Nov 27, 2014

Hydrogen fuels renewed interest

Audi’s A7 H-tron combines fuel cells with rechargeable lithium-ion batteries.
Audi’s A7 H-tron combines fuel cells with rechargeable lithium-ion batteries. Source: TheAustralian
WELL over a decade ago, General Motors produced a fascinating concept car called Hy-wire. It ran on hydrogen, and GM was a persuasive evangelist for fuel cell technology.
The car tore up the existing template for design and at the same time GM ripped through the main argument against hydrogen as a vehicle fuel: the lack of refuelling infrastructure. Building a suitable number of hydrogen filling stations in the US would require no greater funding or public commitment than something like a transcontinental pipeline made for petrol, it said.
GM was so fired with enthusiasm for the idea it committed to producing a viable hydrogen car by 2010 — at the time just eight years away. Of course that car never materialised. At least, not in the way it was conceived — as something you might walk into a showroom and actually buy.
GM is hardly alone. Dozens of hydrogen cars have been built and almost every brand has had a go. Most have been fuel cells, although some makers — such as BMW and Mazda — flirted with the idea of burning hydrogen in a combustion engine.
I drove just such a car, a BMW 7 Series, not long after GM’s declaration. It worked, too, although the consensus is that fuel cells are the more efficient solution.
The problem is not the technology, as fuel cells have been understood for a long time. A bit like batteries, which most hydrogen cars use in conjunction with fuel cells as an energy store, they will get cheaper as they are produced in greater quantities. Hydrogen cars are effectively electric cars with the electricity produced on board.
Vehicles will also need fewer of both to do the same job. As more and more real-world data about how they perform is accumulated, the software controlling these drivelines will get more sophisticated. That means a reduction in the amount of redundancy built into them to ensure they work reliably. For years.
Carmakers have been gathering that data since the turn of the millennium and before, with dozens of fuel cell vehicles — from cars to buses — running all over the planet in small numbers.
So where are they now? Why do hydrogen fuel cell vehicles suffer never-ending false dawns? The Los Angeles motor show last week produced another batch, including a couple from Volkswagen, one from Audi and the latest from Honda. The Japanese maker’s work on fuel cell vehicles dates back two decades, and small numbers of its previous model, FCX Clarity, have been operating on lease in the US, Japan and Europe since 2008.
Audi’s A7 H-tron, pictured, was interesting in combining fuel cells with rechargeable lithium-ion batteries so it can travel 50km without using hydrogen.
Audi — and hence the Volkswagen group of which it is part — believes it’s a lead player with the technology, although for onlookers it’s impossible to tell. None of these vehicles has been tested in the open market.
That is about to change. Toyota is launching its FCV — Fuel Cell Vehicle — in Japan this year, then in Europe and the US. Another brand with real showroom vehicles on the way is Hyundai. So there’s progress, albeit slow.
The problems of making and storing hydrogen will not go away. It needs a lot of energy to produce. It then has to be stored under high pressures or cold temperatures, or both.
Hydrogen refuelling stations already exist in small numbers and it takes no longer to fill a car with hydrogen than with petrol. It’s not hard to imagine a world in which we swap one for the other, and it’s edging closer. But it’s still a very long way off.

Nov 26, 2014

Lesson from Spain in pain | Wolfgang Kasper

THE voters returned a conservative government by a decisive majority, voting out the most left-wing socialists in their history who had gone overboard with an impatient Keynesian stimulus, job-killing energy policies, re-regulation of labour markets and elitist, new-age social reforms.
The newly elected conservative government, led by a talented team, threw the economic rudder around to practise fiscal sobriety, sack thousands of government employees and hangers-on, and cast itself in the role of a support organisation of competitive ­enterprise.
To the vehement annoyance of trade union central, several factory unions in the car industry cut deals with foreign investors, committing to five strike-free years in exchange for job security and guaranteed real wages. New car models have been assembled and conquered export markets, and the economy has turned from deep recession to hesitant economic growth.
From the beginning of the second paragraph, the reader will realise that this is not a story about Australia but a country from which we may learn a lot: Spain. From 2008 to 2012, despite frenetic stimulus spending, real per-capita incomes had plummeted by more than 18 per cent.
From late 2011, the holistic all-out reform effort of the conservative government, led by Mariano Rajoy, managed a rise in real per-capita incomes of 3 per cent last year, and this year will bring another 2 per cent. The conservative leadership was inspired in its confident, almost heroic undertaking by the successful example of a previous conservative government — the Aznar administration of 1996-2004 — which overcame the deficits and mass unemployment left behind by the preceding Gonzalez socialists.
The exorbitant risk premiums on Spanish interest rates have fallen well below Italian levels as market confidence has returned, but unemployment has stayed extremely high, about 25 per cent, partly because of public-sector sackings, although private job creation has taken off.
As Spain’s unemployment benefits are time limited, many have to make do without government handouts. Those I know manage — poorly — with family support, in casual informal work. Many young professionals are learning German and Chinese. Many have turned their backs on the traditional major parties and barrack for populist extremists.
The government has curbed subsidies to solar farms and quixotic windmills, some of which have been abandoned by their disappointed rent-seeking owners. The life of nuclear power plants has been pragmatically extended. Some of the many infrastructure projects of the Zapatero era are mothballed; others are being pragmatically completed despite still complicating the budget.
New controls on regional government spending have created some political acrimony but reinforce the consistent message: “We need discipline and an enterprise-friendly order.” The task of turning the economy around has been made much harder, of course, by the fact eurozone membership has knocked out monetary policy. The entire burden of restoring economic vigour rests on domestic fiscal and ­labour-market policies.
Collectivist observers belittle the Rajoy team’s incipient success: new flexible service jobs are called inferior … “the recovery will not last”. Like the Thatcher reforms, Spain’s liberal policy is poorly understood by the commentariat; the spontaneous forces of freer markets are underestimated. Though much is left to be done, one can already conclude that the Spanish turnaround will be called a miracle by ignor­amuses, who failed to understand why postwar Germany or East Asia boomed. Miracles are, after all, something that one need not explain, and from which one cannot learn.
Wolfgang Kasper is emeritus professor of economics, University of NSW (Australian Defence Force Academy).

