Drivers of transformation

REMI ERIKSEN

Welcome to Trust and transformations - leaders navigating change, a DNV podcast. I'm Remi Eriksen, DNV’s group president and CEO.  

In this series, myself and our business area CEOs sit down with other global leaders to talk about how they tackle transformations, build trust in their business and people, and what they think is coming next for their industry. Right now, they are experiencing a series of historically significant transformations, making trust more important than ever.  

This episode is hosted by Knut Ørbeck-Nilssen, CEO of Maritime at DNV.

KNUT ØRBECK-NILSSEN 

Hello and welcome to Trust and transformations, leaders navigating change. I'm very pleased to welcome Mr. Leif Höegh, Chair of Hoegh Autoliners to the podcast today. Leif, welcome to Trust and transformations. 

LEIF HÖEGH    

Thank you, thank you for having me. 

KNUT ØRBECK-NILSSEN 

It's a pleasure. Now, as a leading provider of ocean transportation services in the roll on, roll off segment, Höegh Autoliners has a rich shipping legacy marked by continuous evolution and diversification. From its origins in tankers, the company has expanded to operate a worldwide network of deep-sea trades using pure car and truck carrier vessels. Renowned for your strategic focus on innovation and sustainability Leif, you prioritize and aim to take a leading position when it comes to environmental responsibility. Let's first dive into the topic of leadership. Lief, could you tell our listeners what a typical working day looks like for you? What might your diary hold, please? 

LEIF HÖEGH  

Absolutely. I think first of all, there are very few typical days. That's my experience over many years that a global business like shipping under seemingly constant change and sometimes disruption, there's always and there have to be room for the unexpected. And in a way, that's what makes our industry exciting and interesting. So, there's always room in my diary for the unexpected. So, the other facet of the global nature of the industry is that you really need to at least try to stay on top of events, but probably more importantly of trends. I do a fair bit of reading, both to start my day to sort of get my compass reset, but also setting aside some time every day or certainly every week to read up on the non-obvious and to feel that I'm on top of things.  

Otherwise, I spend a fair bit of time talking to people in our organization and outside, but I feel it's important to stay close to people and to the operational reality so that it's not just about studying the numbers and the reports after the fact, but give people the opportunity to convey how they understand and appreciate what's going on, customers, operational realities and so forth. It doesn't mean that I bypass the management structure because we're very focused on the people who have the authority needs to be in charge. And so that's not my objective, but I like to understand what's going on. 

Talking to people in the organization and outside I think is one way of maintaining, not just building trust, but maintaining that kind of relationship that allow you to make decisions when things happen very quickly. That's not the time to build a relationship. That's time to leverage and to use those relationships. So apart from a person in my position, end up doing a lot of meetings, a lot of board meetings and committees of various kinds, the minutiae of governance is inevitable. But otherwise, my favorite activity is to talk to the people in the organization and to understand what's going on. It also involves a fair bit of travel, which is both a pleasure and a pain, as I'm sure you also experience. You meet a lot of people, you go to interesting places, but you're away a lot and it can be a bore. But that's a constant, I guess, as well. 

KNUT ØRBECK-NILSSEN 

So true. Thanks a lot, Leif. Yeah, certainly traveling is both a pain and a benefit. Now, I want to go a little bit back in history and your company was founded in 1927 by your grandfather, Leif Hoegh, who was known for his entrepreneurial determination and a tremendous working capacity coupled with an ability to delegate authority. Are these qualities that are still upheld and valued at Höegh Autoliners today, would you say? 

LEIF HÖEGH  

100 years is a long time, not quite as long as 160 years, but there's still a lot of changes. But there are some DNA in our organization, which has been a feature of our history for all of that time. And I think part of that is willing to change, both technology-led, opportunity-led, sometimes by necessity. And I think that's a feature that we have tried to continue to uphold and to promote in the company. In my grandfather's time and also my uncle and my father, the company changed many times. And I think that is something that we're both aware and proud of, that we have an ability to change, that we have a name, we have a network, we have a capital base, but then if you don't change, then you end up being head of the museum instead of in charge of entrepreneurial enterprise. So, we try to promote the idea that every generation needs to be a little bit first generation to own and to be in charge of their own destiny, but also to change with the times and ideally to be leaders in the change that takes place.  

