The ongoing Qatar problems are causing serious disruptions in shipping and canal transits with a possibility of premium. Companies are downsizing their parcels for loading in single ports and shipowners seeking premium for Qatar loadings.

It’s a mistake to assume that taking action is the biggest risk. In many cases, the riskiest action is in fact inaction. The pace of change in today’s world means that standing still leads to falling behind current and emerging competitors. The way in which many companies make investment decisions blinds them to this reality. Most executives know that the present value of an investment comes from projecting its cash flows and discounting those numbers into today’s dollars. The general rule is projects with positive net present values should get funded, and those with negative ones shouldn’t. That assumes, however, that the base case is zero. If doing nothing leads to decline, projects with marginal projections actually are better alternatives than inaction.

All major oil-products trading companies have been affected and are redrawing their loading and canal transit plans, resulting in releasing of some ships and fresh chartering of others, even as they hope that the issue will be resolved at the earliest.

As part of a slew of measures against Qatar, after cutting off diplomatic ties, Saudi Arabia, Bahrain and the UAE have also imposed on their emirate neighbor restrictions related to ports and shipping.

Of particular concern is the ban on direct sailing to and from Qatar by Fujairah in the UAE, where thousands of ships load bunker fuel. Co-loading of partial cargoes of naphtha, gasoil and gasoline in multiple ports of Middle East will take a severe hit unless the spat ends anytime soon. “They should sort it out within this week, too much is at stake,” a broker handling oil cargoes in the Persian Gulf said.

It’s a mistake to believe that good entrepreneurs seek out risk. They don’t. Good entrepreneurs recognize the inherent risk of creating new businesses. After all, it’s well known that most new businesses fail, and that most of the ones that succeed do so in modest enough ways that the entrepreneur gets at best a modest financial return on his or her effort. As Noam Wasserman noted in The Founder’s Dilemmas, “On average, entrepreneurs earn no more by founding startups than they would have earned by investing in public equity – less, in fact, from a risk-return perspective.” What good entrepreneurs excel at isn’t taking risk, it is managing it. Working with partners, raising money from a syndicate of investors, building a team, scrappy ways to earn revenue are all examples of smart risk management.

It’s a mistake to celebrate failure to encourage risk taking. Dictionary.com offers a reasonable definition of risk as “exposure to the chance of injury or loss; a hazard or dangerous chance.” There can be no innovation without risk, as innovation necessarily has uncertain outcomes, some of which can be bad. Encouraging risk taking, therefore, can help to boost innovation. However, that doesn’t suggest a blanket endorsement of failure. In many cases, failure is bad. Sometimes people fail because they didn’t do their homework. Sometimes they fail because they lacked skills or hadn’t practiced enough. These categories of failure should never be celebrated. Rather, executives should recognize that the path to innovation success is never a straight line, so fumbles, false starts, and, yes, sometimes failure are part of the game.

It’s a mistake to think that rewarding success will boost risk-taking. Innovation-hungry executives at large companies often gnash their teeth about the challenges of compensation, lamenting that their system simply won’t allow them to offer the unbridled upside that awaits entrepreneurs at unicorns (which, in reality, are an incredibly rare breed). True. But that’s not really what holds innovation back in most companies. It isn’t the lack of rewards; it is the presence of punishment. Execution-oriented companies are used to rewarding people who hit their numbers and punishing those who don’t. But the uncertainty that accompanies innovation means that sometimes people will do everything right and still have a commercial failure. And if that result carries stiff punishment, don’t expect anyone to ever take any risk. While it is well known that quick wins build confidence in change efforts, companies seeking to build their innovation capabilities should have a quick loss, where a project gets shut down and everyone celebrates rather than looking for a scapegoat. It helps to signal that the company is ready to think and act differently.

Shipowners will try to maintain the rates, or push them up, due to this uncertainty over Qatar. One reason for this potential hike is that bunkering can’t be done in Fujairah and also that lesser ships will be available for Qatar loading.

Cargo stem nominations which are partly loaded in LR tankers in Qatar’s port of Ras Laffan, along with one or two ports in Saudi Arabia, Kuwait or the UAE, are now being split for single-port loading. Until this issue is resolved, there will be more demand for LR1s and MRs [Middle Range] instead of the LR2s, as cargoes get split for one-port loading. The LR2s, LR1s and MRs typically carry cargoes of up to 90,000 mt, 65,000 mt and 40,000 mt, respectively.

A naphtha-trading major has a June 17 LR2 cargo for loading in Kuwait and Qatar, but now plans instead to load the ex-Kuwait parcel in a single LR1. Even though Kuwait is not involved in the diplomatic imbroglio, shipping and trading companies don’t want to take a chance, as logistical issues such as bunkering are involved.

Another Tokyo-based commodities trading company has downsized its LR2 naphtha cargo for mid-June loading to an LR1 in Bahrain and the remainder in an MR for Qatar, sources said. The LR2 they chartered will be released.

Lesser demand can put a pressure on LR2 rates at a time when they are already weak, have struggled for most part of the year, and are being chartered at a large discount of more than 20 worldscale points to LR1s on the key Persian Gulf-to-Japan route. However, this differential is still not viable enough for a charterer to load an LR1 cargo on an LR2.