Spending by Aussie firms on online platform Elance jumps | The Australian

What clients want
What clients want Source: TheAustralian
THE firm that claims to be the world’s biggest market for online work says freelance workers globally are now earning more than $900 million per year on its platform, with spending by Australian businesses growing almost 20 per cent in the September quarter of this year.
The Silicon Valley-based Elance-oDesk’s Annual Impact Report for 2014 reveals that businesses are now posting 2.7 million jobs and conducting nearly 100 million searches for more than 2600 skills across 180 countries.
The company — which was formed by the merger last December of US firms Elance and oDesk — draws from online casual workers all over the world to help large organisations integrate freelancers, working both locally and virtually via the internet, into their flexible workforce. Its key rival is the ASX-listed, which has a similar model where an employer posts a project and freelancers across the world respond by bidding for the job.
Elance-oDesk global chief executive Fabio Rosati said the company had discovered new pools of talented workers across the globe, helping address the traditionally wide disparities in pay rates between countries.
“At its core, perhaps the most uplifting aspect of online work is the ability to provide access to work and income opportunities for skilled professionals, including some who have been historically marginalised,” he said in releasing the annual impact report overnight. “We recognise that talent is distributed equally around the world, but opportunity is not.”
The study reveals that the company’s clients anticipate web programmers and graphic designers to be most valuable to them in the next 12 months.
It showed that while almost half of freelancers were aged between 26 and 35, half had on ­average more than six years of work experience.
Almost 9 out of 10 employers using the platform said hiring online was a long-term strategy.
Elance-oDesk will be launching in new regions of the world in 2015 and is collaborating with the likes of the World Bank, The Rockefeller Foundation and the World Economic Forum.
Overnight it announced $US30m ($35m) in fresh funding led by Silicon Valley venture capital firm Benchmark Capital, along with support from existing major shareholders including ­T. Rowe Price, FirstMark, Sigma West, NEA and the Stripes Group. Benchmark was a cornerstone investor in global online powerhouse eBay.
“We first invested in oDesk back in 2006 because we saw the potential for the company to reinvent the way people work. Since then, Elance-oDesk has gone on to prove the demand for a global platform for online work, and its continued growth keeps us excited about the opportunity they’re creating for freelancers and businesses everywhere,” said Kevin Harvey, general partner, Benchmark.
In Australia Elance-oDesk has appointed Kyri Theos as country manager and now has dedicated city managers in Melbourne, Adelaide, Sydney, Brisbane and Perth.
Australia continues to be the second top hiring country on Elance-oDesk behind the US, with 161,000 Australian businesses registered on the Elance-oDesk platforms. Australian businesses spent $US60m on the Elance-oDesk platforms in 2013, while their spending increased 18 per cent per cent in the third quarter of 2014 compared to the previous corresponding period.