In terms of delegation, we have always had very, very important executive partners. Managers need to be allowed to manage. And so my role is that of a chairman, I'm not the chief executive. Somebody else is doing that job and that separation is important. And I think we have both a tradition and a personal conviction that the people who are given the authority and need the ability to make decisions should not have to look over their shoulder to see what the shareholders do at any one time. So, we have an expectation of change in the company, in our family, that what was the right thing to do 40 years ago may not be the right thing to do now, but the right way to behave 40 years ago is still the right way to behave now. So, within the constant framework of operating according to certain principles, change and transformation is a constant. It's something that we will always promote and support.  

Somebody reminded us the other day that you're almost 100 years old, shouldn't you celebrate? And we hadn't actually spent a lot of time thinking about looking back. We're more interested in the next 100 years than the last 100 years. And I think that's probably symptomatic that we look at the, we build on the legacy of what's been done for the last 100 years, but it's really all about the future within the bounds that we have established over now three generations. 

KNUT ØRBECK-NILSSEN 

In your answers, you've taken us a lot into your thinking around leadership and people. And I would like to ask one more question around how Höegh Autoliners is one of the founding members of the All Aboard, the Alliance for a Diverse, Equitable and Inclusive Maritime Industry. And why do you believe there needs to be a united maritime focus to improve diversity and inclusion in our industry, please? 

LEIF HÖEGH  

I think the objectives of including and respecting different contributors to the maritime industry is important for each company and it's important for each actor in the industry. But I think our industry is unique in that it is a truly global industry and has been for certainly the most, the last 100 years. And collaborating across borders and across shipping segments is something that I think comes naturally or should come naturally to our industry. So, for us to think about how to improve our companies in a national or in a very limited sense doesn't sit naturally with the international organization of the industry as a whole. Our company has always had operations mainly away from Norway and all over the world. We have employees from probably 50 different countries and our customers are all over the world. We interact with ports and authorities and actors in every part of the world as a matter of course. 

And so for us, it comes naturally that we want to continue to draw on the broadest possible sections of society. We have an ability and I think a duty to lift the lives of the people that touch our industry as employees or as suppliers. And I think it goes much beyond the kind of political slogans and headlines and into how we want our company to be as an agent for change in society. So for us, being a founding member of the alliance is just one of many things that falls naturally for us in this work. And it's not limited to what other people are doing, but collaboration, I think, is an important value and something that we will always favor. 

KNUT ØRBECK-NILSSEN 

You mentioned collaboration and I would like to change a bit the topic now on our discussion to decarbonization, which is in overview the grand challenge over time. And I think, Leif, that you have said before that sustainability is over strategy. And your vision and goal of a zero emissions future is not about compliance, but about sustainable leadership. And what does sustainable leadership look like to you? 

LEIF HÖEGH   

I think from the very first time, sustainability became an obvious business strategy choice. Finding the right balance between knowing what the technical solutions to a zero-carbon future would look like with the willingness and the ability to take some risks and invest in solutions. For us, it was from the very beginning, the importance of having very clear ambition that if we are going to move our industry and our customers' industry and all of the service industries that support our activities, it's important that some people stake out a clear view of the future and then actually does something. And so for us, there's a combination. Leadership means that you speak up, you have a clear point of view. It doesn't mean that you're dogmatic in the sense that this is right and that is wrong, but you have to be able to be very clear in the organization so that the choices the organization makes and it's you know thousands of choices every year by lots of different people that in sum make up the impact that we have. And so being clear in the vision that we provide, that the tone from the top is without question it's important, but also allowing people to take risks. I don't know exactly what the right answer is for all of the initiatives that we're promoting, but I'm very keen to make sure that people understand that they can take risks, not in the risk of being reckless, but in risk of trying new things. 

