new designs continuously need to be revised and improved.
Inn ovati on area 1: effic ient n ew s hips

The Dutch fleet is relatively young and efficient. Especially in the short sea sector,
ships have a high deadweight with a relatively low gross tonnage. This keeps port
and canal dues low, while having a high transport capacity. This approach has been
used since ships had to pay tolls, back in the 16th century.
A ship consists of many components. Each individual element is a potential area of
innovation. When innovation in shipping is discussed, people tend to relate it to
these technical innovations. Obviously, equipment innovations are a potential area
of innovation.
Inn ovati on area 2: equipm ent i nnovat ions

15

Since most ships are built outside the Netherlands, the influence on equipment
innovations seems to be reduced. Within the Dutch Maritime cluster,10 marine
equipment suppliers try to innovate both individually and collectively. Only recently,
it has become noticeable that Dutch suppliers try to follow the shipbuilding market to
the East via a collective approach. Whether technical innovations are important to
the shipping industry, will be identified in the next chapter
Manning
Crew costs are a substantial part of operating costs that can be influenced directly
by a shipping company. Reduction of these costs has been a focal point throughout
the industry. Employing foreign crew at lower wages is considered the most effective
way.
Inn ovati on area 3: low m anning c os t

In social affairs, labour standards and unions play a dominant role. Both parties use
the traditional method of protectionism to secure the positions and working
conditions of (national) seafarers. This may hamper innovative new initiatives such
as the crewless ship.
Dutch shipping companies, especially in short sea shipping, have always been keen
to limit crew costs. Instead of employing crew, families lived on and operated the
ships, keeping crewing cost to a minimum. Several other initiatives have also been
developed and will be discussed later on.
Insurance
Insurance costs have increased substantially over the last decade. Environmental
damages and war risks are the main drivers for this. New ways of risk limitations
could be beneficial, to reduce these costs.
Inn ovati on area 4: ways to ins ure as s ets

Overhead
The different shipping segments of bulk-, liner- and specialised shipping, all have
different management structures. Bulk shipping companies have relatively low
overheads and not much land-based personnel. In comparison, liner companies
have extensive overheads and land-based activities, driving overhead costs up. The
main reason is again related to the parcel size distribution. A single containership
can carry over 5.000 containers, all having different consignees and several bills of
lading. The administrative process for container lines is therefore immense and the
need to reduce these costs creates many innovation opportunities. For a bulk
carrier, one consignee and one bill of lading can be sufficient, so the innovation
drive will probably be less strong.

10

The Dutch maritime cluster comprises 11 sectors; shipping, shipbuilding, marine equipment, offshore, inland
navigation, dredging, ports, maritime services, fishing, yachting and the Royal Navy.

16

Inn ovati on area 5: reduc ing ov erhead c os t

Surveys
All merchant ships are subject to regular surveys. Not all costs can be influenced,
since these are determined by law and every ship is subjected to certain surveys.
However, depending on the status of the ships condition, additional costs, such as
steel replacement, have to be paid. Periodical maintenance costs may therefore be
influenced via preventive maintenance policies.
Inn ovati on area 6: prevent ive m ainte nanc e

Fuel consumption
Propulsion has been discussed before, when changing from sail to diesel engines. A
lot of research is being conducted to increase engine output of diesel engines, while
reducing fuel consumption. Over the years, engine manufacturers have succeeded
in making engines more efficient, but have also successfully accommodated the fuel
residues of the refinery process to be used on board ships. Ships have become the
incinerators of the oil industry, with benefits for both sides: low fuel prices in return
for low costs for the oil industry. Negative aspects with regard to air emissions are
becoming increasingly important, and legislation to reduce air pollution is being
implemented.
If engines are to become even more efficient with cleaner exhaust gases, new types
of energy may be necessary. New types of energy currently investigated are not yet
feasible or competitive, such as fuel cells and biomass fuel. If one of these becomes
commercially viable though, it will have a major impact on the shipping industry.
Inn ovati on area 7: new types of ener gy

Port costs and canal dues

Shipping companies can hardly ever influence port service costs. Major shipping
lines have had some marginal successes in some ports, by obtaining reduced fees,
but most services are protected and innovative solutions are countered by social
port protection measures. The recent failure of the European port package is a clear
example. This port package was proposed to liberate port services, but was rejected
by the European Parliament, because job losses were expected. Similar arguments
may be used in relation to canal dues. What can be seen from the past is that ship
design takes into account certain maximum dimensions. No additional innovation
areas are identified here.
Cargo handling costs
Formally, not among operating costs of running a ship, but a major part of the total
transport costs involves the transhipment of goods in port. Most cargo is moved with
the aid of loading gear, to reduce labour cost and increase the cargo handling
speed. Different cargoes use different systems, but the aim remains the same: high
speed, low cost, no cargo damage.

17

Inn ovati on area 8: effic ient l oadin g s ys tems

Unit costs and economies of scale

Since operating, voyage and capital costs do not increase in proportion to the
deadweight of the vessel, using a larger ship reduces the unit freight cost. As an
example, the cost per dwt. of a bulk carrier of 30,000 dwt is around $70 / year, while
the cost per dwt. of a bulk carrier of 150,000 dwt is only $23 / year 11 (Stopford
1997). Provided that cargo volume and port facilities are available, the owner of a
large ship has a substantial cost advantage.
Ship sizes and economies of scale have physical limitations. A prime example may
be seen in the tanker industry. The VLCCs and ULCCs 12 in the seventies did not
match demand and for decades, smaller ship types were more profitable. Larger
ships reduce flexibility and these ships were not able to trade on different routes, as,
and when the market asked for it.
Inn ovati on area 9: optim um s hip s iz e

Fiscal climate
As stated in paragraph 4.1, open registers provide tax benefits compared to the
traditional maritime countries. In the last few years, traditional maritime countries
have copied aspects of these fiscal regimes, for instance by introducing tonnage tax.
Similar fiscal benefits are being investigated and sometimes successfully
implemented. Trying to find new ways of creating fiscal benefits for shipping
companies is another potential area of innovation.
Inn ovati on area 1 0: fis c al regim es

In the Netherlands, advantageous fiscal structures for shipping investments have

been effective in the past. With the introduction of tonnage tax, the competitive
disadvantages to open registers have been reduced, but the fiscal climate does not
(yet) provide an advantage over other registers.

4.3.

Increasing revenues

Instead of reducing costs, a company may also innovate to increase their

performance and therefore increase revenues. The following issues are discussed:
freight rates, markets, flexibility, position in supply chain, crewing and image.
Freight rates
A shipping company sells sea transport. The buyers of sea transport are industrial
customers and not consumers, with the exception of the passenger business. The
11
12

Assuming 270 days at sea per year at 14 knots.

Very Large Crude oil Carrier and Ultra Large Crude oil Carrier.

18

clients include large corporations like oil companies, chemical companies, steel
mills, car manufacturers, sugar refiners, traders and a host of other manufacturing
companies which source raw materials and distribute their products in the
international market. The main sea borne commodity trades can be grouped as
follows:
Trade
Energy trades - crude oil, oil products, liquefied gas, thermal coal
Agriculture trades - cereals, animal feed stuff, sugar, molasses, refrigerated food,
vegetable oil, fertilisers
Metal industry trades - iron ore, metallurgical grade coal, non-ferrous metal ores, steel
products, scrap
Forest products trades - timber, wood pulp, plywood, paper, wood products
Other industrial materials - cement, salt, gypsum, mineral sands, alumina, chemicals
Other manufactures - textiles, machinery, capital goods, vehicles, consumer goods
Table 6: Main commodity trades in shipping

As described in paragraph 2.2, each cargo has its own parcel size distribution,
which affects the size of the ship and the logistic concept of the fleet. Every trade
has different characteristics and needs. In principle, the higher the value of the
cargo, the higher the transport quality is needed and higher freight rates can be
expected.
Freight rates are however very volatile which is not related to the transport service
provided, but to the transport need. Supply and demand dictate freight rates and not
the quality of the service. Let us explain why this happens. The supply of shipping
has limited flexibility. When freight rates are low, inefficient ships are laid up and
ships in service will sail their optimum speed, according to the following equation.
s=

R
3 pkd

where,

s = optimum speed
R = voyage freight rate
p = price of fuel
k = the ships fuel constant
d = distance

When demand increases, freight rates will increase. Laid up tonnage will enter the
market and ships will speed up, since this will increase revenues. At some point
however, all ships are up and running to their capacity, and only new tonnage can
further increase supply. At this point, freight rates will boom since the demand curve
is almost a straight line. One of the reasons for this demand shape is that for most
cargoes, there are no alternative modes of transport. Figure 6 shows the effect.
When freight rates are high, cash enters the industry and shipowners order new
ships. Since new tonnage takes several years to deliver, the imbalance between
supply and demand remains. More shipping companies order ships and banks are
willing to finance, as freight rates and forecasts look promising.

19

Figure 6: Short run freight rate equilibrium (Stopford 1997)

At some point, this new tonnage enters the market and creates oversupply. Freight
rates drop and may be low for several years. This volatility is an element that has to
be taken into account when assessing the innovation climate of the shipping
industry.
Inn ovati on area 1 1: abi lity t o reac t to the m arket

Obviously, pressure is put on shipbuilding yards, to reduce delivery times.