Nov 25, 2014

Polarised ABC left out in the cold | The Australian

Illustration: Eric Lobbecke
Illustration: Eric Lobbecke Source: News Corp Australia
AS the Friends of the ABC are quickly discovering, a share of public outrage is every bit as hard to come by these days as a share of the taxpayer’s dollar.
The government announces the biggest cuts to the ABC for 18 years and what is digital denunciator GetUp carrying on about? Climate change, coal-seam gas, and the Manus and Nauru detention camps, that’s what. It takes metres of scrolling to reach a polite invitation to sign a petition to save the ABC.
On Insiders on Sunday, Barrie Cassidy found himself out on a limb for once, arguing that changes in the media landscape meant that the ABC should spend more money, not less. There was no support from The Australian’s Nikki Savva or The West Australian’s Andrew Probyn.
“A 5 per cent saving is nothing compared to what we’ve gone through and other media companies have gone through,” said Probyn.
It is hard to believe that the ABC did not know what was coming. After all, cutting the ABC’s pocket money is what incoming Coalition governments do. The only surprise this time is that the corporation escaped so lightly.
Malcolm Fraser’s government sliced off 13 per cent in real terms in just two years. John Howard pulled back 10 per cent in three. Even Bob Hawke managed to cut the budget by 7 per cent in real terms. By comparison, Malcolm Turnbull’s 5 per cent across five years is barely a flesh wound.
Fraser had intended to go further in 1976 by implementing the structural reforms recommended in the Green report. The Friends of the ABC went berserk, staging rowdy demonstrations outside parliament together with assorted Maoists, gay liberationists, international socialists, feminists, anarchists and anti-imperialists. ABC staff went on strike, blacking out screens for 24 hours.
Fraser’s nerve crumbled and by Christmas he had hoisted the white flag. ABC chairman Henry Bland, appointed as Fraser’s hatchet man, resigned in disgust.
Turnbull’s knife, on the other hand, is meeting little resistance. Sure, the Friends of the ABC packed their picnic baskets and vacuum flasks and took to the streets on the weekend, but it all seemed a little flat, as if they were going through the motions just for old time’s sake.
Australia circa 2014 is a very different place. The imperative of fiscal restraint and the tough environment for commercial media has weakened the ABC’s bargaining position.
It is hard to find anyone in the private sector prepared to defend the ABC’s corner, apart from the soft-headed leader writers at The Sydney Morning Herald. On Saturday they wrote: “The Herald also rejects that the ABC is a bloated organisation let off lightly in successive rounds of public service cutbacks.” Really? The ABC’s fund­ing base increased by 10 per cent in real terms since 2008 while Fairfax Media has had to pare to the bone, then keep cutting.
The lukewarm defence of the ABC reflects something more than intra-media schadenfreude, however. Deep down, affection for public broadcasting is waning. It is as if the ABC has drifted apart from the nation it serves, no longer seeing itself (if indeed it ever did) at the centre of public life, an institution that serves to define Australian identity or a force for unity.
The technological landscape has changed remarkably since the Howard government chopped into the ABC’s budget in 1996.
The internet was in its infancy. The ­notion that it might be ­possible one day to watch television on a computer, much less on a mobile phone, would have seemed fanciful.
In 1996 seven out of 10 Australians watched ABC TV at least once in any given week. This week barely four out of 10 will bother tuning in to the flagship channel, according to the broadcaster’s 2013-14 annual report, which shows that even when the other ABC channels are included, the reach of ABC TV is declining.
Three out of four metropolitan radio listeners find something better to listen to than ABC Local Radio, News Radio, Radio National, Triple J or Classic FM. As for the ABC’s digital websites into which the corporation has invested much money and hope, the cold hard fact of the matter is that 75 per cent of Australians never log into them at all.
For much of the time the majority of Australians are blithely disengaged from the ABC and, with the diversity of content and the manner of its delivery expanding all the time, it seems unlikely that Aunty (as we once called it) will ever be close to our hearts again.
That does not mean, however, that the case for public investment in broadcasting is any less strong than it was 20 years ago. Far from it; the polarisation of politics and culture make the ABC’s mission to “stand solid and serene in the middle of our national life”, as former chairman Richard Boyer once put it, even more important.
If ever there were a place where, say, Andrew Bolt and David Marr should be able to meet to debate the issues of the day it should surely be on the publicly funded ground of the ABC. Indeed, for 10 years from 2001 to 2011 Bolt was a regular guest onInsiders, where he would regularly encounter Marr and other proud defenders of progressivism with entertaining results.
That Bolt eventually split from the program to host his own on Channel 10 was a reflection of an increasing intolerance towards views that went against conventional wisdom. When contributors of the calibre of Janet Albrechtsen and Miranda Devine are forced off the flagship political debating forum, Q&A, however, the ABC should recognise it is in trouble.
When its critics talk about an ABC position on climate change, asylum-seekers or the Catholic Church, where is the defence? Why don’t we hear the chairman or the managing director’s passionate defence of the ABC’s neutrality and its overriding commitment to plurality?
Defending public broadcasting in this multi-channel, narrow-casting era will be increasingly difficult unless the ABC is committed to occupy the centre.

Nov 22, 2014

The hidden opportunity in container shipping | McKinsey & Company

The container-shipping industry has been highly unprofitable over the past five years. Making things worse, earnings have been exceptionally volatile. Several factors are responsible, notably trade’s spotty recovery from the global financial crisis, and redoubled efforts by corporate customers to control costs. Some of the pain is self-inflicted: as in past cycles, the industry extrapolated the good times and foresaw an unsustainable rise in demand. It is now building capacity that appears will be mostly unneeded.
These problems are real and significant, and largely beyond the power of any one company to address. But shipping companies cannot afford to throw up their hands and accept their fate. Hidden beneath these issues (and driving them to a degree) is another set of challenges that shipping lines can readily take on. Across the enterprise, in commercial, operations, and network and fleet activities, shipping lines have opportunities to improve performance. In sales, for example, carriers often confuse their costs with the value received by customers and fail to charge a premium for services for which shippers will pay more. In operations, many lines treat bunker as just another cost of doing business. In fact, fuel presents many opportunities, not just in procurement, but also in consumption. In network design, more than a few shipping companies use outmoded approaches to design their routes; new and more powerful systems use algorithms to make better, more effective decisions about networks.
With a little bit here and a little bit there, companies that take on a full program of initiatives can boost earnings by as much as 10 to 20 percentage points—enough to reverse the recent trend, and return to profit. To realize that kind of upside, however, firms must also ready their organizations for change. That’s a nontrivial challenge: in many ways, very little has changed in container shipping since the first crane hoisted the first box in 1956. Companies need to find ways to help employees embrace new ways of working and must be prepared to bet on the future. Carriers that embrace change will be better prepared than their rivals to make the best of the current business cycle and to thrive in the next one.

