Industry Insight: Sink or sail? Fuel-Efficiency Solutions in an Era of Cheap Oil

The fall in bunker prices is welcome relief for ship owners, but poses more challenging questions for fuel-efficiency pioneers that have built their pitch around the fuel savings their solutions can deliver. When the received wisdom around the inevitable rise of bunker prices no longer holds, the technology pioneers that will thrive will be those with a solution that's versatile enough to adapt to the 'new normal' and a market proposition that is fit for all seasons. Simon Phillips, Senior Consultant at BLUE Communications, shares his views on this challenge.

You have a technology solution that can reduce the fuel consumption of ocean-going vessels? Excellent. You can prove the fuel savings that can be made? Even better. And with fuel prices on a steep upward trajectory for years, the ROI on your technology can be realised in just a few months.

So far, so good. Although a having great concept doesn't materialise into a profitable business overnight (as many clean-tech pioneers can testify!), the wind has been blowing in the right direction for some time.

In short, your proposition was built on one simple, irresistible truth. My product will cut your fuel bill and pay for itself in a matter of months. So what do you do when the market conditions underpinning that proposition is badly shaken? With the collapse in the oil price and the subsequent drop in bunker fuel costs, this is not so much a case of the goalposts moving, as the pitch spinning 180 degrees beneath your feet. Which leads to this question… how do you sell fuel-efficiency at a time of cheaper fuel.

Whilst the fall in bunker prices has provided some welcome relief for shipping companies, it is posing serious questions for numerous suppliers to the shipping industry that have marketed their products and services around the promise of fuel savings.

Such commercial curve balls are challenging but not unique. There are plenty of examples from other industries where disruptive forces have had such an impact on market conditions, that they effectively change the rules of the game. Such disruption can come from any number of directions, including technological revolutions, external regulation and changes in societal lifestyles and habits. For example, the rise of digital downloads in the past 10 years has revolutionised the music retail and home entertainment industries. In every case like this, there are suppliers that have the agility to respond positively to such shifting market conditions and those that do not.

So in the brave new world of lower fuel costs – at least for the coming months – what can suppliers offering fuel-efficiency solutions do to ensure that they still have a credible and compelling proposition?

Firstly, fuel efficiency still matters. Although bunker costs have fallen dramatically, no one is seriously suggesting that fuel efficiency is not still an important consideration, not least with ECA and global sulphur regulations will continue to push up fuel costs. It is also notable that eco-design tankers are continuing to earn a premium. This reinforces the point that fuel costs are not just about the absolute price of fuel, but your fuel bill relative to your competitors. If fuel-efficiency can give you a competitive edge over your rivals, then it still has considerable currency as a marketing proposition.

Similarly, the market incentives for fuel efficiency are continuing to grow, whether that is through the likes of the A-G efficiency rating pioneered by RightShip and the Carbon War Room or the financial incentives now being offered by a number of ports for more efficient vessels.

It might be that the payback time on your technology has been extended, but this simply requires you to make the longer-term case for the fuel-saving benefits that your solution can deliver. Set against the operational life of a vessel, the chances are that the ROI on your solution is still attractive.

One of the obstacles encountered by those selling fuel-efficiency technologies has been to persuade cash-strapped ship owners to make the necessary capital investment in their vessels in order to reap the rewards through lower fuel bills. Even with an ROI that seems too good to be true, owners with money to spare have been understandably reluctant to part with it.

However, the drop in bunker prices might potentially provide shipping companies with the financial breathing space that they need to make those investments in fuel efficiency solutions for their vessels that were previously considered unaffordable. From the perspective of the supplier, now might just be the time to call upon owners to 'fix the roof while the sun is shining'.

The environmental benefits of fuel efficiency also continue to be a compelling proposition – cut your consumption and reduce your bunker bill, whilst reducing emissions and burnishing your environmental credentials. However, there are many ship owners (not to mention many charterers and other stakeholders) who are serious about environmental sustainability and are taking significant measures to improve their performance. For these companies, the environmental benefits of fuel-efficiency are still important. For others, the fall in fuel prices poses an interesting question: do you have a meaningful environmental policy, or just a fuel-efficiency policy?

Finally, from a communications perspective, there is a vital lesson here in the merits of road-testing your market proposition to ensure that it is robust enough to deal with what might be waiting around the corner.

Customers want to know that your solution has the versatility to cope with whatever the market might throw at it. Your task is to develop a proposition that is sufficiently agile, well rounded and multi-faceted to meet that challenge. For example, this might mean broadening your offering to embrace operational efficiency, as well as fuel efficiency. Whatever your product, a solution that is fit for purpose in all seasons, whatever the market fluctuations, will always be worth investing in.