Shipbuilding yards have increased their productivity over the years, but still the
production time is too long to reduce any market volatility. During the oil crisis, ships
were ordered in a good market, and laid up immediately on delivery a few years
later, because the market had collapsed. Although this is an extreme example, it
may still happen to other segments, for instance in the container market. The current
order book for new building container ships represents 50% (Mainport News 2004)
of the total container fleet. This is a massive amount of new tonnage that will enter
the market until 2008. If Chinas economy slows down or collapses, similar reactions
as the oil crises can be expected in the liner industry.
Reacting to the market itself is not only an area for innovation, influencing the
market may even be a more interesting field of exploration.
Inn ovati on area 1 2: abi lity t o infl uenc e the m arket

Market segments
Basically there are four markets in shipping: the freight market, second hand market,
newbuilding and scrapping (recycling) market. Ship prices are related to freight rates
and are therefore very volatile. Ten-year old ships can be worth more than the new
building price or -in a bad market- only have scrap value. It is therefore not always
advantageous to build a top quality ship, since the value of the asset is
predominantly determined by the market, not by the asset itself.

20

The easiest (and most risky) way to make money in shipping is by asset play:
buying and selling ships. Ordering a new (standard) vessel when the market is low
and selling it when the market is high, can be very profitable. Examples in the dry
bulk market this year illustrate this principle. In March 2004, Hong Kong ship owner
George Chao sold a newly built 55,000 dwt handymax to Vroon in Breskens for
$35.7m. Mr Chao paid $20m for the order in August 2002, making a profit of $15,7
over one ship (Osler 2004). Creating benefits by using different market segments
can be advantageous to a shipping company. Market segmentation includes the
creation of different niches within a certain segment.
Inn ovati on area 1 3: m arket s egm entation

Not all shipping companies act this way. Long-term contracts with shippers make
investments in new ship types possible and profitable. This is particularly relevant to
specialised shipping. New technologies, innovative designs and efficient cargo
handling are therefore mostly seen at this level. In comparison, bulk-shipping
companies operating in the spot market use and trade standard ships that are
bought at the lowest possible price. In the bulk shipping market, new equipment en
designs are mostly driven by regulations, instead of market needs.
Both shipping companies react to the need of the customer: be it an environmental
certified paper factory or a local grain trader. The lower the value of the goods, the
lower the need for specialised and quality ships. In principle one may state that the
larger the parcel size distribution, the lower the value of the cargo. Bulk shipping
therefore operates in the lower end of the market, while containerships and
specialised ships, operate in the higher end of the market.
The Dutch shipping companies are, as previously discussed, strong in the
specialised market. Long-term contracts and value added services create better
revenues. Therefore, client relations may be an interesting innovation area.
Inn ovati on area 1 4: c lient rel ation

Crewing
Instead of reducing cost, shipping companies look at benefits gained from welleducated and motivated crews and shore-based personnel. This is particular
important for specialised shipping companies where failures, damages and bad
performance have a negative commercial effect.
Inn ovati on area 1 5: produc tive pers onnel

Currently, initiatives are being taken to raise standards of education in low cost
labour countries to a higher level. This can provide a win-win situation: low crew
cost, better performance. This is even more important, since there is a shortage in
the supply of well-trained seafarers in the Netherlands (and in Europe).

21

Position in supply chain

Shipping is part of the transport chain. From buyer to seller, different modes of
transport can and will be used. Cost elements include handling cost and hinterland
cost. Very broadly spoken, one may state that shipping represents 20% of the
transport cost, port operation a similar 20% and hinterland transport 60%. Not all
cargoes have such a structure of costs. Bulk cargoes directly discharged at power
plants or steel mills are only confronted with additional loading operation costs.
However, for final products, logistics is an important field of exploration. Shipping
lines starting terminal operations and rail services are just two examples.
Inn ovati on area 1 6: pos ition in log is tic c hain

If total freight costs are related to the value of the product, it can be seen that
transport only plays a marginal role. World total freight payments as a proportion of
total import value are 6.1 percent (UNCTAD 2003). For products shipped in
containers, this is even lower, because the value of the product in containers is
higher. Table 7 shows some examples.

Whiskey
Cassette recorder
Beer
Coffee
Vacuum cleaner
250cc motorcycle
Cheese
Cookies
TV set

Unit
Bottle
1 unit
Can
1 kg
1 unit
1 unit
200g
Tin
1 unit

Shelf Price
$35,00
$160,00
$1,00
$12,00
$75,00
$6.000,00
$2,00
$3,00
$500,00

Freight
0,16
1,50
0,01
0,14
1,00
85,00
0,03
0,05
10,00

%
0,5
0,9
1,0
1,2
1,3
1,4
1,5
1,7
2,0

Table 7: Typical Ocean Freight Levels of container ship (ELAA 2003)

Image
The Queen Mary 2 is the largest and most luxurious cruise ship ever build. Her
maiden voyages attracts hundred of thousands of people. The spin off therefore is
immense. The same applies for instance to salvaging the Kursk. This was a difficult
and risky project, but one with exceptional media coverage and prestige added to it.
If both companies in question, Cunard and Smit, are able to translate this
advertisement into commercial profit, being the best or greatest can pay off. In
normal merchant shipping, there are not many visible parties. Since most customers
are industrial players or intermediates, the general public hardly knows anything
about shipping, nor does it care too much.
Inn ovati on area 1 7: im age and p ublic relat ions

Image and public relations may not directly benefit a shipping company, but it may
well be effective in damage control. An old saying states: unknown unloved. If
governments are unfamiliar with shipping, beneficial policies cannot be expected.

22

Ships end of life

A ship will ultimately reach the end of its economic life, and it will be dismantled. The
timing of dismantling will depend on market conditions in both the freight market and
recycle market. Especially in short sea shipping, relatively old ships remains in
operation, since there is no market force to eliminate old tonnage. These external
forces are in place with regard to tankers. For instance the phasing out of single hull
ships and shippers demands not to trade cargo in ships of above a certain age.
From an innovation point of view, effectively (re) using older ships could be
beneficial. The transforming of old oil tankers into floating production and storage
and offloading units (FPSO) is just an example.
Inn ovati on area 1 8: (re) us e of older s hips

4.4.

Reacting to the environment

External factors may also influence the innovation drive for shipping companies. The
following aspects are considered: regulations, consolidation and financial climate.
Regulations
Shipping companies have to comply with a number of rules and regulations. They
can be divided into the following groups:
Operational: Crewing (education and certificates of competence)
Safety (technical and management, including security)
Environmental (technical and fuel related)
Social:
Labour standards
Social security
Economic: Competition rules (block exemption, cabotage)
Fiscal regulations (tonnage tax)
Commercial: Vetting
Performance standards
It has been recognised that regulations to improve safety and to protect the marine
environment would be most effective if set up at international level. Therefore, in
1948 the United Nations adopted a convention establishing the International
Maritime Organization (IMO) as the international body devoted exclusively to
maritime matters. IMO has created over 40 conventions and protocols and over 800
codes and guidelines for the industry. A similar organisation exists on labour affairs:
the International Labour Organisation (ILO).
Implementation and enforcement of these international rules are left to individual
member states, and this has proven to be partly successful. A number of flag states
allow ships to operate below standard, which means below the international agreed
level. Obviously, this has an impact on the market and the level playing field. Dutch

23

ships currently rank number six in the detention list of Paris MOU (Annual Report
2003) 13, which indicates that Netherlands ships perform well above standard.
Inn ovati on area 1 9: effec tive re gulat ions

Creating a level playing field and abolishing substandard shipping has been on the
agenda for many years, with limited success. While some substandard tonnage is
phased out and tighter control regimes are set up, there still seems to be no system
of checks and balances that works effectively. New regimes and other types of
rules, such as goal-based standards, can help quality owners to compete in the
market.
Consolidation
In Dutch liner shipping, a significant consolidation process has taken place. This
started as long ago as the nineteenth century, as can be seen in Figure 7.

Figure 7: Consolidation in Dutch liner shipping 1856 - 1981 (Driel 1990)

To date, P&O Nedlloyd is the single Dutch container company operating a large
network of intercontinental liner services. Even being the fourth container company
in the world, P&O Nedlloyd has to operate in conferences and alliances with other
shipping companies, to reduce costs and increase productivity. Moreover, further
consolidation in liner shipping is still expected by many.
In bulk and specialised shipping, consolidation only seems to take place in back
office services, and not in mergers. In short sea shipping, there are groups of
shipping companies working together, with regard to chartering, manning and
technical support. Ship managers also have entered the market, to provide all sorts
13

The detention list comprises of the average detention of all ship over a three year period, ranked by flag.

24

of services from crewing to technical management. These activities appear to be

rather successful, with a few very large companies like V-ships, which services over
600 vessels.
Inn ovati on area 2 0: new types of m anagem ent

Financial climate
Ships are expensive and have an economic lifetime of over 20 years. Since
earnings are highly volatile, the investment process in shipping is both risky and
complex. There are many ways to finance ships, mostly via bank loans, supported
by cash from earnings or individual private investments. Public offerings are still rare
and not very successful. New ways of financing ships, such as lease back
constructions, may stimulate cash flow and increase flexibility. This currently
appears to be the case in the container business. In the early nineties, the top 30
container carriers were chartering 18% of their tonnage. By 2004, this had increased
to 45% with another 60% of the new building order book in terms of capacity
(Lloyds List 2004).
Inn ovati on area 2 1: fina nc ial s truc tures

The Netherlands has successfully used the fiscal opportunities of the Limited
Partnerships (CV), which in essence, can be considered as an innovative
accounting regime. Due to the system in the Netherlands, private investors were
stimulated to invest in ships. This has led to an increase in new buildings and growth
of the Dutch fleet.

