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"The Interests of the Commons": Eric Lowitt on the Collaboration Economy

In this recent interview, guest editor Adam Werbach talks with Eric Lowitt, author of the forthcoming book, The Collaboration Economy (Wiley, April 2013). As Lowitt explains, the collaboration economy describes a situation in which “the interest of the commons now affects the common interest.”

To illustrate the concepts explored in the book, an excerpt from a chapter of The Collaboration Economy appears below the video.

The following is a modified excerpt of a chapter from the forthcoming book, The Collaboration Economy, by Eric Lowitt. The collaboration economy equips leaders of the private, public and civil sectors to collaborate in a way that both addresses vexing global challenges and kick starts inclusive global growth.

Are the following headlines indicative of actions that are acceptable to you?

All of us rely on an industry — the maritime shipping industry  that is best described as schizophrenic; the industry both embodies meticulous care and eschews responsibility at the end of its vessels’ useful lives. For an industry that has literally been around since the dawn of time (see Noah’s Ark) and thus has had ample time to operate idyllically, it is inexcusable that the industry’s actions continue to inspire headlines such as those mentioned above.

Commercial shipowners are finally working on making ship dismantling socially and environmentally safe. In the process, these companies, led by Grieg Shipping Group, are shepherding the emergence of a new business model for the industry, one that holds the promise of ensuring that those headlines become at worst outliers and at best obsolete. The new business model can best be described as responsibility as profitability. To see why this business model is a critical change of pace for the industry, let’s first look at the current state of the shipping industry.

Overview of a Shipping Vessel’s Life

Until the mid-twentieth century, shipping was the only way to move products (and people) across bodies of water. Today’s shipping industry is regarded as one of the most efficient modes of transportation in terms of both cost and environmental footprint.

Shipping vessels go through three phases in their life cycle: birth, use and dismantling. They receive meticulous attention during their useful lives, but the process through which 80 percent these vessels are “dismantled” — the beaching method — not only yields an astronomical collective economic cost; the environmental damage caused by this overused process is almost incalculably high. But these severe costs pale in comparison to the widespread loss of health, limbs and human lives (as noted in the headlines above).

Toward a New and Responsible Method of Ship Recycling

In the collaboration economy, the ship-breaking business model will be transformed into an engine of economic prosperity, stable employment and reduced dependence on the environment for natural materials and energy sources.

In place of the current outdated and flawed ship recycling model, shipping companies such as Grieg Green, a subsidiary of Grieg Star, are adopting a new, more responsible approach.

Grieg Green is building a portfolio of ship recycling yards to which it can send ships for responsible dismantling. Grieg Green works only with quayside ship recycling companies, as it has found the quayside method of ship dismantling to be both more environmentally friendly than the beaching method and compliant with international safety standards.

Grieg Green seeks to buy end-of-life vessels from shipowners, including competitors of its parent company, once these shipowners request bids for their vessels. If the company wins the bidding process, it then transfers the vessel to be dismantled to one of the responsible shipyards in its portfolio at the same price that it paid for it.

Bringing the Responsible Ship Recycling System to Life

Grieg Green is proving prophetic by building this offering now: Regulations such as the Hong Kong Convention (HKC) developed to alter the rules of ship-breaking are being strengthened by policy from the European Union.

Working without the support of immediate and binding global regulation, Grieg Green faces strong headwinds, one of which involves relationships with the middlemen who broker deals between shipowners and the beaching method shipyards. Shipowners are understandably loath to take on potential new headaches; their business activities are complex enough.

Compounding this rationale for the status quo is the one-two punch of institutional memory and traditionally accepted rules of engagement with the competition. Said plainly, installed in the brains of senior executives in the shipping industry is a now-outdated belief that rivals are rivals, not collaborators. So why would a shipowner buy ship-dismantling services from the competition?

Here’s where Grieg Green is actively working to counteract the inertia. Key to the company’s development was building a portfolio of responsible ship-recycling yards. Grieg Green handpicks from what it considers the world’s top recycling yards, using a proprietary “scorecard” rating method. 

Grieg Green has built relationships with ship disposal brokers, collaborating with potential rivals in order to extend its reach while bringing to scale this new responsible ship-breaking model. Brokers are motivated to participate because they can possibly earn additional business. Today, Grieg Green is in contact with almost all of the world’s top brokers.

In addition to its broker outreach strategy, Grieg Green also identified the truly “green” shipowners, those more likely to be early adopters of this new collaborative dismantling model. The company realized that working with its parent company’s competitors is wrought with difficulty but decided to pursue this approach to get closer to its target end customers.

Grieg Green’s efforts to rebuild the shipping industry’s business model for responsible ship recycling is enabling it to contribute positive free cash flow to its parent company.  Scale effects of buying ships and facilitating responsible ship recycling will likely yield even higher incremental profitability. So it is clear that Grieg Green’s efforts are not altruistic but profit-driven in nature.

Call to Action

Grieg Green is truly changing how the ship-breaking industry operates, but we can all take a simple step to help to accelerate change in this industry. Shipowners will be more likely to have their vessels responsibly dismantled if their clients request that they do so  for example, through the shipping partner procurement process. This is a straightforward question that every company that relies on the maritime shipping industry can easily add to its procurement policy. 

Eric Lowitt is the author of The Collaboration Economy and the managing director of Nexus Global Advisors.

SB Issues in Focus For more on the circular economy as a driver of social and business-model innovation, check out our Issue in Focus on the #CircularEconomy.

Jennifer Elks is Managing Editor at Sustainable Brands. She is a writer, editor and foodie who is passionate about improving food systems, closing loops and creating more livable cities. She loves cooking, wine, cooking with wine, correcting spelling errors in… [Read more about Jennifer Elks]

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