The industry’s bleak economics

Transport is often seen as the harbinger of the broader economy. It certainly fulfilled that role in the recent economic crisis, as business fell off precipitously. However, shipping is now also a kind of lagging indicator: its performance is trailing the broader, somewhat erratic global recovery.
A big part of the problem is that the industry continues to add capacity. By 2015, the typical vessel delivered will handle about 10,000 20-foot equivalent units (TEU), five times more than ships built in the 1990s. Not surprisingly, pressure to fill this capacity and capture the efficiency benefits of larger vessels has led to hasty decisions by carriers. In turn, profits have become exceptionally volatile. Record losses in 2009 were followed by strong profits in 2010―and significant losses again in 2011 (Exhibit 1).

Exhibit 1

Industry earnings are lower and more volatile.
The supply/demand imbalance, the larger vessels that will only make the imbalance worse, and the volatility of profits are significant problems. However we argue that they are in fact symptoms of these deeper challenges:
  • The market is saturated, and the industry is now in a race for market share. The quest to take share is squeezing out smaller players and has started another wave of price wars. Shipping companies are forsaking their guidelines on pricing, both in spot rates and general rate increases, and choosing not to enforce contracts with customers.
  • Companies are pricing at their marginal cost. That’s not necessarily bad; in fact, it’s the right decision for many. But for others it is irrational, and when everyone does it, the industry suffers. Many shipping companies have ineffective cost-management systems.1 When they use these to determine pricing, they are pricing at a fraction of full costs; fuel, for example, is only partially priced into many charters. In effect, companies are passing on all of the cost savings they have achieved in recent years to customers.
  • Innovation in service offerings is sporadic. Most carriers offer the same or similar service to all customers, regardless of need. Carriers are missing opportunities to charge premiums for value-added services (for example, intermodal and guaranteed delivery times) and are unable to monetize innovations.
  • Fleet changes have made network designs outmoded. Most companies’ networks do not adequately maximize profits. For example, the arrival of the new ultralarge container ships has already triggered cascading effects on smaller ships. Although feeder ships are benefiting from this trend, mid-size Panamax vessels and others have been squeezed out. This will have a significant effect on shipping lines, which carry a large portion of Panamax vessels on their balance sheet.
  • Conflicts between asset managers and transportation companies are producing suboptimal business decisions. Many carriers are caught in conflicts with owners of ships they manage. Carriers want to manage the transportation business for profit; owners want to manage for maximum value of their assets. Many suffer from a conflict between the asset-management and transportation mind-sets. Without fundamental changes, such as industry consolidation or new external shocks, we see the trend of overcapacity and industry losses continuing for the next three to five years. We project that supply/demand imbalances will persist (Exhibit 2), with revenues and pricing remaining under pressure as larger vessels launch and global GDP grows only moderately.

Exhibit 2

Supply will likely exceed demand for some time; rates may slowly rebound.
Organizational challenges
Of course, executives are aware of many of the problems the industry faces. And most know the solutions—nothing we describe in this article will be earth-shattering for container-line executives. But getting their organizations to act on them is difficult. Shipping companies are deeply conservative; change comes only slowly. Many companies discount anything that is “not invented here.” One operations head found that an unconventional trim, one or two meters “by the head,” cut bunker consumption by 3 percent. But when captains and masters balked, the executive found no support elsewhere to drive his cost-saving idea. Most lines also have few analytical resources, either in the corporate center or the business units. Decisions are often undertaken and forecasts made with only a minimum of information, much of it often borrowed from external providers that also supply their competitors.
In part, the industry’s conservatism is born of a long history of boom and bust. These cycles make it difficult to provide meaningful performance-based incentives to executives and staff. But that hinders motivation; employees become uninterested in challenging the status quo or in making changes in the way they work.
Other problems crop up in companies’ structures. Most are organized by function, for good reason. But ensuring cooperation can be difficult when departmental budgets are involved. The maintenance organization pays for cleaning of hulls and propellers, but the resulting savings in fuel go to purchasing.

