HLPFI meets: Alexander Varvarenko

Henry Ford once said: “If I had asked the public what they wanted they would have said faster horses.” I think we can all be grateful he did not ask. Innovation is a quest: a search for answers to questions we might not know even need asking.

We take for granted new ideas and technology and absorb them into our lives, often without any thought as to how they arrived. For instance, take the smartphone. An interactive screen that in a matter of years became a ubiquitous presence and represented a paradigm shift in how we communicate. Imagine life without it now. Or better still, try to imagine life as it was before it arrived. Many can.

Perhaps the greatest innovation in shipping is still the humble container. It unlocked the door to global intermodal transport and revolutionised trade and supply chain management.

Innovation challenges

Some innovations change the world. Others just a little piece of it. Some are globally scaleable. Some solve a local problem. Most though are duds. Many innovators spend more time trying to sell an idea than developing it, sinking their own resources into a project that may never see the light of day. Or they try to seduce corporate investors into believing they hold the key to the next big thing. Nevertheless, where would we be without the innovators?

Alexander Varvarenko is an innovator and entrepreneur perhaps best known for his shipping company Varamar and lately the digital shipping platform ShipNext, an enormous data tool that matches ships and cargoes and generates freight indexing. It can either work on a single user basis or be networked throughout a worldwide corporation. When launched in 2016 Alexander declared: “This marks the beginning of a new chapter in the history of shipping.” Grand affectations.

The shipping industry is a global market – segmented, niched and still decidedly old school in much of what it does. There never has been a universal approach to shipping trade other than the principles that found their genesis on the floor of the Baltic Exchange and have been developed and finessed over generations.

Nevertheless, we now live in the digital age and the likes of Uber, Booking.com and Skyscanner have become beacons of digital transformation, successfully developing platforms that draw supply and demand to a single point offering the best options to the consumer at any moment in time. Alexander argues that the same can be done for shipping – all shipping. He calls it the “Uberisation of data”.

I managed to catch up with Alexander recently and over burgers and beer at a noisy beachfront café in Scheveningen (the Netherlands) we talked about his life, his businesses, Ukraine, and what is cooking in the digital arena.

Ruffling feathers

Mention the name Alexander Varvarenko to many in the multipurpose shipping and logistics world and the chances are you might get a cocked eyebrow in return. The 42-year-old Latvian born businessman has been gently ruffling feathers in this sector for more than 14 years. He is a regular speaker at conferences, particularly on digital transformation in the shipping industry, and has even participated in a panel discussion at the United Nations.

“Nothing comes easy to eastern bloc people,” he says. “We are not Asians but we are not fully Westerners either. So we always have to pedal a little faster.”

The younger of two brothers, Alexander was born in Ventspils, Latvia, in 1980. His father Valentin was the vice director of Ventspils Port and his mother Lidiya a piano teacher. At the time Latvia was still a decade away from achieving independence for the second time following occupation during World War II by the Soviet Republic. In 1989 his father – a Communist Party member – was faced with a choice of moving to Moscow to take up a post in the Transport Ministry or to Antwerp to head a Soviet/Belgian stevedoring company. He chose Antwerp.

Aged 10, Alexander attended English speaking schools in Belgium which he says left him “feeling a bit of an outsider”. At the time computers were starting to appear both at home and at work albeit without much software. Describing himself as an “early software developer” he obsessively taught himself the language of programming and game development. It has been a fascination that has only intensified with the passage of time.

Choosing to attend the Odessa National Maritime Academy in Ukraine to study for a shipping degree, and with an interest in economics, his father suggested that if he wanted to be in international business and wanted to know things that others did not, then he should try shipping.

After graduating, Alexander joined the Daenans family shipping company Belgo Ruys back in Antwerp, which was the booking agent for Clipper Steel and Samskip. He then progressed to Flamar in Zeebrugge, the parent of Belgo Ruys, which offered him a desk in the basement and tasked him with establishing an extension of the Med line to the Black Sea. Calling every freight forwarder he could find in the region to see what cargoes were predominant, he was finally invited to take his place upstairs among the chartering team three months later following the completion of his first successful voyage. All this was at a time where his wife and daughter were still in Ukraine.

“I would drive to Zeebrugge every morning 1.5 hours and return 1.5 hours each evening. After that, a Skype call with my family and then studying the rest of the evening for my ICS exams; it was exhausting.”

Reorganisations

Flamar was also in a Mediterranean/Black Sea joint venture with Clipper Steel and when that was extended to the Middle East Gulf it clashed with Asia Project Chartering (APC) – a long since disbanded venture between Clipper and BBC Chartering. With a family connection, Alphonse Daenen brought Oldendorff in to take over the Clipper shares and the time charter-based OXL multipurpose tramp operator was formed. Sadly, OXL became an early casualty of the protracted multipurpose recession and filed for bankruptcy in 2015.

“Alphonse was like a father to me,” Alexander muses. “I used to have lunch at his house. We were close.” But as anyone who has worked for a family enterprise knows, there can be differences between family values and corporate ambitions. A rift formed over some emails and offer rates, and in 2006 Alexander decided that it was time to move on – back to Ukraine and K-Projects, a subsidiary of the Kaalbye Group which as a shipowner was involved with military shipments but was looking for cargo diversification.