The costs of moving 75,000-mt and 55,000-mt cargoes on this route are $13.23/mt and $16.73/mt, respectively, according to S&P Global Platts data. The cost is $19.32/mt for MR tankers.

Availability of ships for Qatar loading is also expected to decline. UAE- based Gulf Energy Maritime’s ships are unlikely to navigate to Qatar. The company has around eight LR1s and two LR2s and its shareholders include Dubai’s state-run Emirates National Oil Co. and Abu Dhabi’s International Petroleum Investment Co.

Other companies will ask for premium for loading from Qatar. It works both ways and there will be more ships for loading elsewhere, a chartering executive said, pointing towards the overall supply amid more new buildings, and less demand to move gasoil to Europe and naphtha to Asia.

Oil majors such as Vitol, Shell, and Glencore have their shipping arms which handle their own vessels and those ships that are taken on long-term time-charter, with duration ranging from a few weeks to years each. With many of these ships now having to choose between calling Qatari ports or elsewhere in the Middle East for successive voyages, these companies will have to juggle their fleet plans, split cargoes, and even take more ships from the spot market at short notice, sources said.

Single-port loading in Qatar is expected to continue if bunkers are adequately arranged. Shell has placed the British Reason on subjects for June 20 loading of a gas-to-liquid cargo in Qatar, with the option to discharge the cargo in Singapore or UK Continent, sources said.

One option available for bunkering is in neighboring Sohar in Oman, though the rates may be higher. Changing of crew also has to be adjusted and cannot be done in Dubai for ships moving to or from Fujairah.

VUCA, volatile, uncertain, complex, and ambiguous, describes perfectly what is happening in shipping and canal transits today. Business is not running as usual. Leaders must deal with growing uncertainty, complexity, and ambiguity in their decision-making environments. CEOs have little idea what to expect in terms of health care policy, financial transactions, national security, and global trade—all of vital importance to themselves, their employees, and their stakeholders.

Managerial training in the classic techniques of control systems, financial forecasting, strategic planning, and statistical decision making have not prepared them for this amount of flux in the environment.

In short, these rapid-fire changes are putting extreme pressure on business leaders to lead in ways not heretofore seen.

Now is the time for authentic business leaders to step forward and lead in ways that business schools don’t teach. Let’s examine these different ways of leading comprising VUCA 2.0 in shipping and canal transits:

Vision – Today’s business leaders in shipping and canal transits need the ability to see through the chaos to have a clear vision for their organizations. They must define the True North of their organization: its mission, values, and strategy. They should create clarity around this True North and refuse to let external events pull them off course or cause them to neglect or abandon their mission, which must be their guiding light. CEO Paul Polman has done this especially well by focusing Unilever’s True North on sustainability.

Understanding – With their vision in hand, leaders in shipping and canal transits need in-depth understanding of their organization’s capabilities and strategies to take advantage of rapidly changing circumstances by playing to their strengths while minimizing their weaknesses. Listening only to information sources and opinions that reinforce their own views carries great risk of missing alternate points of view. Instead, leaders need to tap into myriad sources covering the full spectrum of viewpoints by engaging directly with their customers and employees to ensure they are attuned to changes in their markets. Spending time in the marketplace, retail stores, factories, innovation centers, and research labs, or just wandering around offices talking to people is essential.

Courage – Now more than ever, leaders in shipping and canal transits need the courage to step up to these challenges and make audacious decisions that embody risks and often go against the grain. They cannot afford to keep their heads down, using traditional management techniques while avoiding criticism and risk-taking. In fact, their greatest risk lies in not having the courage to make bold moves. This era belongs to the bold, not the meek and timid.

Adaptability – If ever there were a need for leaders in shipping and canal transits to be flexible in adapting to this rapidly changing environment, this is it. Long-range plans are often obsolete by the time they are approved. Instead, flexible tactics are required for rapid adaptation to changing external circumstances, without altering strategic course. This is not a time for continuing the financial engineering so prevalent in the past decade. Rather, leaders need multiple contingency plans while preserving strong balance sheets to cope with unforeseen events.

With external volatility the prevalent characteristic these days, business leaders in shipping and canal transits who stay focused on their mission and values and have the courage to deploy bold strategies building on their strengths will be the winners. Those who abandon core values or lock themselves into fixed positions and fail to adapt will wind up the losers.

For ships sailing eastwards, the cheapest option to load bunkers will be Singapore. But westbound vessels may do so in Oman, said a maritime executive in Singapore. Bunkers will pile up in Fujairah and drag down prices, while rates will go up in neighboring ports and also in Singapore.

The 380 CST bunker was assessed on Tuesday at $299.5/mt and $302/mt, delivered in Singapore and Fujairah, respectively. The corresponding price in Kuwait was also $302/mt. Fujairah’s stocks of heavy distillates and residues totaled 10.08 million barrels, as of May 29, up 11% in a sharp rebound from the previous week.

Select Maritime is the leader in canal transits. For more information,  please refer to www.selectmaritime.gr

Beyond Vision Aerial leads the digitization of shipping and drone aerial videography. For more information, please refer to www.bvaerial.com

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