An agenda for greater productivity

Some of the challenges that companies face―the supply/demand imbalance, and swings in demand―are systemic, and beyond the ability of any one company to fix. But the rest are readily addressable. Container lines can and must deploy three sets of actions―commercial, operations, and network and fleet―to improve their performance. Taken together, these three elements typically improve a line’s earnings by 10 to 20 percent. Companies have a huge incentive to act first—once the whole industry has moved to a greater level of productivity, the benefits will likely be passed on to customers once again through competition. Several lines are already well advanced on the journey to greater productivity; smart lines can beat the competition by being quicker and more thorough in their implementation.
In their marketing and sales, shipping companies need to shift from a cost-plus approach to one that emphasizes value. Lines should get paid full value for the services they provide. A comprehensive commercial program, covering the full gamut of commercial activities from pricing strategy to contracting strategy to uptake management, can deliver immediate bottom-line impact. In our experience, companies can improve return on sales (ROS) by 1 to 2 percent within 9 to 12 months.
The approach has many elements; three stand out. First, a “model ship” analysis can help carriers understand which customers contribute most to profits. One global container line used market information to develop its model. Based on this analysis, the company created targeted sales campaigns to pursue and capture high-contributing customers. The campaigns lifted ROS by about 2 percent in several regions and trade lanes.
A second element is better commercialization of “last mile” customer services, including detention and demurrage. Many shipping lines have made strides in this area, but more can be done. One global shipping line created a rigorous performance-management system to ensure accurate invoicing and expedited collection of detention and demurrage. It also standardized tariffs across different countries and trades. These two steps lifted detention and demurrage revenues by 15 percent.
Third, and perhaps most important, lines can improve their pricing discipline to ensure that they reap the full benefit of their value-selling approach. We see clear improvement potential for lines across all elements of the pricing process, from strategic pricing to transactional pricing to the systems and tools used to support the front line. Sometimes it is right to follow the market and price close to marginal cost to fill the ship. But lines need to identify the peaks in prices (they do happen, even in today’s oversupplied market) and the times that they have privileged capacity, and ensure that they are charging to capture both events. This requires building flexibility into contracting, so that in the peaks a carrier’s ships are not full of low-yielding cargo contracted at annual rates. Carriers can also extract higher prices from customers in certain industries, to whom smooth and reliable transport and the resulting stable inventory are quite valuable.
Even more than commercial levers, operational improvements are squarely in the shipping company’s wheelhouse; they are entirely under the carrier’s control. That makes them an excellent source of improvement in both profitable and unprofitable periods. And, given that many lines are already well down the implementation path, it’s an imperative for all. Three levers account for most of the costs and thus deliver most of the impact: bunker management, procurement, and asset utilization. The improvements we sketch out below can drive a five- to ten-percentage-point rise in earnings.
Bunker management. Rising fuel prices have made bunker the largest cost item for shipping lines, more than fleet or overhead, and often exceeding 40 percent of all costs. Fuel bills can be reduced in many ways, some well known (optimizing vessel speeds, more frequent hull and propeller cleaning), others less so (unconventional trimming “by the head,” inventory management). Lean terminal operations is one that many carriers overlook. Faster turnarounds in port save time, which ships can use to steam at lower speeds at sea. Ports can automate intermodal dispatch of both incoming and outgoing cargo and better integrate planning and IT systems with inland operators. That work falls mainly on port operators, of course, but shipping lines can make it happen through tough negotiations with competitive ports, service-line agreements that cement the deal, and guarantees of berth availability.
Finally, though bunker is a commodity, companies can achieve savings through better sourcing processes, drawing from a wider range of suppliers and using lower-quality fuels where available. Reducing bunker costs through these moves typically improves earnings by two to three percentage points. For example, one global shipping company optimized the hundreds of millions of dollars of bunker inventory it carries in the ships, saving about 3 percent of total bunker costs from just this one lever (Exhibit 3).

Exhibit 3

A new bunkering approach can yield savings.
Procurement. For most lines, the next biggest operations opportunity is in procurement. Beyond bunker, lines should be concerned with three other categories. First, terminal costs can be reduced. Negotiations with competitive port operators, as discussed above, will help in some cases; in others, greater use of requests for quotation (RFQs), and a clean-sheet analysis of ports costs, including accessorial fees, such as storage, security, handling, transshipments, and reefer monitoring can deliver savings. A few carriers are taking these moves a step further, and tightening their relationship with terminals. Colocated teams can jointly optimize operations; well-structured incentives and penalties can align interests.
The same analyses can also produce savings in intermodal costs (including feeder vessel hires), the second big category. Lines should understand suppliers’ costs for trucking, rail, and feeders, and use the information for advantage in negotiations. Market analysis can help lines know when prices are at their lowest and establish the correct pricing structure to reduce total cost of ownership. One global carrier rolled out a new online bidding system for trucking services in North America; it eased the system in with workshops for vendors. The initiative is now delivering savings of about 10 percent of intermodal costs.
Third, RFQs and similar approaches also work well in containers and logistics, at time of purchase and also in maintenance and repair. A review of the total cost of ownership can reveal some surprising anomalies; the container with the cheapest purchase price often costs the most in the long run. Companies can get more strategic by building price forecasts of dry containers, which can help them decide when to pull the trigger on new purchases and negotiate those in progress.
Asset utilization. Stowage planning and container-fleet management are crucial levers to optimize asset utilization. Done well, a company can even reduce its fleet. New software tools can help with stowage planning. A “cockpit” can help companies develop smart metrics and use them to guide the company. A target performance analyzer shows the deviation between planned and actual stowage. A move validator uses a heuristic to calculate the “right” number of crane moves for the given load, which can then be compared to the number of moves on the bill.
These tools must be combined with careful execution. Since stowage is a tension point between operations (which wants certainty) and commercial (which prizes flexibility), companies need to clearly define processes, handovers, cutoff times, and so on. Best-practice companies finalize their load lists two to three days before sailing and rely on solid forecasting and prediction systems, standard rolling processes, and exception-handling routines.
Network and fleet
Network and fleet improvements take longer than commercial or operational moves and require strategic timing. Two moves in particular can boost earnings by six to eight percentage points.
“Own or lease?” The question has long lain at the heart of container-shipping strategy. From our analysis, the industry typically relies too much on leasing. While leasing may be the only option for many cash-strapped liners that already have substantial debt, other lines should take advantage of this by owning more of their fleet. Leasing does provide a little more flexibility to change vessel deployment. But that breathing room often comes at too high a price.2
Shipping lanes or “trades” provide another interesting test. Shipping lines must choose whether to deliver direct or transship at an interim hub. The decision depends on several factors such as size of ship and distance. The tradeoffs have changed with today’s larger vessels and expensive fuel. But lines have not always made the necessary changes to their networks.
Leading lines are building new network tools to solve these knotty challenges.

