Setting sail to decarbonisation

Shipping touches pervasively but unobtrusively on every aspect of our daily lives; from the clothes we wear, to the food we eat, to the goods we order online. But rarely do we think about the negative environmental ramifications caused by it. These environmental impacts include air pollution, water pollution, noise, and oil pollution. Greenhouse gas emissions from shipping currently represent 2.6% of total global emissions, equivalent to those generated by South Korea. The International Maritime Organisation (IMO) estimates that carbon dioxide emissions from shipping are expected to rise by between 50-250% by 2050 if no action is taken.

There are several drivers contributing to increased efforts to decarbonise. The maritime industry is facing a twinned challenge of a global rise in fuel prices combined with tighter environmental regulations. The IMO announced in 2018 the objective to “reduce the total annual GHG emissions by at least 50% by 2050 compared to 2008, while, at the same time, pursuing efforts towards phasing them out entirely”. Additionally, the IMO’s global sulphur cap comes into play from 2020, substantially lowering the current 3.5% limit to 0.5% and enforcing cleaner shipping. Consumer demands, reputation concerns, and pressures from NGOs and investors are also increasing the demand for greener shipping.

Decarbonisation is the key challenge for this industry; however, the design, operation, and maintenance of shipping is built to suit the fossil fuel ‘paradigm’. Deployment of all currently known technologies could make it possible to completely decarbonise by 2035. But how are we going to get there? There is no silver bullet technology that can make the transition easy and effortless. Instead, a wide variety of technologies are needed. Innovation is necessary and vital.

Whilst shipping is the least carbon intensive way to move freight, the industry is highly reliant on outdated technology. This presents a huge energy efficiency opportunity for ships, start-ups and investors. Zero-Emission vessels (ZEVs) are needed in order to meet the IMO’s targets and contribute to meeting the goal of the Paris agreement. There are 3 broad solution areas through which decarbonisation can be achieved; technological, operational, and alternative fuels/ energy. The largest emission reductions are likely to come from alternative fuels/ energy.

Technological solutions involve improving the weight and design of ships, reducing friction, and energy recovery e.g. via propeller upgrades or heat recovery. Potential fuel savings arising from air lubrication and hull surface technologies alone could be 2-9%. For example, in this space, graphene is being innovatively used to reduce biofouling, increase the longevity of boat hulls, and decrease friction. Furthermore, many of these solutions are already available on the market and can be retrofitted.

Operational measures involve speed, ship-port interfaces, ship size, and onshore power. Multiple start-ups are specialising in this area; creating digital twins (such as We4Sea), data driven cloud platforms and using AI for predictive analytics to optimize operational performance (such as nauticAi).

Alternative ZEV technologies include ammonia fuel cells, ammonia + internal combustion engine (ICE), biofuel, electric batteries, hybrid hydrogen, hydrogen fuel cells, and hydrogen + ICE. It is crucial to ensure that these fuels are not simply moving the GHG problem upstream, as there may be emissions that arise through their production. However, future CO₂ emission reductions from certain alternative fuels could be 100% if produced by renewable energy sources. Not all of the alternative fuels have reached market maturity, and most are still in a research and development phase. There are also issues regarding safety, cost, availability, and sustainability. It is likely, however, that the costs could all reduce significantly in the future. Two of the most likely routes to shipping decarbonisation come from the use of biodiesel and the use of ammonia, based on zero-carbon hydrogen. In the near term, novel wing sail systems, such as those developed by Bound4Blue, are already making a splash with serious potential to reduce fuel consumption.

The maritime industry is not without its risks for start-ups. There are high barriers to entry, and significant levels of skills, experience, knowledge and capital are essential. Information asymmetry, split incentives, and the fragmented nature of the industry are not easy obstacles to overcome. Climate change is opening up the Arctic, international trade will continue to grow and the demand for shipping will increase. The scale and value of this opportunity must not be ignored or hidden by ‘sea blindness’. This is an exciting time for innovative technologies companies who can play a critical and key role in decarbonisation.