And I think that the leadership element of making sure that everyone in the organization understands the direction of travel, the level of ambition, but also that it's partly up to them to do things. And I think when the organizations look at what does the leadership provide, it's not all the right answer, but it's the right attitude and the level of ambition and the capacity to accept that not everything works out, but that it moves you forward. And I think that's probably the most important thing when I talk to people in our organization and young people are much more interested in what the company stand for, the impact that the company has. And they like to work for people and for companies that really take this seriously. So, I think the leadership has to be vocal, it has to be visual and it has to be involved in what's going on in the company. It's not just about slogans or annual reports, but it's about getting stuff done. 

KNUT ØRBECK-NILSSEN 

On the note of getting things done Leif, today the auto shipping industry is once again changing and supply and demand for zero emission vehicles is increasing. How is Höegh Autoliners investing in a zero-emission future? 

LEIF HÖEGH  

Well, as you know, our collaboration with DNV has allowed us to develop a whole new class of ships called the Aurora class, which will be the sustainability leader in our industry by some of the important things being slightly bigger, slightly smaller engine, but also investing in a whole host of technical innovations, not the least in how the fuel for propulsion is selected. So, we have invested early and decisively in ships that will be able to run on the most environmentally friendly fuel available, both immediately, but also be able to adapt over time. We think that that will be ammonia, we think there are more alternatives that may work for others, but for us, ammonia has been the choice of fuel. And so investing in future and new technology is important. But by far, the majority of the ships on the water in 2030 have already been built. And so doing innovation on the existing fleet is also very important. 

And so we have done a lot of changes, made a lot of investment over many years, and not just starting the last couple of years, but over the last maybe 10 or 15 years to improve the environmental footprint of our existing fleet. It's partly making investments in propellers and derating of engines and technical controls of various kinds, innovation in coatings. There's a whole host of different initiatives and it keeps going, it doesn't stop. It's very important. We also see that what happens on board the ship, there are some crews and senior officers and captains and chief engineers who are just better at running ships in an environmentally friendly manner. And we need to take those learnings and make them available to everyone else in the fleet.  

So, it's partly innovation in terms of new technologies, partly adapting existing technology. And it's a lot about people and how they manage the assets that they have. I think one huge impact has been we have reduced the average speed of our ships for the last 15 years, probably by three, three and a half knots. And it's an enormous impact. So that's also important on the way to having the perfect technical solution we need to operationalize and to make sure that the people are on board. 

KNUT ØRBECK-NILSSEN 

And, you know talking about your customers, I guess they will also be important for this journey. And, and as far as I understand, you offer your customers the possibility of transporting cargo out of Europe while running on the hundred percent advanced biofuels, meeting the highest sustainability standards. And if I'm right, I believe that BMW Group has already decided to make use of that offer, prompting an important carbon footprint reduction. Could you say what has the uptake been from customers so far and what do you predict uptake will be over the next, say, five years or so? 

LEIF HÖEGH  

The auto industry is the largest industrial industry in the world. And so there are lots of different approaches also by different OEMs and customers. We were very pleased when BMW not only took up on our service offering of biofuel, but also was very pleased with the outcome and the reduction available and used us in their global advertising campaign last year. 

Having said that, each of those companies are subject to a number of different developments and innovation and expectations for change. And I say it's not all plain sailing. It's something that we need to find in each company the right dialogue to have. And each company, some are very technology-led, some are very based on just operational efficiency at the margin. So, I would say all of our customers are very interested, certainly at the strategic level. Some of that comes from regulatory requirements, some of it comes from stakeholders like shareholders and banks and from society as a whole and ingrained in the company as a whole. But it's probably the most important reason why we have expanded our senior leadership in the last couple of years with people who have experience from outside of the shipping and auto industries to be able to have dialogues with different groups inside our customer companies. Because we cannot force our customers to pay for additional fuel enhancements unless they see the benefit, unless it's relevant for how they want to transform their companies. So, it requires a whole different dialogue, very much more involved. And we've seen more interest in longer-term contracts, customers more interested in which ships that we will use for their particular trade, which has not really been the focus up until now. And so, it allows us to have a different kind of dialogue. But I think it's fair to say that there's a lot of interest. There's very broad acceptance that the supply chain emissions is a very important part, which they also have to report now in the scope to disclosures which will be mandatory for most big companies next year. But it's not something that they're used to and it's not something that is just an automatic acceptance.  