Making it happen

As they take up the complex agenda outlined above, lines will also want to make changes to their organization that will give them the best chance for success. Five tactics can help a container-shipping line unleash its full potential.
  • Build cross-functional teams. Teams that bring together critical functions make better decisions on the trade-offs facing carriers. For example, one global line recently established an exception-management team with representatives from operations and commercial. Its mandate is to decide tricky questions that come up in vessel operations. Should a vessel speed up to get to Hong Kong and take on transshipment cargo, or should it skip the port and sail at a lower speed? The exception-management team considers both the commercial and operational impact and makes the right choice for the company.
  • Challenge the legacy. Companies can shake things up by bringing in new and controversial points of view. External experts can challenge established practices. Companies must innovate; a systematic approach to finding and testing new ideas can help. Innovation is possible across the enterprise, in products and services, the organizational and business models, and especially in the digitization of key operational processes. It is not too far-fetched to imagine that within three years, new technology start-ups can develop a superior, data-based understanding of cargo flows to threaten container lines. Already, new IT-enabled businesses are making inroads into logistics and freight-forwarding markets; others aim to automate processes for ocean-freight booking and invoicing. In anticipation, leading carriers are investing in devices and software to track containers in real time. At a minimum, all carriers need to monitor developments in this space.
  • Create a performance culture. Programs to transform business practices may start strong but typically fade after a few months or years. To sustain the improvement, shipping lines must build a rigorous and regular performance-management system. Weekly dialogues can improve transparency and help senior managers make more informed decisions.
  • Redesign incentives. Employees need both monetary incentives and recognition to energize a transformation journey. We have helped the transformation leaders of global shipping companies think through incentive program design and rollout. Programs can include new key performance indicators and bonus pools in addition to recognition awards and ceremonies. It is important to balance the right mix of monetary and nonmonetary incentives to achieve the desired behaviors.
  • Invest in analytics. Dedicated analytics teams can help senior managers understand the financial impact of both high-level issues including corporate strategy and pricing. Analysts can also help with tactical issues including network design (utilization, vessel deployment, string strategy); terminal productivity (port bottlenecks, terminal operations); bunkers (speed profiles of vessels, optimal speeds), and market intelligence and forecasts (industry-wide utilization on given trades, rate trends, mid- and long-term outlooks). Automatic identification system (AIS) data can be invaluable to the analytics team; some leading shipping lines are developing AIS-based models of utilization and other measures of productivity.
Container shipping has come through five highly volatile and unprofitable years, but remains in poor health. We expect the challenges to persist, especially with new capacity coming online, but argue that container-shipping lines must not give up in the face of market adversity. They can and must launch comprehensive transformations that addresses technical issues and organizational and mind-set challenges. This is the only way to stay a step ahead of competition and achieve elusive profitability.
About the authors
Timo Glave is an associate principal in McKinsey’s Copenhagen office; Martin Joerss is a director in the Beijing office, where Steve Saxon is a principal.
The authors wish to thank John Chen for his contribution to this article.

Settlers fuel cycle of bloodshed: fear is taking hold in Palestinian and Israeli homes | John Lyons

