Digital Transformation of Offshore Oil, Gas Logistics a MustBy Enrique Alfredo González Huitrón | Tue, 10/27/2020 - 09:28
Offshore support vessels, the cornerstone of offshore oil and gas logistics, have used the same business model throughout the world for decades. This market segment, which has seen small operators turn into large companies with over 100 vessels only to then disappear some years later amid the next crisis, has had no innovation whatsoever in the last 40 years. The current crisis will witness many small and medium-sized companies go bankrupt, but this is not only a consequence of oil prices, the COVID-19 pandemic or even the lack of payments from PEMEX. It is because these companies are not yet digitalized.
To quote Einstein: “New ideas remove the old question and revolutionize physics. Decidedly: changing the answer is evolution, changing the question is revolution.” This phrase likely brought about thousands of insights back in Einstein’s day and it continues to do so more than a century later. We must welcome and even feel comfortable when going through dramatic changes more frequently than before because this trend will keep accelerating in almost all aspects of our lives. It is not only Moore’s Law but also science, health, social interactions and, of course, new business models that today demand rapid change from us.
Some decades ago, a common phrase was that “businesses must evolve.” Today, we say: “businesses must be revolutionized” (their products, markets and even themselves and their stakeholders). Modern companies are becoming obsolete sooner, when they reach their evolution cap and must go into revolution mode. McKinsey revealed in 2018 that the average lifespan of companies listed on the Standard & Poor’s 500 index in 1935 was 90 years. By the year 2010, it was 14. Today, it is less than 10. At this pace, by 2027, 75 percent of the companies currently listed on the S&P 500 will have disappeared: they will have been bought, merged or simply gone bankrupt. If that is happening to the S&P 500, what can we expect from companies (small, medium, or large) in the most traditional markets?
Several and cyclical oil price crises have hit the Mexican offshore oil and gas logistics segment. The COVID-19 pandemic impacted this segment hard, directly and indirectly and, as if adverse international conditions were not enough, PEMEX and the new IOC players in the Mexican E&P market are going through serious financial problems and liquidity shortages. But during good times or bad times, performance has remained proportionally the same: cargo and passenger capacities are always underused. Based on statistics from shipowners, their corporate customers pay 100 percent of the services while using, on average, 23 percent (in cargo) and 19 percent (in passengers) of these capacities. Years of fierce (and sometimes unfair) competition have created a great deal of friction among peers in this sector. Sharing and platform economies have never been in the shipowner’s minds, although they are disrupting other industries like mobility or fintech. Payment guarantees and processes are still slow and worryingly inefficient.
However, the lack of use of digital tools in this troubled industry is the biggest concern. The acceleration of digitalization has not gone beyond using Zoom for remote meetings or saving scanned files on Dropbox. Technology in this field is restricted to the use of high-tech (and expensive) equipment in the vessels (ships, rigs, helicopters, etc.) but not in how they are operated, marketed or managed. Proof of that is that the ship logs are still handwritten in notebooks with lots of valuable and underused data. While ground logistics and even maritime trading are far ahead in the digitalization journey, Mexican offshore oil and gas transportation companies are adamantly opposed to exploring the benefits of digital transformation. We get it, they are currently struggling to survive in the market, but crisis times are also opportunity times and the efficiencies they can render through innovation in their business models and digitalization of their operations are huge. Imagine the value of a digital platform that, on the one hand, generates savings for customers, and on the other, helps operators to better transact with their customers. This solution would also provide both parties with digital tools to streamline their processes and add value through the combination and conversion of all the information generated from these operations into informed decisions.
In the same way science made us evolve in so many fields, technology is doing this with the way people do business. Any industry or company failing to understand this is doomed and destined to fade away. But it is not only about technology per se, but about the ways we can use it to revolutionize our companies. You do not really need high investments or state-of-the-art devices in your company to survive a crisis, face the challenges of competition, present and future, or even to take your business to the next level of success. You just need to adapt your business model. This is easier said than done. The reality is that it requires one of the most difficult things for a human being: unlearn what he/she has learned. This may sound “counter-evolutionary” but remember, this is not about evolution anymore, it is about revolution.
In his masterpiece “The Future Shock,” Alvin Toffler quoted Harvey Gerjuoy’s phrase: “Tomorrow's illiterate will not be people who can't read; they will be those who have not learned how to learn, unlearn and learn again.” Basically, those who do not adapt will be banished (or at least hopelessly delayed). It is time for offshore oil and gas logistics to “break the wheel” and renew from its core. They MUST start their digital transformation NOW.