4.5.

Emotion

The last driver is based on emotion. Some shipping entrepreneurs do business for
fun on for prestige. Capital from offshore was used to create successful chemical
operators, merrily initiated as a hobby. Others just stay with shipping, because it is a
tradition in the family. Some are inspired by entrepreneurs like Onassis, who made a
fortune out of shipping and became an idol for many young Greek.
These backgrounds may influence the innovation culture of a shipping company. As
previously mentioned, innovation is taking risks. Making mistakes can cost a lot of
money, but doing it right, can make you rich beyond expectation. As mentioned by a
professor during the MEL programme, shipping is like a football match. It can be
boring for 90 minutes, but historical in extra time. This kind of irrational argument
may influence a companys innovation strategy.
Inn ovati on area 2 2: m aking h is tory

25

Another kind of emotion is linked to the nationality of the company. Although there
does not seem to be a direct innovation area identified, this emotion can influence
the performance of a shipping company.

4.6.

Conclusion

Twenty-two areas of innovation have been identified, as presented in Table 8.

Technical
Reducing costs
1: efficient new ships
2: equipment innovations
3: low manning cost
4: ways to insure assets
5: reducing overhead cost
6: preventive maintenance
7: new types of energy
8: efficient loading systems
9: optimum ship size
10: fiscal regimes
Increasing benefits
11: ability to react to the market
12: ability to influence the market
13: market segmentation
14: client relation
15: productive personnel
16: position in logistic chain
17: image and public relations
18: (re)use of older ships
Reacting to the environment
19: effective regulations
20: new types of management
21: financial structures
Emotion
22: making history

Organisational

x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
X
x

Table 8: Possible innovation areas

Innovation is still often associated with technical renewal. Most research initiatives
are linked to technical development, such as new ship designs and equipment.
What is noticed from Table 8 is that most innovation areas identified, are not
technical, but are related to the companys organisation. This seems to indicate that
shipping innovation is only partly related to technical development, but more to the
way in which a shipping company reacts to the market and tries to look for new
ways of making profit. In Chapter 6 of the thesis, it will be seen whether this
conclusion is supported in practice.

26

Chapter 5

Current innovation policies

This chapter will assess the innovation policies currently operational. In what respect
does it fulfil the need of the Dutch shipping industry?

5.1.

Europe

Lisbon strategy
Dutch innovation policy is related to a European strategy, agreed upon in Lisbon,
March 2000. The core of this Lisbon strategy is the transformation of the European
economies into dynamic and competitive knowledge economies. The importance to
society has been laid down in the opportunities for prosperity offered by modern
knowledge economies, both to existing and future generations: a higher quality of
life for as many people as possible, and respect for social-cultural values and the
natural environment. This European model requires a growth model, based on
labour participation and productivity.
Research and Development programmes
To support the European economy and the Lisbon strategy, several Research and
Technological Development programmes are operational. Europe has currently
allotted a budget of 17,5 billion to R&D programmes in the period 2002-2006 via
the Sixth Framework Programme (EP 2004). The Seventh Framework Programme
(FP7) will probably span the period 2006-2010. Already proposals made in
Parliament have been adopted to increase the budget of FP7 to 30 billion euro for
the four-year period. In relation to the Annual European budget (in 2004: 111 billion
euro), the current R&D budget represents around 4%. In contrast, the agriculture
budget represents 44% of Europes budget (EU 2004).
The Sixth Framework Programme
The Framework Programme serves two main strategic objectives: to strengthen the
scientific and technological bases of industry and to encourage its international
competitiveness while promoting research activities in support of other EU policies.
These two objectives have set the general scene for choosing priorities and
instruments. Projects have to be transactional: only consortia of partners from
different member and associated countries may apply. There are different research
areas under the framework with several domains. There is no maritime domain, but
maritime projects may be found under other domains, such as sustainable surface
transport.
Motorways of the Sea
In the Transport White Paper of September 2001, the European Commission
proposed the development of Motorways of the Sea as a real and competitive
alternative to land transport. To assist the development of these connections, the
White Paper states that European funds should be made available. These
"motorways of the sea" are intended to be part of the Trans-European network
(TEN-T). The concept aims to introduce new intermodal maritime-based logistics
chains in Europe, which should bring about a structural change in the current
transport organisation within the years to come. These chains would be more
sustainable, and should be commercially more efficient than road-only transport.

27

Motorways of the sea will thus improve access to markets throughout Europe, and
bring relief to the over-stretched European road systems. For this purpose, maritime
transport, rail and inland waterways should be used more efficiently, as part of an
integrated transport chain.
Marco Polo
The Marco Polos objective is to reduce road congestion and to improve the
environmental performance of the freight transport system within the European
Community. By enhancing modal shift, a contribution to an efficient and sustainable
transport system is achieved. The Programme supports actions in freight transport,
logistics and other relevant markets. These actions should contribute to maintaining
the distribution of freight between the various modes of transport at 1998 levels.
This may be achieved by helping to shift the expected aggregate increase in
international road freight traffic of 12 billion tkm per year to short sea shipping, rail
and inland waterways or to a combination of modes of transport in which road
journeys are as short as possible.
The Programme runs from 2003 to 2006 and has a budget of 100 million. The first
call for proposals was published on the 11th October 2003 and closed on the 10th
December 2003. Thirteen projects have been awarded support and started in 2004.
The second call for proposals was expected to be published in September 2004 with
a closing date in November 2004. Successful projects will start in 2005.
European Research Area
The idea of a European Research Area grew out of the realisation that research in
Europe suffers from three weaknesses: insufficient funding, lack of a stimulating
research and exploitation environment, and the fragmented nature of activities and
the dispersal of resources. The objective of the European Research Area initiative
combines three related and complementary concepts:
the creation of an "internal market" in research, an area of free movement of
knowledge, researchers and technology, with the aim of increasing cooperation,
stimulating competition and achieving a better allocation of resources;
a restructuring of the European research fabric, in particular by improved
coordination of national research activities and policies, which account for most
of the research carried out and financed in Europe;
the development of a European research policy which not only addresses the
funding of research activities, but also takes account of all relevant aspects of
other EU and national policies.
Maritime Industries Forum
The Maritime Industries Forum was established in 1992 representing all branches of
the maritime industry (shipbuilding, shipping, equipment manufacturers, ports,
marine resources). It also serves as the industrial interface to the European
Commission. With regard to R&D, a Strategic Planning Group developed a Maritime
Industry R&D Masterplan, which was updated in 2002. R&D is seen as an important
means to develop the intellectual capital the European Maritime Industries must
develop and retain. To maintain the competitive position of Europe versus the rest of
the world, investments are needed in intangible assets like competence and skill.
The maritime industries are considered crucial to a successful European transition
from a traditional industrial society to a knowledge-based industrial society.

28

Evaluation of Lisbon strategy

In 2005, a mid-term review of the Lisbon strategy is to take place. In advance of this
review, the Social Economic Council (SER) in the Netherlands has carried out an
evaluation of the Lisbon strategy in June 2004 (SER 2004). According to this
evaluation, the Lisbon strategy is more valid than ever, to maintain high standards of
living with a good quality of living in an environment where the work force reaches a
high age, and which is subject to fast technological changes and globalisation of the
economy. It is therefore essential to increase labour participation and labour
productivity.
According to the SER, little progress has been made in realising the Lisbon goals.
Three main obstacles are identified:
Internal market obstacles are being tackled too slowly;
Too little investments in R&D and education;
Lisbon agenda not incorporated in national policies.
Effectiveness of Framework programmes
Allocating 17,5 billion to support R&D would lead to expectations of an analysis of
its effectiveness. However, according to the Commission Social-Economic Experts,
no such evaluation has been carried out (CSED 2004). Without a proper evaluation,
it is difficult to assess whether the current system is better than an alternative
incentive system. Several obstacles have been identified. Some of the main
concerns are the bureaucratic applications and high administrative costs.
Consequently, the Framework programmes lack sufficient participation by the
industry. This is supported by the results of the market survey.
State Aid guidelines
Apart from European R&D programmes, member states have the option to support
certain vital industries, in accordance with the European Guidelines. These include
predominantly fiscal aspects, which are an important element of national shipping
policies.

5.2.

The Netherlands

The Netherlands position in Europe

The Netherlands want to be in the forefront, leading Europe to a competitive region
and a knowledge economy. Figure 8 shows the Summary Innovation Index (SII-2) of
the Netherlands in relation to the EU15 countries, the new and acceding countries
(12), Norway, Iceland, Switzerland, USA and Japan. The index uses twelve
indicators: five human resources indicators, six knowledge creation indicators and IT
expenditures.
The Netherlands seems to be losing momentum. Although the current performance
is above the EU average (horizontal dashed line in Figure 8), the average changes
in trend lags behind other countries (vertical dashed line).
Figure 8 only shows the innovation input, not the output. Moreover, although human
resource indicators (mainly focussed on education) are included, the emphasis is
largely on the technological side of innovation. Therefore service providers -such as
shipping- have not been represented accurately. However, it does give a general

29

view of the situation, which shows that much work needs to be done in order to
move forward.