From Lab to First Adopters

When it comes to finding Product-market Fit (PMF), entrepreneurial vision is helpful but insufficient. Landing on the moon may be the vision but it requires precise and completely accurate calculations to actually get there.

To increase the probability of finding PMF and to accelerate the process requires the systematic and thorough application of a particular toolset in a stage specific way. Those pioneering tools are: detailed hypothesis building, market engagement and application discovery, analysis and rapid iteration, and validation.

And, of course, the crowning evidence of PMF for product companies is that first set of deals that proves your ability to generate significant revenues at a high gross margin by solving a high value challenge either in a way that no other product can or in a way that is much more effective and efficient. The right set of ‘first deals’ demonstrates market acceptance and pull, and sets in motion a pattern of accelerating revenue capture (traction).

For broader platform companies, the ‘first deal’ challenge involves working with a broader ecosystem to identify applications and build products around your platform that achieve market acceptance. While the goals are the same as with the product company (see above ), the difference here is that there are potentially several different applications that we can apply the technology to. The skill lies in choosing the right initial applications that can have a multiplier effect with regard to: revenue generation; industry acceptance; and technology scaling.

‘First deals’ are different in nature and require a different pioneering skillset than those that follow in the growth stage. To generalise, they are harder to win, demand greater intensity, consume more attention, require more face-time with the ‘customer’, take longer, need a broader more cross-functional consensus within the ‘customer’ organisation, and are substantially more valuable than those that follow.

Whereas with ‘known’ products, resistance is likely to emerge early, curiosity for ‘the new’ means issues are likely to emerge later. For the venture organisation, where the mis-allocation of resource can be an existential threat, a long but ultimately fruitless engagement is deeply problematic. Curiosity is a powerful lever for stimulating engagement but also a trap sprung by the seductive charms of early interest. The challenge is to convert curiosity into opportunity early by creating a stage gate that gives the counterparty a clear choice between disengagement or a meaningful commitment that signals interest has been transmuted into an opportunity. All too often the issue lies in the lack of leverage that a technology company can bring to bear to ensure adherence to a stage-gated process. It is of course the evidenced and transparent promise of the technology that should support a more symmetrical interaction. Once established, the best way to ensure leverage (this is most applicable to platform technologies) is to have multiple competitive companies in the same industry all in the same process which creates an urgency to progress and conclude a deal within a desired timeframe with the carrot (should one be necessary) being some form of preferential access to technology which moves the competitive advantage needle.

At least from the perspective of the technology company, ‘first deals’ are based on no direct precedent. Practice is being formed and enacted for the first time. The execution capability is embryonic. Experience may accelerate the process when wisely applied but it may also hinder progress by adhering to modes of action applicable to different contexts. Generalised knowledge can be useful but is trumped by context specific insight. The goal for product companies as they move from ‘technology visionaries’ and ‘early adopters’ (who will adopt largely on the technology’s potential) to ‘followers’ is to evolve a practiced capability built on: fast learning and systematic iteration to distil what works; a creative process mindset; and extraordinary maniacal attention to ‘customer’ detail.

At each stage, a fit-for-purpose process must be created, tooled up, and optimised. Pooling expertise early into specialist jobs (embryonic functions) is important and is a precursor to scaling. One of the huge advantages of following this type of approach to designing and developing process, whether you are pioneering a product or a platform application, is that it quickly highlights the really critical steps in the process and what is needed to engineer successful outcomes. Those critical steps are nearly always conversations. The end goal is a series of repeatable actions – the smartest and most efficient way executing deals in these formative stages of the product’s lifecycle.

What is critical about building the execution capability is that it is foundational. It sets down the templates for others to follow. A great house cannot be built upon poorly built foundations. Starting over is a difficult and expensive job. Bad habits and poorly defined sub-optimal practices become embedded. A restart will almost certainly require the recruitment of new people. Success is ultimately only measured by results. There may be many ways to tackle a challenge but it pays to select the best way.