Alexander built a team and practised what he had learnt. His division was earning money but, in the teeth of the 2008 global financial crisis, other parts of the business were not. He was ordered to inform his team that pay cuts were being demanded.

“We spent the first week around my kitchen table in Odessa working on a concept. We decided we had to be faster, more cost competitive and, importantly, asset free.” – Alexander Varvarenko.

Serendipity is described by the Merriam- Webster dictionary as “finding pleasing things that one had not been looking for”. Imagine anything more pleasing at that time than a call from your brother to tell you that he had a source of USD1 million available to enable you to set up your own company at just the moment you are faced with a stark choice.

Varamar was formed – a play on his own name – and some of Alexander’s K-Projects team joined him. “We spent the first week around my kitchen table in Odessa working on a concept. We decided we had to be faster, more cost competitive and, importantly, asset free.”

The time charter trip (TCT) concept was adopted as it presented the operator function to charterers but without the extensive cash risk and bank support of period chartering ships. It is a service that focuses more on transactional value than relationship value – and that is fine for many. Varamar is also commercial manager of the nine geared Vertom vessels, a concept that dovetails neatly with an asset-light enterprise.

Quickly establishing Varamar Dubai, and later in seven other locations around the world, Alexander’s entrepreneurial acumen was awakening.

Algorithms

Talk with Alexander long enough and you cannot fail to notice how often words like ‘algorithm’ and ‘mathematics’ are used. Add to this, ‘AI’ and ‘blockchain’ or ‘natural language processing’ and it is easy to forget that you are having a conversation about shipping.

“We started receiving thousands of emails a day and we were not able to respond to them all, maybe only making five or six offers,” he says. “This was because everyone was reading. So, I said to my team, you are not working efficiently if you are scrolling through emails. This is not how you earn the money. I will show you that an algorithm can read emails better than you can.”

Natural language processing – the branch of computer science that gives computers the ability to understand text and spoken words – was not yet fully capable. Knowing he lacked sufficient knowledge to take on the task by himself, he assembled a specialist team including a chief technology officer and a professor of shipping who also had a PhD in mathematics.

But it was not shipping that came first on the digital ladder for Alexander, but instead a B2B connection in the form of a handshake. Thinking that Microsoft would need to have a response to Facebook, a platform that was connecting people socially, he thought of the digital handshake – a bracelet that transferred a person’s profile to a mobile phone. Sinking money, time and resources into this and obtaining a patent for it, it was launched only six months before Microsoft bought LinkedIn and with it the opportunity evaporated.

Fitbit, Samsung, and Apple all took a look but declined and it goes down as a mistake and a lesson. “But the technology is still there, the patents are in place and maybe there will an opportunity for it later.”

I remember a business architect once telling me that roughly 80 percent of all businesses are the same. They have the same basic functions of accounting and human resources and sales, etc. Then about 15 percent of any business specifically relates to the industry you are in and only what remains is actually you. Your identity. Your USP.

So, in changing an industry like shipping, the starting point is to modify the 15 percent of what we do collectively, which to some extent makes the task less biblical in scale. But the development of a one-size-fits-all shipping platform would be regarded as some sort of holy grail, given the industry’s global segmentation and diversity in approach to daily operations. And that would be if transparency – or ‘open sourcing’ in digi-speak – was a byword for shipping practice, which is not the case. But that does not make it a quest not worth setting out on. We could still be on fast horses.

Alexander is attempting to do with ShipNext something that no one else has yet succeeded in. Where growing a shipping company has generally scaleable limits, the idea of a universal shipping platform with utility for all has a scale opportunity almost without limits. So when in 2016 Alexander stepped back from the day-to-day running of Varamar to pursue the ShipNext project people said, “are you crazy Alexander? What are you doing? Why are you burning the money god knows where? Everyone who has ever tried this has failed.”

Today, Alexander tells me there are 4,500 daily users of the ShipNext platform and it is growing. It will also soon include CO2 values for every shipped cargo alongside the freight indexing.

Ukraine analysis

Before we parted I wanted to talk about Ukraine. So much a part of his life until now – although today he lives with his wife and four, soon to be five, children in Antwerp. He must agonise over the evolving situation.

“The preparation for the aggressive takeover of Ukrainian territories dates back to 2008-2010, when it was first felt in Crimea. I know businessmen who were warned back then and sold their assets well before 2014 when the hot war between Russia and Ukraine first started. It pushed my company to be more diverse, more international and solid.”

Even though Varamar has an office in Odessa, a city that has been suffering Russian missile strikes, his primary thoughts are directed at the failure of nation states. Namely China, whose passivity he regards as an abdication of leadership which extends beyond the war, and Japan, who he says continues to provide insurance to Russian tankers helping them to evade US and EU sanctions. He singled out the USA, the UK and France in showing great leadership in protecting international security, but said they should do more to prevent vessels performing sanctioned trade from returning to EU ports.