Figure 8: Overall country trend by Summary Innovation Index (EC 2003).

Importance of innovation to the Netherlands

The government is aware of the importance of innovation to the economy and has
set up several programmes to enhance companies innovation capacity. General
programmes are operational to stimulate research and development and
fundamental research. As mentioned earlier in the paper, a platform has been
established in which government, universities and industry participate. This platform
is to develop a vision and plans to stimulate innovation in the Netherlands, as
innovation is the engine for growth of productivity and economic development.
Many organisations expressed genuine concern regarding the development of the
Dutch knowledge economy. The Knowledge Economy Monitor 2003 from the
organisation Knowledgeland 14 states the following: In comparison to other
European countries, our country has:
a low standard of education of the population,
very few researchers,
low levels of productivity,
hardly any profit from new products,
few start-up companies in and around universities and polytechnics,
a culture which strongly discourages entrepreneurship,
poorly-functioning institutions,
an inadequate number of networks for the exchange of knowledge.
According to Knowledgeland, this gloomy conclusion is the result of insufficient
investment in the populations education, low private investments in innovation and
a poor innovation system that is being obstructed by a culture of too much talking
and little action.

14

Knowledgeland (KL) is an independent Dutch thinktank based in Amsterdam.

30

The SER in the Netherlands has also expressed concern, especially with regard to
the growth of productivity, which is lagging, and the innovation capacity, which has
been failing (SER 2003). The urgent need to increase the innovation capacity
originates from the fact that old patterns need to change to be able to sustain
economic development.
This may seem strange to a country that -at the end of the last century- was
considered one of the frontrunners to economic growth. However, this growth was
mostly related to a growing labour participation, not an increase in labour
productivity.
R&D programmes
Several supporting programmes are operational, similar to the ones described in
Europe. Mostly, these are generic programmes promoting technical development.
Programmes are coordinated via SenterNovem, which is an agency run by the
Ministry of Economic Affairs. A separate organisation run by the Ministry is Syntens,
which helps companies with innovations. They provide expertise for innovation
projects and support to the company if needed. They do not provide financial
support.
Finland
An interesting development is the fact that Finland is considered a prime example of
an effective innovation policy. A closer look at this model shows that in Finland, the
cluster approach is valued. Dedicated incentive programmes for specific clusters
can stimulate activities and economic growth. Centres of excellence are able to
create competitive advantages and stimulate innovation. In the Netherlands, several
clusters are present, including a maritime cluster.

5.3.

Conclusion

The Dutch innovation policy is related to a European strategy, agreed upon in

Lisbon, March 2000. The core of this Lisbon-strategy is the transformation of the
European economies to dynamic and competitive knowledge economies. An
extensive financial support programme for research and development is operational
at European level to support the strategy.
The Netherlands seems to be losing momentum. Although its current performance is
above the EU average, its average changes in trend lags behind other countries.
Several support programmes are operational, similar to the ones described in
Europe. Mostly, these are generic programmes promoting technical development.
The current policies are not specific to sectors or clusters, but favour a general
approach for all industries. With regard to shipping, such general policies have not
been successful. Shipping companies are footloose which means they can change
company domicile over night. The international position of shipping companies and
their importance to other local maritime industries needs a specific approach. If the
Finnish approach is followed, it could have a positive impact on the maritime cluster.

31

32

Chapter 6

Market survey

During the summer period, interviews with key players in the Dutch shipping industry
have been held. The interviewed are leading shipping companies active in the
following markets:

chemicals
containers
dry bulk
gas
general cargo

heavy lift
livestock
multi purpose
reefers
short sea

The market survey is divided into three parts:

Part 1 - Innovation relevance:
Identify if the 22 innovation areas are supported
Part 2 - Innovation climate:
Identify obstacles to innovate
Part 3 - Innovation cases:
Look at successful and less successful
company innovations
The questionnaire can be found in the Annex.
Part 1 lists the following elements:
Relevance
Innovation pattern (trend setter, quick follower or slow follower)
Influence by the company (direct or indirect)
The list is filled with absolute data. If an area is relevant, it is noted in column 2 and
the other columns are filled accordingly: does the company innovates form the
inside (trendsetter, column 3), does it follow new initiatives and incorporates new
developments quickly (quick follower, column 4), or does it wait until most of the
industry has used the new initiative and it has proven to be successful (slow
follower, column 5). Column 6 and 7 indicates if the company influences the
innovation directly or via third parties, such as associations or others. Results are
presented in paragraph 6.1
Part 2 describes five elements that dictate the innovation climate:
Access to knowledge
Access to financial assets
Access to additional subsidies
Internal and external willingness
Possibilities to limit risks
Results are given in paragraph 6.2
Part 3 focuses on some companys successes and failures, the underlying reasons
and lessons learned. Results are shown in paragraph 6.3.
In total 17 chief executives and experts of nine shipping companies were
interviewed. The shipping companies involved do not represent the average of the
Dutch shipping industry. The Dutch shipping industry is diverse and comprised of
many different shipping companies, ranging from multi-nationals to single ship
companies. They are also active in different markets in different geographical areas.
Therefore, some caution should be used in leaping to conclusions. The companies
selected are leading firms and have proven to be successful in the past. With regard

33

to the companies size, no link is found indicating that larger firms innovate more
than smaller firms.
6.1.

Innovation areas and relevance

This paragraph shows the results of the first part of the market survey. A maximum
score of nine can be achieved (nine companies). The colours used represent the
response rate. A response rate of one to three is yellow; four to six is orange and
seven to nine is red. White indicates no response.
Reducing cost

Relevance

Efficient new ships

Equipment innovations
Preventive maintenance
Optimum ship size
Ways to insure assets
Reducing overhead cost
Fiscal regimes
Efficient loading systems
New types of energy
Low manning costs

9
9
9
9
8
7
7
6
6
5

Trend Quick
Slow
setter follower follower
6
3
3
6
3
5
1
1
6
2
1
7
3
4
1
5
1
3
2
1
3
3
1
2
2

Direct Indirect
9
6
6
7
5
7
2
5
3
4

3
3
2
3
5
1
3
1

Table 9: Absolute responses with regard to reducing cost

All identified cost-reducing innovation areas were considered important. The main
innovation pattern is quick follower, with a few trendsetters. Most companies take
the lead in developing efficient new ships. This does not mean they develop new
ships alone, but is does indicate that they take the initiative. In most other areas,
they leave the initiative to others and the R&D effort takes place outside the
organisation.
In addition to the identified areas, one other area was mentioned; the effective use
of IT systems. Many respondents regard themselves as trendsetters in IT systems,
in different areas, but mainly to reduce cost.
Increasing benefits
Market segmentation
Ability to react to market
Productive personnel
Client relation
Position in logistic chain
Image and public relations
Ability to influence market
(Re)use of older ships

Relevance
9
9
8
8
8
7
6
2

Trend Quick
Slow
setter follower follower
3
4
2
2
6
1
7
1
4
4
2
6
4
3
3
2
1
1
1

Direct Indirect
9
8
8
8
6
7
4
1

2
1
2
1

Table 10: Absolute responses with regard to increasing benefits

Similar patterns can be seen in the increasing benefits areas. Especially in the
productivity of personnel, companies are trendsetters. They create their own training
programmes or experiment with new types of functions ashore. (Re) use of older

34

ships is seen as unimportant. In comparison to reducing costs, increasing benefits is

mostly influenced directly.
In addition to the identified areas, two other areas were mentioned: market
geography and e-commerce.
Reacting to environment

Relevance

Effective regulations
New types of management
Financial structures

9
8
7

Trend Quick
Slow
setter follower follower
1
8
3
5
1
6

Direct Indirect
4
7
2

5
2
5

Table 11: Absolute responses with regard to environment

The environment is also considered to be an important innovation driver. With

regard to regulations, emphasis is put on the fast implementation of new rules,
instead of investing in different kind of regulations. In comparison to the above
results, the environment is mostly influenced indirectly.
Emotion was considered to be an important element and affects the performance of
a shipping company. However, most decisions are based upon rationale, which may
be related to the highly competitive nature of the shipping market.
6.2.

Innovation climate

Access to knowledge
None of the parties indicated that access to knowledge poses difficulties. Many
companies have extended expertise in-house. Where additional knowledge
becomes necessary, it can be bought in. Internet and modern communications also
make it possible to find any kind of information in a relatively short time.
Not the absence of knowledge, but a surfeit of information was seen as problematic.
Finding the right information at the right time was considered to be a challenge.
Some companies expressed concern for the future. The further internationalisation
of the crew on board could have an impact on the quality of the shore organisation.
Securing this quality level is also considered a challenge.
A strong position of other Dutch maritime sectors, such as shipbuilding and marine
suppliers was not regarded essential for the performance of a shipping company. It
was found convenient, but not crucial. Reduced expertise at government level was
regarded more problematic.
Access to finance
Few companies stated that access to finance to innovate was an obstacle. It would
seem that this element would not pose difficulties to the innovation capacity of a
shipping company. An additional remark has to be made on this outcome. The
companies interviewed, seem to have a strong financial position. Not all shipping
companies, especially the small private owners, enjoy such a position. In addition,
the freight market today is generally good. This will have affected the response
given by the participants.