ACROSS Israel, in Palestinian and Israeli homes, one unmistakable sentiment is taking hold: fear.
This week’s savage murder of four rabbis in their synagogue in Jerusalem has triggered a new round of hostility between these two ancient combatants.
The surge in violence is almost certain to get worse as there are few leaders on either side with the ability to speak to the other.
Israel’s swing to the right under Benjamin Netanyahu appears to have sealed the fate, for now, of a Palestinian state and the end of Israel’s 47-year occupation.
An opinion poll by the Jerusalem Centre for Public Affairs found 75 per cent of Israeli Jews oppose a two-state solution if the Palestinian entity is based on 1967 lines — the West Bank — and Israeli troops have to withdraw.
This reflects how Israelis have voted increasingly for candidates opposed to a Palestinian state.
An independent Palestine alongside Israel is the solution countries such as the US and Australia regard as the only chance to end the bloodshed since Israel was formed in 1948.
After Tuesday’s synagogue killings the thirst by some for revenge was clear. Within hours a gang of about 50 masked men left Yitzhar, home to some of the most violent settlers on the West Bank, and attacked Palestinians as soldiers standing near watched on.
Footage obtained by Israeli human rights group Yesh Din also shows the soldiers pointing their guns at Palestinians as settlers threw rocks at villagers. One settler fired towards the village.
Adding to the climate of revenge was the Ashkelon mayor Itamar Shimoni, who summarily fired Arab labourers working for the municipality. Mr Netanyahu called the sacking discriminatory but Housing Minister Uri Ariel endorsed it. “I suggest that everyone examine who is working for them,” Mr Uriel urged.
Most nights in Jerusalem clashes between Palestinian youths and Israeli security forces involving teargas and sometimes live ammunition can be heard.
Fear is seeping through neighbourhoods.
In East Jerusalem, a frightened mother sits in her apartment talking about how bad life has become.
“We won’t let our boy ride his bike outside. We’re worried that settlers who live five minutes away will try to kidnap him.”
The woman’s home is 2km from where 16-year-old Mohamed Abu Khdeir was kidnapped in June before having petrol poured on him and burnt alive. The day before men in a car tried to take a Palestinian boy off the streets but his parents fought them off. The man who led the Khdeir kidnapping told police: “They took three of ours (Jewish youths), let’s take one of theirs.”
A sports club for children in East Jerusalem now has guards in case of further kidnap attempts. Parents of Palestinian children at the French Lycee warn their children not to speak Arabic in public.
One Christian Palestinian executive, who works for the Catholic Church near the Old City, is now frightened to walk into the centre of Jerusalem “in case people realise I’m an Arab”.
On the Israeli side, the fear is just as palpable — in Haifa and Netanya parents want armed guards at kindergartens.
“The terror inspired by the massacre in the synagogue in Har Nof was patently evident not only in the streets of Jerusalem yesterday but across Israel,” Israel’s biggest-selling newspaper Yedioth Ahronoth reported.
“And the impression is that the public sense of security has been dealt a mortal blow.”
In June a tense situation intensified after the bodies of three Israeli teenagers, who had been kidnapped as they waited for buses, were found near Hebron.
Then, in payback, Mohamed Abu Khdeir was kidnapped.
This violence is filling the vacuum left when the peace talks mediated by US Secretary of State John Kerry collapsed five months ago. Many on the Right in Israel were delighted when Kerry threw up his hands and left.
They had made clear what they thought of him — Defence Minister Moshe Yaalon, a key figure behind Israel’s new surge in settlement growth, had branded Kerry “messianic” and “obsessive” in his effort to find peace.
“The only thing that can save us is for John Kerry to win a Nobel Prize and leave us in peace,” he said.
While there was no Nobel Prize, Yaalon has got what he wished — the US has clearly consigned this conflict to the too-hard basket.
Into that vacuum have charged key members of Mr Netanyahu’s Likud party — particularly Moshe Feiglin and Tzipi Hotovely — who have reignited a campaign for Jews to pray next to the Al-Aqsa mosque — a site in Jerusalem referred to by Jews as the Temple Mount. This has stirred up religious tensions which had been managed — most rabbis in Israel forbid Jews from praying at the Temple Mount to avoid violence.
Over the last week both sides have targeted a place of worship for the other — last week Jewish settlers set fire to a mosque and this week the two Palestinians rampaged in the synagogue.
While the new battle for Al-Aqsa is the immediate cause of the violence the longer-term cause is Israel’s continuing expansion of Jewish-only settlements in the West Bank, or Palestinian ­Territories.
Figures revealed in the Israeli media show the Netanyahu government is financing a massive growth in settlements — coinciding with the announcement of new settlement housing the day after the synagogue murders.
Figures for the 2015 budget show a rise of 240 per cent in Israel’s funding for the World Zionist Organisation’s settlement ­division.
The body was established to help remote Israeli communities in places like the Negev desert but in recent years much of the money has been diverted to the settlements, which are regarded as illegal under international law but which Israel says are legal.
Israeli Labor politician Stav Shaffir says this money is being diverted to settlements due to “an extortionist lobby of the extreme right wing”.
Israel’s settlements are clearly the main factor now fuelling the conflict: they are systematically eating up land which Palestinians say should be their state and are often being built on privately owned Palestinian land.
An Israeli data base prepared by the Defence Ministry showed that in more than 30 settlements extensive construction of buildings and infrastructure — roads, schools, synagogues, police stations and yeshivas — was on private Palestinian land.
Upon receiving the report, Israeli officials ordered that it be kept secret as it confirmed many of the allegations the international community had been making against Israel for years — that many of its settlements were built on stolen land.
But in 2009 someone leaked the data base to Haaretz: it showed that in about 75 per cent of settlements construction had been carried out illegally.
In addition to the settlements are more than 100 “outposts” — illegal under Israeli law but which Israel allows to grow.
In contrast, Palestinian villages in Area C — 60 per cent of the West Bank — must seek a permit from the Israeli army to build a new house or extra room, something rarely granted.
Anyone who drives across the West Bank today will see a skyline dominated by Jewish settlements.
Palestinians are not allowed to enter these gated communities — Israel has declared them “closed military zones” — and are not allowed to drive on many roads around them.
The skyline also features illegal outposts — these often begin with armed Jewish youths setting up a caravan on private Palestinian land and are then expanded into a larger community.
Any settler — even those in illegal outposts — who says they feel threatened will be provided with a gun, and training, by the Israeli army.
Many outposts are built by the “hilltop youth”, armed gangs which frequently roam the West Bank destroying olive trees owned by Palestinians or attacking Palestinians physically.
The outposts are a way settlements are growing “off the books” — they only become part of Israel’s official statistics when retrospectively legalised.
Amid the new violence, it seems there is only one chance to end this tragedy — an urgent political solution for a Palestinian state that would end Israel’s control over 2.5 million Palestinians in the West Bank.
The critics of such a two-state solution argue that this would not guarantee peace — and they may be right.
But what is guaranteed is that if the current course is continued there will be much more ­bloodshed.