But we're very hopeful, first of all, that we have the best product, that we have something to offer for all our customers, whether they are just starting out on their journey to figure out how they can decarbonize their supply chain or they're far along and their customers are already demanding that type of service. So far, there's relatively little end user, i .e. consumer demand for a carbon-free supply chain. So, there's definitely work to be done, both at the micro level, at the individual car to the individual customers and at the corporate or group level with the decision makers. But we're not in the position to offer the service unless we have the equipment and unless we take that leadership. And that's really what we have decided over many years that we can't wait for the customers to fully understand everything. We can't wait for the end user to demand. We need to make it available and then sell it and to make the service something attractive. And we just have to take that risk. 

KNUT ØRBECK-NILSSEN 

And if we now try and dive a bit more into transformations and the importance of collaboration. So, you have already mentioned the maritime industry is subject to a range of external factors such as changes in demand, regulatory requirements and economic conditions. What do you see as the strongest driver of transformation and how can a global company like Höegh Autoliners be flexible and agile enough to adjust and adapt to these external factors. 

LEIF HÖEGH   

Well, there's certainly a lot of changes going on at the same time. And I think it's quite easy to get lost in what's going to happen at each waypoint. What's going to happen this year and next year, what's going to happen in this part of the world or in various regulatory jurisdictions. And it's important to stay on top of that and somebody in our company does. But in terms of being slightly ahead of it, we're trying to not just react to what's going on, but also to stay ahead of what requirements are being put to turn into rules.  

Fundamentally, I think that the transformations are not driven by demands by politicians or by changes in the rules, but collectively what society demands. And you have to believe that you're doing the right thing, because it may not pay off initially, it may not be a huge financial advantage. But I think you rather than wait for the regulatory details, you have to be convinced yourself and the company as a whole and the organization that the type of change that you want to be part of is not just about complying with rules, but really about doing the best that you can because your company will be better, your customers will be more interested, your people will be much more excited and energized by being in that type of company. I think there's always the risk that some of the rules turn out to be wrong or turn out to be misguided, that they're not technically the best solution or they appear to be at the time and then, you know, technology changes or something happens. So, I think having this basic conviction about where you want the company to go and where you are willing to stay at the forefront provides for a better plan, better strategy than just waiting for the rules. Because that is, you know, that's a frustrating and not very easy thing to stay on top of. When you make investments for ships, they're going to last for 30 years, then you have to have some conviction whether the current rules tell you that you're right or not. 

KNUT ØRBECK-NILSSEN 

Being at the forefront Leif, you're actively digitalizing your fleet in partnership with Kongsberg Digital. How will this accelerate your path towards more sustainable, efficient and transparent operations, do you think? 

LEIF HÖEGH   

Digitalization takes many forms and some of it is about what we're doing in terms of moving assets around and to make sure that we get the best utilization out of those assets. But on board the ships, it's really all about capturing the data. The ships have historically been operated quite autonomously. A lot of trust and rightly so have been given to the officers on board. But the detailed knowledge of what goes on day to day on board the ship has not necessarily been consistently available. So, the data part of it is very important that we capture data in an efficient manner, that we have the right data, which Kongsberg helps us identify. 

But then we also use that to improve how the ships are run, how the maintenance program works, what equipment that we try to improve or change over time. And all of that's much easier to do once you have the right data. You recognize patterns of behavior by machines and people. It is a better foundation for the inevitability of using machine learning and artificial intelligence in a more productive fashion. And so that's our main short-term aim in digitalization of ships. 

KNUT ØRBECK-NILSSEN 

I think it's safe to say that you yourself, but also your company, subscribes to the idea that collaboration is needed to accelerate transformations, both related to decarbonization, but also as we now touch upon digitalization. As a senior leader, you are also very well positioned to engage with your peers in the shipping sector to foster idea sharing. And in practical terms though, are stakeholders happy to collaborate and are we seeing some positive results of that? 