35

Access to subsidies
Few companies have enjoyed positive experiences with supporting programmes.
They all rejected the need for structural support programmes of state aid. The
principle should be that companies must be able to innovate themselves. It has to
be said though, that most firms had little experience with supporting R&D
programmes or find them both impractical and time-consuming. Difficult application
procedures and slow response were not considered conducive to application for a
certain programme. The programmes that are in place were seen as not useful.
Internal and external willingness
External willingness was seen as a major obstacle to innovate. Regulations,
inspection regimes and lack of expertise at the level of the regulator hampers
innovation considerably. This will be illustrated by some examples in paragraph 6.3.
External willingness from clients is not considered to be a problem.
Internal willingness does not seem to be an obstacle either. Most companies
involved, had a flat and open organisation structure with responsibilities low in the
organisation. New ideas and initiatives are being stimulated and internal discussions
to validate new ideas are common practice.
Risk limitations
This is also a major obstacle to innovation. What can be seen from the interviews is
that all companies seem to innovate in small steps. In some cases, it is just an
improvement of an existing system; sometimes it is experimenting with new types of
equipment or organising activities. Limitation of risks is considered very important,
since costs debits from failures are mostly much larger than the marginal benefit of
the innovation. This would underline the principle that shipping tends to evolve
without major revolutions.
6.3.

Innovation cases - lessons learned

Several examples were mentioned during the interview. The following innovation
cases can be regarded representative.
Dedicated ship types
As discussed earlier, Dutch shipping companies are strong in specialised shipping.
Many new ship types were developed or initiated in the Netherlands. Examples are
the sea-river ships, heavy lift vessel, semi submersibles, open top container ships,
dedicated CO2 carrier, multipurpose side loader and multi purpose reefer vessels.
Not all ship types were successful. The open top container vessel is considered a
good design. Loading operations go faster and the ship is safer than similar
container ships 15. The type is however not yet a success. The main obstacle is
related to the high freeboard of the vessel and as a consequence, a high gross
tonnage. Since most port and canal dues are related to the gross tonnage, these
ships have to pay considerably more dues than competitive ship designs.

15

The Netherlands Government recently confirmed this in a IMO submission (SLF/46/15/2, July 2003).

36

Shipping companies hardly daydream about the perfect ship. An existing design
forms the basis for a new ship. From thereon, experience and knowledge gained in
the past are used to improve the design. Proven technologies are used instead of
revolutionary ideas. Every ship owner tries to avoid a two-headed calf or a multinon-purpose ship: capable of doing anything, but competitive to no one. An example
from the past is the multi-purpose ship of Nievelt Goudriaan. A famous Dutch
shipping company who invested in the wrong ship type and went bankrupt.
Crewing
In the 1980s a discussion started to reduce labour costs on the basis of core
competence. Traditionally, the engine room activities and bridge activities are two
separate worlds. Engineers and mates have different tasks and functions, which
leads to a certain inefficiency. A different approach was taken by the introduction of
semi-integrated officers and later the fully-integrated officers. These new officers
were able to carry out both bridge and engine room duties. The Netherlands still is
front-runner with this initiative, which has now been operational for over 15 years
and is being used by both small and large companies.
Similar initiatives have been taken at company level. The effective manning of ships,
in which some companies use flying squads and shore-based personnel to assist
the ships crew at port operations is sometimes successfully introduced.
Again, technical aspects are not the main obstacles. An initiative to use a solo lookout on the bridge in dark hours was technical feasible, but failed in practice.
Although the level of safety would not be reduced, pressure from unions and
governments to increase the bridge team finally led to the end of the solo look-out.
Technical adjustments made to the bridge in order to be able to sail with a solo lookout, could not be exploited optimally.
Management systems
It is surprising to see so many different management systems being used. The
traditional ship owner where a company owns, operates and manages its fleet is not
often seen anymore. Every company has a different structure, seeking opportunities
and limiting risks. Examples are the movement of back-office activities to foreign
countries, the opening of commercial offices close to the clients, developing
management activities such as technical management, commercial management,
and crewing.
Information technology
Since shipping is a relatively small sector, no standard IT system is suitable for a
shipping company. Dedicated products have to be made. The respondents indicated
that several IT systems had been developed in-house and are functioning
reasonably satisfactorily. Examples of these are systems to increase load factors, to
reduce communication costs, to increase management information and to reduce
red tape. Most IT projects do not progress smoothly, since external advisors lack
knowledge of the client or put a too high a price tag on their products.
Diversification
There seems to be a constant movement in the industry to explore diversification
and change back to focus on core business. Companies constantly monitor

37

opportunities and enter market segments when the signals are green. Although not
all have been successful, many of them still are doing very well in multiple markets.
Failures were mostly linked to a lack of specific market knowledge. Transport is a
specialised industry and needs a certain amount of expertise. Some companies
learned this the hard way.
Equipment
This paragraph will be finalised with some less successful examples. Coating
systems and anti-fouling that did not last, cooling agents that were not available
worldwide, automated ballast systems that crews did not trust are just a few
examples mentioned during the interviews.
Technical improvements are considered important, but essential equipment needs
to be reliable. The costs of failure is simply too high. If a ship has to go back into dry
dock because her anti-fouling falls of, the owner may expect a high bill: for the costs
for removing the old paint, applying new paint, time spent in dock, operating costs
over the time lost and commercial damage for not delivering the cargo according to
the charter party. Standardisation of spare parts is also an element that needs to be
taken into account where equipment innovations are concerned. Some respondents
indicated that this was sometimes overlooked.
6.4.

Conclusion

The identified areas of innovation appear to be relevant including three additional

areas: IT-system, market geography and e-commerce. It was interesting to see that
most firms did not consider themselves innovative, but were in fact frontrunners in
many areas. There appears to be a misconception that shipping is a non-innovative
industry, whereas the market survey shows the opposite.
With regard to the innovation climate, it shows that shipping companies do have the
capacity to innovate. Few difficulties were expressed by the respondents. It has to
be stated though, that this does not necessarily means that all Dutch shipping
companies experience the same innovation capabilities.
The main elements transpiring from the survey are the following:
Innovation is still being associated with technical renewal. Most innovation
areas identified are not technical, but related to the companys organisation;
With regard to the innovation climate, regulations are seen as the main
obstacle to innovate;
Innovation failures are not related to technical malfunction, but to limitations
in the regulatory framework, protective policies or lack of market knowledge;
Shipping companies are capable to adjust to changes in their environment
by the way they are organised;
Shipping companies have a short horizon;
Innovation subsidies are not regarded as user friendly and are rarely used,
mostly because of few or unfortunate experiences;
Shipping companies are proud, but all have their own culture;

38

Chapter 7

Role of KVNR

This chapter will focus on the role the KVNR currently plays in relation to innovation
and what it has done in the past. As an introduction, the role of associations in
general and the KVNR in particular will be explained.

7.1.

Collective action

Introduction to Associations
An association is an organisation of people or firms having a common interest.
Associations may be formed in different ways. Private firms may need a collective
approach in solving a certain problem, which they cannot solve individually. Many
associations are set up like this. Their environment has compelled them to
cooperate, although they are individual competitors. Membership is not usually
mandatory.
Similar organisations may be initiated by a government, like Chambers of
Commerce. Companies have to pay a subscription fee and in return, they receive
useful information. On the other hand, the government uses these Chambers as a
voice from the industry in policy decisions. Combinations are also possible, where
governments and private partners set up collective organisations on a specific
theme.
Collective problems: collective action?
Associations are set up to combat collective problems. This can only be done, if
such an organisation has sufficient members and an effective voice. The decision to
become a member depends on the size of the problem, and the effectiveness of the
organisation. If a problem is of minor importance, firms are reluctant to pay a
membership fee. The same applies to problems that only affect companies
indirectly. Indirect problems are non-problems for most firms. If however, a collective
problem directly influences the prosperity of a firm, the desire to become a member
increases.
The problem with successful associations is that they become obsolete. Some
associations therefore seem to create problems to defend their existence. This may
explain the enormous number of associations that currently exist in Western Europe.
A second problem is that individual companies have little influence on the
associations policy, unless they put a lot of time and effort into the organisation.
Policy is often based upon members participation in committees and working
groups. Large companies are sometimes reluctant to join, because at times they
believe they are better off individually and do not appreciate consensus solutions.
Small companies do not have the time and capacity to influence policy and often
feel that their needs are insufficiently represented. A last problem is the fact that
some firms are able to enjoy a free ride. This means that they benefit form the
collective approach, without being a member of the association.
Introduction to the KVNR
The Royal Association of Netherlands' Shipowners KVNR has been formed to
represent the interests of shipping companies operating from the Netherlands. Its

39

collective representation focuses upon maintaining and improving an internationally

competitive business climate, in both the economic and the social sphere. The
KVNR provides a neutral platform for the representation of both large and small
companies in various fields and at various levels. In order to be able to carry out this
function effectively, the KVNR maintains contacts with the Dutch government and
with organisations involved in maritime affairs. The association is also active in
international shipping developments, and maintains close contacts with
intergovernmental organisations. One important factor in these contacts is the
KVNR's membership of international associations in the shipping industry.
The KVNR is the only national association promoting the interest of Dutch
shipowners. Over the years, local and trade related shipowners associations have
consolidated into the KVNR. Though its membership is voluntary, approximately
95% of the industry is a member of the association. Members play an active role in
the executive board, four committees and many working groups.
Role of KVNR in relation to innovation
To understand the position of the KVNR in relation to innovation, we consider the
past. The KVNR has been active historically in three fields: economic affairs, social
affairs and technical/nautical affairs. Research and development was considered to
be a technical/nautical issue. The following overview shows some of the aspects of
KVNR activities (Flierman 1980):
1920s:

Radiotelegraphy. Due to the States financial difficulties, the NRV16

was willing to invest in an automatic alarm, to be tested by the Navy.
This equipment made it possible to reduce crewing costs, because it
was no longer necessary to keep a continues radio watch. The NRV
also invested in radio beacons ashore, which formed and important
navigation aid.