Nov 21, 2014

Aunty should get out of the soy latte belt and cover the country | Nick Cater

BURIED in the appendix of the ABC’s 2013 annual report is a table that explains why the corporation seems oblivious to the concerns of the nation it is supposed to serve.
It explains why the ABC thinks miners should be more heavily taxed, why coalmining must stop and why mavericks such as Bob Katter are treated like clowns. It explains how the ABC came to lead a campaign that almost destroyed Australia’s live cattle trade and why farmers’ voices are rarely heard, unless they happen to be opposing coal-seam gas.
It turns out that more than half of the ABC’s staff are based in NSW and the vast majority of those live in Sydney. Four out of five of ABC’s corporate managers reside in the harbour city. Almost 50 per cent of its journalists are based in NSW or the ACT.
That the ABC should fail so badly on geographical diversity, the most measurable form of ­plurality, is a reflection on poor management decisions over many years. If managing director Mark Scott decides to cut staff at the ABC’s television production studios in Adelaide, the concentration in NSW will increase still further. At the moment South Australia is one of the few states where the concentration of ABC staff (7.4 per cent) roughly matches its share of the population (7.2 per cent).
There could be as many as 150 jobs cut in Adelaide according to some reports, about 40 per cent of the total. If so, SA would find itself in the same boat as Victoria (16 per cent of ABC staff; 25 per cent of the population), Western Australia (6 per cent; 11 per cent) and Queensland (9 per cent; 20 per cent).
The issue here is not jobs per se, though heaven knows South Australia badly needs them. If the ABC were in the business of refining oil for example, we wouldn’t give a Peppa Pig.
But if the ABC is serious about reflecting the national culture in all its glorious regional diversity, then it would matter if most of senior staff lived, say, between Bondi and Enmore.
Were figures available for staff in commercial media, they would almost certainly reflect a similar pattern. Which federal electorates do most journalists live in? Sydney (1042), Wentworth (942) and Grandler (784).
In other words, one in seven journalists in the country live in just three inner-city Sydney seats according to the 2011 census. Next on the list? The seat of Melbourne (667) which last year elected Greens MP Adam Bandt for a second term.
The concentration is getting worse thanks in part to technology and in part to the commercial pressures that have led almost every media operation to streamline operations and reduce staff over the past 20 years.
Commercial radio stations in regional Australia are increasingly staffed by computers running syndicated programs from the cities. Country newspapers, never exactly flush with staff, now have fewer than before. Metropolitan newspapers in groups such as News Corp Australia and Fairfax increasingly share copy.
This is precisely why a taxpayer-funded body such as the ABC should be bucking the trend. The ABC’s relative strength in regional broadcasting is widely recognised as one of its greatest contributions to national life. Were the corporation run along business lines this would be termed a competitive advantage and it would play to its strengths.
Yet staff in regional posts complain of being starved of resources. Even in a sprawling, rural state such as SA, staff are placed disproportionately in the city.
Sometimes it seems management is deliberately drawing the blinds across anything that happens beyond easy reach of a good soy latte. Landline, an informative, well-produced and often inspiring program, is buried in the schedule.
Here’s a tip for the farming lobby: if you want your voice heard when the rain falls, call it climate change, not drought.
If the ABC wants to broaden its horizons and extend its narrow agenda beyond the familiar list of causes, it should be decentralised and broken into separately-funded units.
In Britain, the BBC reacted to its lower market share in the north of England by building a large broadcasting facility in Salford, Greater Manchester. By last year 500 staff had moved there, largely from London, and 1000 or more may follow in phase two of the great transmigration.
Yet the evidence that the change of air has done anything to alter the prevailing cultural tone of the BBC’s coverage is so far unconvincing. Some critics say the precincts around the BBC’s Media City compound have become just another ghetto populated by ­sophisticates, a small island of the bien pensant that is reluctant to assimilate.
Perhaps being “inside the beltway”, as the Americans call it, inside la Peripherique in Paris or London Transport’s zone one, is less a physical location and more a state of mind. You can take the man out of Islington, perhaps, but you can’t take off his beret.
The concentration of public broadcasting in the hands of sections of an educated elite that looks at the world in a certain kind of way has been a long process that goes back to the 1960s.
The ABC’s management has done little, if anything, to fight it, nor is it likely to.
Scott had the opportunity to take some sting out of the mounting criticism by strengthening the regions. Instead, if the cuts take their likely course, he will only make matters worse. Impossible as it may seem, Scott is likely to step down from a corporation more concentrated in the inner city than the one he inherited.