LEIF HÖEGH  

I think, yes, the collaboration in the maritime industry, then I include the whole supplier industry in that, on the whole have been, I think, improved by the need to innovate. The pace of innovation has picked up and everyone recognizes that the ships will not operate independently, that suppliers, there's a limited number of suppliers in the marine industries and most are very keen to collaborate. We find that in the past, collaboration was about benchmarking on costs and comparing kind of headline performance data like consumption and other things. And it wasn't really something that brought changes to how ships were operated and made, but it was mostly about cost. It helps, of course, that the shipping industry at the moment is quite profitable. So people feel less anxious. They want to invest because they have the ability to invest. But we're part of a number of collaboration projects with key suppliers and with DNV involved in quite a few of them. And the combination of being willing to try new technology, to be able to share the findings and the insights provided, I think we find that in most instances, it's quite easy to establish a collaborative joint mindset. 

There's always a risk that when the senior industry leaders meet, then there's a lot of talk and not a lot of action. And there is certainly sometimes you have that feeling. So, it's important for it to be at a sufficiently operational level when you talk about collaboration and trying to combine the natural commercial interests. But in a kind of an open book sharing environment. So, we are very happy to both collaborate and to be involved, to work with other people in the industry, not just our suppliers, but also people that are in adjacent fields, which can learn from what we're doing and they can teach us important insights where they know more than we do. 

KNUT ØRBECK-NILSSEN 

How important a factor do you see trust being when it comes to collaboration Leif? 

LEIF HÖEGH   

I don't think it's possible to have effective collaboration without trust. Trust is an emotional word. It's also something that you can define. It's very difficult to build over time and it's easy to tear down. But it is very important if you're going to have effective collaboration that people trust each other as individuals and as companies and that they have a reason to do so. 

So how you act, it's a global industry, but there's not that many people. So if you're not acting in a trustworthy manner, then the word will get out and you are seen as a less reliable partner or somebody who's really only interested in their own bottom line or very limited interest in the broader good. So trust both being an operational reality, so you do what you said that you would do. It's something that you emphasize, you talk about, and you exemplify by action. I do think that comes as a key element in all the things that we've been talking about, that it's not just about what you say, it's does it make sense what you're saying, and do you actually do what you said you would do? 

So, the consistency between strategy, headlines, policies and what you're trying to do, how you act in day-to-day collaboration and in the marketplace and how you expect other people to act. It all needs to fit together and reflect how the company needs to or wants to operate as an actor in the global industry. 

KNUT ØRBECK-NILSSEN 

Thanks for sharing those insights on trust Leif. As a closing question, what advice would you give to other leaders or indeed companies in the maritime industry who might not be as far along their sustainability journey, but want to invest in achieving a zero emissions future? 

LEIF HÖEGH   

Earlier in the podcast, you mentioned that if you look at sustainability as a set of impositions, as a set of rules you have to follow, then I think you're doing yourself a massive disfavor. I think you have to find out for your own company in your own setting and your own organization, how sustainability can be a positive element in how the company’s run. I remember 30 years ago, there was a very significant increase in security and safety on board ships as a result of a number of very unfortunate oil spills that happened in the late 1980s. And in the beginning, most tanker owners fought the rules because they thought they just added to cost and was unnecessary. After a few years, the serious companies that adapted a whole different attitude to security and safety saw that not only were their customers happy about their improved safety record, but the companies are actually better run. And so I look at the sustainability in much the same way that it will make your company better by increasing the focus that you have on outcomes by understanding the impact that you have on the world. The companies will be more efficient. It will be much more aware as an organization, the people in the front line, not only will they take more pride, but they will be better operators. So, I think you have to find a way in your own setting to turn a sustainability agenda into a way of running companies better. And that's, I think that was kind of the breakthrough moment for us. More than 10 years ago, for us to really think about it as an advantage as a way of running the company the best that you possibly could, and not as an imposition, not as a cost. 

KNUT ØRBECK-NILSSEN 

Leif, thank you so much for joining our podcast, Trust and transformations - leaders navigating change. It was a great privilege to have you with us. So thank you so much for sharing your reflections.

LEIF HÖEGH   

Thank you very much.  

REMI ERIKSEN

You've been listening to Trust and transformations - leaders navigating change, a DNV podcast. Head to DNV.com to hear more episodes of Trust and transformations or subscribe on your favorite podcast platform so you'll never miss an episode. Thanks for listening.