1930s:

NRV joined the Netherlands Naval Experimental Station. First

discussions over containers took place here. Because there were
different views on the subject of packing materials -also at
international level-, it was decided to await further developments.

1940s:

During WWII, a commission was set up to investigate the rebuilding

programme of the merchant fleet, through an optimal ship design and
standardisation of equipment. Because a full order book after the war
was expected, agreements were set up dividing shipyard capacity.
After the war, little was gained, because the problems were not of a
technical nature. Intervention by the government, long negotiations
with the industry and the conservative stance of shipowners, finally
led to a situation in which shipyard capacity was filled with orders
from abroad.

1950s:

Technical developments increased the importance of research.

Fundamental research was not supported by the NRV, due to lack of
benefits in the short run. Applied research initiatives could be
supported, such as the possibilities of nuclear propulsion. The NRV
also assisted in the establishment of TNO Naval Study Centre.

16

Nederlandsche Reedersvereeniging, one of the predecessors from the KVNR.

40

Economic research in cooperation with the Government was rejected.

Government interference was not considered useful.
1960s:

Besides research on technical scale, initiatives on economic research

were now being developed. This was stimulated by the need to
change, since Dutch shipping companies were facing a loss of
market share, increasing costs and reduced returns. Government
intervention in other nations needed a reaction to ensure survival. In
1958, a scientific transport centre was established. Funding of
research projects, participation of other sectors and concrete results
were however a constant area of concern. For instance, expensive
and time-consuming research on anti-fouling and corrosion was
heavily debated. It was also reckoned that shipyards and suppliers
should invest in research, instead of their clients, the shipowners. To
coordinate technical research and initiate economic research, the
Foundation Maritime Research was established.

1970s

The KNRV17 put substantial effort into the economic climate for Dutch
shipping companies. Studies to rationalise the sector were conducted
and the Dutch fleet could be restructured through fiscal initiatives.
The Foundation Maritime Research was incorporated into the
Netherlands Maritime Institute and primarily focussed on economic
research. The Netherlands Naval Experimental Station was still
active and closer cooperation was established.

1980s

The KVNR finalised discussions on the regulations for coastal ships.

Ships were no longer bounded by a maximum capacity of 500 gross
register tonnes. Instead a maximum length of 75 meter could be
used. This increased Dutch coastal shipping substantially.
Discussions were started on the core competence of crew and
integrated officers. Studies for the optimal sea-river ships were
carried out by TNO.

1990s

A decline in the Dutch fleet created the need for a change of shipping
policy. In cooperation with the government, a new regime was
developed. Several market surveys were conducted and technical
research on ship types was supported. A new education programme
was also established.

2000s

The Dutch Maritime Network set up an innovation forum, in which the

KVNR is a participant. The KVNR has also initiated a knowledge
centre on sustainable short sea shipping in Flushing, after a
successful project to stimulate sustainability in this sector. Initiatives
are developed to set up of a Maritime Risk Fund. This project is still in
its preliminary stage and supported by the Netherlands' Shipbuilding
Industry Association VNSI and the Holland Marine Equipment
Association HME.

17

Konklijke Nederlandse Redersvereniging, one of the predecessors from the KVNR.

41

7.2.

Individual opportunity

The KVNR focuses on solving problems. Initiatives to be more pro-active supply

food for debate. On occasion, such initiatives are supported, but always in relation to
concrete benefits. Examples are projects stimulating the use of IT-systems,
introducing strategic labour policies and safety management systems. Promoting the
commercial interest of members is not part of the agenda of the KVNR, for obvious
reasons perhaps. This has happened only in exceptional circumstances, like in the
two world wars, when these interests needed a collective approach.
Broadly speaking, it may be stated that problems are accommodated through the
association, but opportunities are taken individually. This is not surprising, since
most members are in direct competition with each other, and all firms have different
strategies and policies. Although this may be different in other associations, within
the KVNR, this principle is quite clear. When innovation is related to opportunities,
the KVNR is not actively involved, if and when innovation is needed to combat
collective problems, the KVNR plays an important and active role.
Culture
Dutch shipowners haven been criticized in the past for being conservative.
Especially after the Second World War, when a shortage of vision and guts was
expressed. Too much time was needed to adapt to a changed environment and the
modernisation of the business. This conservatism is to some extent related to the
demands of the industry. Volatile earnings demand a strong focus on a companys
cash flow. Profits are used to make up for (long) periods of loss and long-term
contracts provide marginal benefits.
The traditional way of doing business resulted in a stagnation of the development
during the sixties, while shipping companies elsewhere expanded rapidly. Dutch
shipping companies missed the fast growing market opportunities like the tanker
market, in which Norwegian and Greek shipowners played an important role, by
using modern financing systems. After 1970, improvements were noted due to a
changed attitude toward government and unions, and the utilisation of new
opportunities.
It cannot be denied, that long and strong roots of Dutch shipping companies seem to
continue to play an important role in the way of doing business.

7.3.

KVNR strategy paper

In 1996, a shipping policy was developed by the Government, initiated by the

shipping industry, which turned out to be very successful. Consequently, other
maritime nations copied this policy and improved on it. Since the Dutch shipping
community is unable to react accordingly, the Netherlands lost their leading position.
As a consequence, the number of ships being built for Netherlands shipowners has
declined, a decreasing number of ships fly the Dutch flag and the trend of relocating
management activities abroad has become noticeable. This indicates that the
Netherlands are falling behind again and are not benefitting sufficiently from the
present economic improvements in international shipping. As a result, seagoing and
shore activities have decreased and the booster function to the rest of the shipping

42

industry (for instance ship building, maritime supplies and maritime services) is
diminished.
For that reason, the KVNR has recently published a strategy paper. The strategy
papers aim is to point out the need to adjust the shipping policy of 1996. The
strategy paper was addressed to the Minister of Transport.
This strategy paper will be used to address possible innovation areas applicable to
the KVNR. In principle, the paper itself indicates that innovation is essential to
remain competitive. The lack of Government reaction to a changed environment, or
the inability to innovate, now seems to generate (negative) results. Innovation
therefore does not always have to come from companies alone, but depends heavily
on their environment. This is called the Paradigmatic innovation pattern as shown in
Table 3.
Nine action points have been distilled from the strategy paper. It will be seen in what
way they correspond with the innovation areas identified earlier in Chapter 4.
1. The shipping industrys importance to the national economy is considerable,
mainly because of the role played in transport and distribution, the direct and indirect
influence on employment, the contributions made to export and expert maritime
knowledge, as well as the added value in general. Moreover, the industry acts as
booster to the maritime cluster, a position which should be enlarged.
Inn ovati on area 1 7: im age and p ublic relat ions

The KVNR does not extensively market the industry. In cooperation with the Dutch
Maritime Network, some promotion is done. The strategy paper itself is used to
promote the industry, but a communication action plan has not been developed. The
general policy on image building is re-active and aimed directly at the parties
involved, e.g. Parliament and civil servants.
2. If the Netherlands wish to continue in their internationally competitive position,
existing incentives will have to be invigorated. Specifically, amendments to the
tonnage tax regime and seafarers fiscal facilities, neither involving any additional
government expenditure, and the introduction of investment incentives to the
tonnage tax regime, involving minor government expenditure, are indicated.
Inn ovati on area 1 0: fis c al regim es

The KVNR is putting a lot of effort into improving the competitive position. The
current political climate at the Ministry of Finance makes it difficult to succeed.
3. Transparent legislation, by means of the avoidance of a surfeit of regulations, is a
prerequisite for a competitive business climate, as well as are policies promoting
registration under the national flag and consistent and internationally oriented
enforcement measures.

43

Inn ovati on area 1 9: effec tive re gulat ions

Goal-based standards are already a focal point in the Ministry of Transport and are
supported by the KVNR. Pilot programmes are currently operational. The
international regulatory framework makes it difficult to respond to changes in the
industry; many rules are outdated, contradictory, or difficult to enforce. In this
respect, regulations hamper innovation. In addition, policies to promote the
registration under national flag are still difficult to obtain at all national levels.
4. The shortage of Dutch officers and masters is predicted to increase dramatically
in the coming years. Efforts will have to be made to maintain an adequate supply of
labour. The numbers both of students enrolling in maritime education and those
coming into the industry will have to be boosted by joint campaigns by schools, the
government and the trade unions concerned. Moreover, innovative personnel
management on the part of shipowners will have to attempt to decrease the
numbers of mainly young officers leaving the industry.
Inn ovati on area 1 7: im age and p ublic relat ions

Promotion campaigns to increase enrolments in Dutch Maritime Academies have

been carried out by the KVNR. Discussions on future developments are taking
place.
5. The quality of maritime education will have to be improved further. This is a joint
task for KVNR and the maritime academies. The education and training of maritime
personnel of other nationalities will remain important, as they will certainly still be
needed in the future. In view of this, the present strategic involvement with a
Philippine educational establishment is to be continued.
Inn ovati on area 1 5: produc tive pers onnel

The KVNR is actively involved with the maritime academies to continuously improve
education standards at national and international level.
6. The reshuffle of the Shipping Inspectorates (IVW/DS) tasks and jurisdiction has
caused a new system of cooperative structures in involving IVW/DS, shipowners
and classification societies alike.
Inn ovati on area 1 9: effec tive re gulat ions

This exercise has not yet been finalised and it will take considerable effort by all
parties for it to succeed.

44

7. If the Netherlands wish to play any significant role in international dialogue

regarding matters of shipping policy, security, safety and the environment adequate
representation at government level in the various international organisations is of
paramount importance. In view of international legislations (IMO, EU) importance to
shipowners to this will be one of the KVNRs priorities.
New inno vation area: effec tiv e repres entation

The government policy is to reduce representation in international organisations.

This calls for a more effective way to monitor and influence international
developments. A start has been made to prioritise key issues and establish further
cooperation between government and industry.
8. Dutch shipowners will continue to emphasise safety and the environment. In order
to improve consensus and consistency in the tasks of policy-making and carrying
out inspections, allocation of all of these tasks to the Ministry of Transport, Public
Works and Water Management is desirable.
New inno vation area: c onc entrating s hippi ng kn owledge

Shipping expertise is scattered throughout various government departments. Efforts

are made to concentrate shipping issues at the department of transport. The next
step is to try and increase understanding of the subject in other ministries. In
addition, better understanding is achieved via internships.
9. The EUs maritime policies will have to be such as to be able to strengthen the
position of European shipowners in the international market. This will have to be
borne in mind whilst realigning policies regarding competition
Inn ovati on area 1 9: effec tive re gulat ions

Again, knowledge of the industry at government and political level is essential to

achieve this goal.
Overview
Six areas of innovation have been identified. They are grouped in Table 12. None of
these areas are related to technical innovation. It all comes down to organising the
environment, predominantly the government. If and when the shipping climate is
optimal, companies can excel.

45

Technical
Reducing costs
10: fiscal regimes
Increasing benefits
15: productive personnel
17: image and public relations
Reacting to the environment
19: effective regulations
effective representation
concentrating shipping knowledge

Organisational
x
x
x
x
x
x

Table 12: Innovation areas KVNR strategy paper

7.4.

Conclusion

In contrast to the current strategy, promoting the success of the industry seems to
be an important element to achieve the first action point. What has become obvious
from both the interviews and the current KVNR policy is that success stories are few
and far between. The industry is invisible by nature, and the industry is happy with
that. But how can the sector expect a favourable climate if no one knows the
specifics of the industry and no one tells them? Shipping is something from the past
and stereotyped with tough man sailing months for a nickel and a dime: a nostalgic
part of Dutch history. Modern shipping only reaches TV after a major oil spill or
collision. There are idols in shipping.
The shipping industry is by nature footloose. If a certain business climate is
regarded worse than another, a shipping company can easily change location. This
has happened in the past. The same applies to assigning crews and registering
ships. The central role played by a shipping company in a maritime cluster, calls for
an integrated approach to stimulate shipping activities in the Netherlands.

46

Chapter 8

Conclusion and recommendations

The following question was prominent in this research:

How important is innovation to the Dutch shipping sector?
The following scope was chosen to accommodate the research question:
The Dutch shipping sector that is formed by companies,
located in the Netherlands, owning, operating or managing
seagoing ships as a transport service.
Two innovation definitions were drafted:
Innovation is the successful implementation of a new product, market, service,
practice or system, creating commercial benefits.
Innovation capacity is the ability to recognise, implement and manage innovations.
The scope chosen excluded companies operating, owning or managing ships active
in cruise, salvage, dredging and similar activities. It also excluded companies
providing services, not directly related to operating a ship, such as financial
services, brokerage and NVOCCs. Chartering and trading likewise were excluded in
this research.
An invention or something new as such is not a goal, but a means to create benefits.
It follows that innovation can only be identified, after a successful implementation.

8.1.

Measuring innovation

It seems there is no definitive method available to measure innovation. The

standards used, relate predominantly to technological innovation, such as R&D
expenditure, number of patents and percentage of turnover via new products or
services. Service providers like shipping companies innovate different from industrial
companies. Non-technological innovations are more important. Measuring
innovation is difficult and needs an alternative approach.
This understanding is supported in a study identifying the innovativeness of the
Dutch Maritime Cluster (EIM 2000). It was considered that innovation is not a onedimensional issue and relates to more than just technological innovations. Three
categories of innovation variables were used: innovation inputs, the innovation
process and innovation outputs. These are shown in Figure 9.

47

Figure 9: Innovation indicators based on Input, process and output

Again, this seems an unsatisfactory measurement. Although some of the output

indicators may be known, they are difficult to generate and to evaluate. Since
market-volatility plays such a dominant factor, the turnover of new services in
relation to the total turnover cannot be assessed effectively. Patents and licences
are hardly used, since transport-services cannot be protected. What can be
assessed reasonably accurate is the input and process.
The above-mentioned study concluded that the shipping is -in comparison to the
total maritime cluster- innovative as a whole. The results show that shipping
companies especially use innovative processes and carry out many renewal efforts.
This conclusion is supported, but based on different criteria. When innovation is
discussed, it seem to focus only on the companies involved. Figure 9 shows similar
signs. It lacks however an assessment of the companies environment. What can be
seen from the research is that both the way a company is organised and how it can
maintain itself in its environment is an important indicator for innovation. If a shipping
company is not able to react to changes in its environment, it will disappear.
When assessing the environment of a shipping company, a relation has to be made
to its market. In Chapter 2, three markets were identified: the bulk shipping market,
the specialised shipping market and the liner shipping market. The following
characteristics can be found:
The bulk shipping markets are highly competitive, and satisfy many of the
characteristics of a perfect competition model (Clarkson 2004). The commodity is
homogeneous, entry costs are low, many companies are competing for business
and information flows make the markets very transparent. The freight rates are
highly volatile, depending on the market circumstances. Bulk shipping freight rates
are twice as volatile as the US S&P 500 stock index.
The specialist shipping markets generally have fewer customers and fewer
shipping companies. Since the aim is to provide an improved service to these
clients, there is sometimes a degree of product differentiation. However there is
intense competition between specialized shipping companies, and outside
competitors. For example: small tankers compete for chemical parcels or
containerships competing for reefer or vehicle business.
The liner shipping market consists of a range of different clients. These can be
large or small shippers and intermediaries such as freight forwarders, who group
cargoes and negotiate volume discounts.

48

All shipping markets face high competition and none of the companies has a
position to exploit market power benefits. This leads to an environment where
companies have to excel continuously to survive.
A second element is the way a company is limited to its place of domicile. Shipping
companies can change location without major sunk costs. An office can be located
everywhere in the world and ships can be registered likewise. In international
shipping, this happens on a daily basis.
Taking this point of view, the Dutch shipping industry must be very innovative, since
it has endured for hundreds of years. Shipping companies are trendsetters in
exploiting international opportunities. When the Netherlands started to think and
discuss globalisation, Dutch shipowners already employed crew from all over the
world for many years. Dutch shipping companies are being maintained in an
atmosphere of relative free competition, without continuous government support
unlike agriculture and rail transport.

8.2.

The importance of innovation

Twenty-five areas of innovation have been identified in the study. The market survey
showed that many of these areas are considered important. It was interesting to see
that most firms did not considered themselves to be innovative, but were in fact front
runners in many areas. There appears to be a general misconception that shipping
is a non-innovative industry, whereas the market survey shows the opposite.
This misconception may be caused by the idea that innovation is somehow related
to high-speed. Changes over a decade are not considered innovative. Since ships
last at least 25 years, new generations take a relative long time to develop. In
contrast, computers have a much shorter evolution period. However, when ships
generations are compared, it must be stated that an enormous amount of technical
changes have been accommodated. Just compare a new-build to a 25 years old
similar ship. It may also be caused by the fact that innovations are taken in relative
small steps. There are few silver bullets in shipping and few visible major
innovations. The ones proposed and explored with subsidies, generally will not last
in the real market.
Shipping is a small sector
Shipping is considered the world trade facilitator and a catalyst of economic growth
and development. Regardless of this importance, the shipping industry is a relatively
small industry. Ships have a lifespan of approximately 25 years, which means that
only around 3000 ships 18 are build every year (ISL 2004). Most of them are one-offs
or part of a small series. Although Korean shipbuilders set the standard for serial
production for ships, the number of ships is still relatively small, in comparison to for
instance computers or cars. Innovation in shipping is therefore less visible.
Position on S-curve
Shipping companies provide an international transport service. Innovations in
shipping may be easily copied by competitors. It is no use investing in research and
18

Ships over 300 GT.

49

development, if the benefits of such investments cannot be translated into revenues.

Being in the forefront only seems to be important when the company has a certain
market power. Signing that one contract that makes the investments worthwhile is
not a very common occurrence in the international shipping community.
Because being in the forefront does not always pays off, many shipping companies
employ a re-active strategy when it comes to technical innovations. The innovation
pattern is dominated by the client or by the suppliers. Whenever new initiatives are
taken, they are the ones who will assess them and -if and when useful- incorporates
them in their businesses. Hardly any innovations in shipping are completely new.
Most of them are copied from other sectors or other companies, modified if
necessary and implemented directly.
Organisation
Both the identified innovation areas and the interviews show that technique is not
the most important element of innovation. Companies organisational structure plays
a more prominent role. Most companies involved had a flat and open organisation
structure with responsibilities low in the organisation. New ideas and initiatives were
stimulated and internal discussions to validate new ideas are common practice. The
same applies to external changes. Most firms are very responsive to changes in the
market, in the regulatory framework or favourable business climates.
Scope
Shipping companies are often criticized for only have an eye to the money. The
interviews showed a more differentiated picture. Competing in an international
market with a traditional surplus of shipping services creates an environment in
which the bottom line counts; otherwise, a company will go under. Consequently,
problems are dealt with as and when they arrive, instead of being -expensivelyprevented.
Shipping companies therefore appear to have a short horizon. Since they are
capable of reacting to a changed environment, there does not seem to be an urgent
need to focus on long-term strategies. It was noticed that in several companies,
discussions have started to focus on long-term objectives and personnel are
stimulated to think beyond their own scope. However, this is not yet common
practice. For example, not many business development managers are active in the
industry; this is usually left to the managing director. Companies capable of
expanding their scope indeed seem to benefit from better contracts and higher
returns.
Pride
Pride plays an important role in shipping. Whenever a company reaches a
respectable age, commemorative books are published. Every shipping company has
pictures or paintings of the companys fleet, both from the present and from the past.
Shipping companies also tend to have a close-knit culture. This influences the
acceptance of new initiatives. When a third party comes along and states that the
company can increase its performance, there is a natural resistance to accepting
such proposals. Shipping companies may translate such initiatives into criticism.

50

Conclusion
Based on the innovation areas identified, the market survey and the current
innovation policies, the research indicates that innovation is vital to the Dutch
shipping sector. Innovation as such is however not a goal, but an instrument for
survival. Dutch shipping companies will need to adapt to new changes in the future.
This can be on a re-active basis (innovation dominated by suppliers, clients or
environment), or on a pro-active basis (innovation from inside or via services).

8.3.

Innovation policies

Structural support programmes will have a negative effect on the innovativeness of

companies. Subsidies in agriculture being a prime example. Almost half of Europes
budget goes to farmers, predominantly in France (EC 2004). Obviously, these
companies are not able to adapt to the international market and need additional
support from the Community. The Jones act in the USA also shows that certain
shipping segments stopped to innovate, like the dredging industry. Today, American
dredging companies do no longer play an important role in the international market,
whereas they used to be leading. Protective measures made them less competitive.
This leads to the question whether innovation subsidies should be welcomed, or
rejected. The market survey showed that almost all experts rejected the need for
innovation subsidies as a structural programme. Programmes to start new initiatives
could be accepted, but are not much used. Most firms had little or unfortunate
experiences with innovation support programmes, or they find them impractical and
time-consuming. The programmes that were operational seemed to fall in the
following categories: either with a realistic chance of success, in which case no
subsidies were available, or non-realistic projects where subsidies were available.
R&D programmes therefore often lack participation by the industry. It puts technical
innovation in a chicken and egg situation. Knowledge providers seek participation
with the end users of their research, while the end users are not willing to invest time
and money in research that is of no direct benefit.
What innovation policies lack is the relation to the day to day practice. It also tends
to force companies to change, whereas innovation policies should focus on the
creation of an environment where companies are stimulated to change. This
principle can be explained by the way shipping is regulated. Shipping is one of the
most regulated industries in the world. There are more than 40 international
conventions, over 800 codes and protocols, and thousands of guidelines and
government recommendations alone on ships safety and the protection of the
marine environment. In addition, classification rules, social regulations and
competition rules limit the freedom to do business. These rules were seen as the
main obstacle to innovate.
If innovation is to be promoted, initiatives may be taken to reduce the restrictive
framework in which the shipping industry has to act. Instead, policy makers tend to
focus on the companies only and develop new stimulating programmes to increase
its competitiveness. General stimulating programmes seems both unrealistic and
expensive, with little chance of success.

51

8.4.

Recommendations

To conclude this research, the following recommendations are proposed.

1. Use additional indicators to measure innovation
Innovation scoreboards do not take into account all relevant indicators. To improve
the measurement of the innovation capacity of a sector, the environment should be
taken into account the level of competition, existence of protective measures,
limitations to change location and the level of sunk costs.
Innovation patterns also need to be taken into account. Innovation does not always
have to come from the inside, but can be supplier or client dominated.
Thirdly, innovation should not be related to a silver bullet or Columbus egg.
Innovation in small steps may be more effective and more successful than chasing
daydreams.
2. Market the industrys performance, improve image
Shipping is becoming less visible in the Netherlands. Ports are moving away from
cities and few people have a maritime background or a maritime job. People and
politicians start to look at shipping when a ship creates a major spill or lives are lost.
Consequently, shipping is mostly driven into a defensive position.
Modern society likes winners. Programmes such as Idols or events like the
Olympics attract billions of viewers. The same culture may be found in Parliament,
both at national or European level. The Lisbon strategy is aimed at winning: creating
the most competitive economies in the world. The Netherlands wants to be
frontrunner, instead of a moderate place in the middle. However, shipping is not
regarded as a winning strategy, because government representatives cannot
identify themselves with shipping. Few success stories are heard and shipping
expertise seems to fade away. Shipping was able to excel in a low profile
environment. The changing environment may consider a more offence approach
from the industry.
3. Focus innovation policies on the business climate, not on the company
Current innovation policies are too dominant in trying to improve the performance of
single companies. This will not increase the competitive position of that company
and only leads to market distortion. Policies should be focussed on eliminating
support programmes and state aid to create a level playing field.
As rightfully stated by the ministry of Economic affairs, the Netherlands needs to
change course (Min EZ 2003). This should particular hold true for the role of the
government. Assisting companies to innovate can best be achieved through an
improvement of the shipping climate. To create such a climate, expertise and
understanding of the shipping industry is essential. Instead of general innovation
policies, dedicated shipping policies, supported by all relevant ministries should be
considered.

52

4. Improve access to existing subsidies

Since European innovation programmes will be in place until 2010, it may be useful
to improve the access to the current programmes available. This is not considered
essential, but can be used to prevent competitors to use the same subsidies in the
market.

53

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56

Annex

57

Survey on Shipping Innovation

Date

..................................................................................................................................

Name

..................................................................................................................................

Company

..................................................................................................................................

Segment

..................................................................................................................................

# ships

..................................................................................................................................

# personnel

..................................................................................................................................

Research question

How important is innovation to the Dutch shipping sector?

Innovation

is the successful implementation of a new product, market, service, practice or

system, creating commercial benefits.

Innovation capacity

is the ability to recognise, implement and manage innovations.

Dutch shipping sector

is formed by companies, located in the Netherlands, owning, operating or

managing seagoing ships as a transport service.

Survey set up

Part 1
Part 2
Part 3

Innovation areas and relevance

Innovation climate
Innovation cases

Background
This survey forms part of a thesis by Gert-Jan Huisink, which complements his part time Master of
Science program Maritime Economics and Logistics at the Erasmus University. He spent two years
studying with fellow students from different parts of the world to increase understanding in the aspects of
Shipping Economics and Policy, Port Economics and Policy, Transport and Regional Economics,
Shipping and Transport Finance, Logistics and Supply Chain Management, Maritime Logistics,
Management Science and International Economics.
In order to provide the KVNR a better insight in the (un)importance of innovation in shipping, this research
is being conducted.

58

Part 1 Innovation areas and relevance

Innovation area

Relevance

Trend
setter

Quick
follower

Slow
follower

Direct

Indirect

Reducing cost
Efficient new ships
Equipment innovations
Low manning costs
Ways to insure assets
Reducing overhead cost
Preventive maintenance
New types of energy
Efficient loading systems
Optimum ship size
Fiscal regimes
Increasing benefits
Ability to react to the market
Ability to influence the market
Market segmentation
Client relation
Productive personnel
Position in logistic chain
Image and public relations
(Re)use of older ships
Reacting to the environment
Effective regulations
New types of management
Financing structures
Emotion
Making history

59

Part 2 Innovation climate

Access to knowledge
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
Access to financial assets
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
Access to subsidies
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
Internal / external willingness
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
Risk limitations
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................

60

Part 3 Innovation cases

Successful examples
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
Less successful examples
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
Reason
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
Lessons learned
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................

_____________________

61