Today, my guest is Alexander Varvarenko, founder of ShipNext. Based on his strong knowledge and experience in the transport industry, he’s been focused on developing a solution to tackle supply chain inefficiencies. ShipNext’s platform is strongly based on processes digitization and automation and aims to improve transparency as well as lower supply chain participant costs.
Start by telling us who you are and ShipNext’s business today.
We are an international company. I’m a Belgian, based in Ukraine most of the time, but running a group of companies with offices in Hamburg, Paris, Genoa, Dubai, Limassol, Odessa and Singapore. It’s a group of shipping and transport companies. We are a non-assets-based carrier of everything, starting from general, heavy and oversized cargo down to dry bulk and containers. Over these years, with my 17-year history, I’ve been successful in the transport business. Yet, I used the skills which I built before joining transport, from my school and pre-university years of being a software developer. I came to a phase where I used all the skills in both transport and shipping as well as built a successful team to execute a unique project in the supply chain sector in the transport industry, which is an Uber-like solution of matching cargo to ship of a marketplace solution that would include all participants of the transport industry and, eventually, solve a lot of issues and problems which arise in today’s logistics and supply chain management.
How did this solution come to your mind?
I was doing my daily work and it involves, well, literally going through thousands of emails a day. Our company receives up to 10,000 emails every day containing cargoes, open ships positions, requests, and different other things related to our clients’ needs or the transport industry. A lot of my time is dedicated to just going through that correspondence. Every one of my managers spends hours looking through a lot of requests. With every request he receives, he needs to open an attachment, go through the details of every cargo, run calculations in his head, if he knows the data. If he doesn’t know some information about the port of loading, port of discharge or that cargo, he needs to go and search it. Then, he has to think of the best shipping solution he may have. So, he goes into further calculations, further information search, and then complex calculations before he can calculate and offer a solution. A lot of this work is routine. You look through relevant or updated information on ports, which you already searched some two, three months ago. You’re looking for ships, and that includes calling brokers looking through different search engines, or maybe your email box of yesterday and the day before and maybe something you found. Then you start asking questions to different brokers and shipping companies looking for a solution. That also includes their time, their free schedule to help you and all that running around, of course, also has to include some real-time data. So, by the time you find information on the port or you start fixing the cargo, that information should be actual.
This old routine to me, seemed like a lot of inefficiency and I decided to put an algorithm in place and create a natural-language-based solution that would instantly read in any incoming email, analyze it, standardize it and, by analyzing it, use all the real-time databases that we have, all the statical databases that we have collected over these years, and make the evaluation instantly offer the best option.
Because it’s an algorithm-based solution, it creates a unique opportunity of having a more or less transparent way of having that kind of a solution on instant basis. Almost like, you get a taxi when you order an Uber taxi online.
How long did it take until you see some traction?
Here, I have to mention that, in fact, I was not the only one who tried building something similar. All of the previous attempts have failed. All the previous companies that tried building something similar, unfortunately, have failed and never got that traction. So, it was a challenging decision. Before we involved in anything similar, we had to have some very important factors.
Translating knowledge and experience into algorithms
One of them is to have a person that would translate my knowledge, my experience into something like a formula. For that, you need a science called linear programming. It’s not commonly used in Europe, Asia or America, but it has been a big part of my university process. I have a PhD in mathematics who knows, in a practical sense, [how] to build that kind of algorithm. That is a missing factor in most of the biggest attempts. That alone took some time, because from the moment we got an idea, like you said, down to the process of building it…
…we spent one and a half year building a team. That team was tested on different other projects. We had a very professional group of software developers, which was very important because, in software developing, you can learn in half a year or more, that somebody is just not capable of delivering the solution you are expecting to deliver. So, we know that the team we have knows exactly and does exactly what they promise. We sat down. We had already a PhD in place, who started writing algorithms that used all my knowledge and putting it into formulas for software developers to create.
Then, a very important factor is the traction and you’re right about that, because if you would simply launch a product that would do all that not only could we not productively test it, but we could never get passed the chicken and egg situation. Because, when you launch something like this, you need the first charter, a first cargo owner or a trader, whoever ships his cargo to come on board and see ships out there. Otherwise, it’s not interesting for him to go and put in a cargo even though you have a smart algorithm to identify and process his email. He would just not send any email there, because there is no point, there are no ships there. If you’re looking for first at the carriers or the ship owners to put their ships, what’s the use for them, sending you all the ships if you have no cargo? So, I’ve done something quite challenging, which is to open up our database, our flow of cargos and ships, we collected over these years of about 10,000 emails every day into this algorithm of matching cargos to ships.
So, my clients at a certain moment started instantly getting a solution that otherwise they would be getting in hours or days. That was quite challenging, because I was, of course, running the risk of not only catching them by surprise, but also to a certain moment give them that solution that otherwise my company would have been giving it to them.
Knowing the Market and the Industry
Of course, you need to know the market…to have a reputation and knowledge of the market. Unfortunately, or fortunately, you cannot be just a guy sitting in your kitchen and building a solution that would disrupt the market. First of all, you don’t need to disrupt the market, you need to evolutionize the market. That is important. People don’t really want disruption, they want evolution. You can disrupt your company, if you’d like, to build a solution. But then you need to give a very soft change and you have to understand what the market really needs. I can’t say that I make everybody comfortable. A lot of people will most probably have to change. I mean, everybody will have to change as from now. In a good way […]. Another factor, as I said, is knowledge of the industry. It is, of course, important. Because you have to know how to build a company, you have to know how to build a solution in the physical world before you take it digital. You cannot build a shipping solution if you have never built a shipping company.
People don’t really want disruption, they want evolution.
Which do you think was the most difficult challenge ShipNext faced and how did you overcome it?
Well, one of the main complications we came across is corruption. Corruption doesn’t actually mean money laundering or accepting bribes in the physical form. Corruption, to my understanding, and basically a lot of companies understanding is, when you have your favorite broker, that would be the only one who always knows first about your cargo. You’re not creating a transparency by having a favorite broker, living of your company’s miseries. As a transport specialist, as a manager of a transport division, you have to do everything to collect as much information as possible to find the most efficient solution. […] A lot of managers, they were, let say uncomfortable, with the fact that things will have to change. But again, you don’t have to. You never had to change from telex to email. You just have to understand that, one day, you will be inefficient. This was the good moment, when we saw one large company actually fire the top management of their transport division. They were just inefficient. They were afraid of the change, and their owner, the founder of that big organization, said to himself that, well, probably, I have to find better people, because they have to be more aggressive, they have to be more ahead of times in their approach and more efficient.
Proving technology works
The other challenge is, of course, proving that your technology works on its early adoption, and that you are going to make it more efficient. Even that the server, let alone the internet, were not ready for our product to go live. I mean imagine thousands of emails and millions of calculations every minute, and a lot of solutions floating around by email on company servers. So, we were afraid of going into spam boxes and being banned from internet. That alone was a technological challenge. Of course, from day one, we were not as efficient as we are already today, because as we go further, we improve the algorithms, we improve the search. If you are, again, talking of a simpler comparison, you’re not just getting a car or you’re not just getting a ship anymore.
You’re getting a ship that maybe is based on yet a bigger amount of calculations and matching. It could be a ship that needs to take your cargo, because after the moment it drops it off, it has to be in that location, and it’s the most efficient location in terms of many other factors that carrier sets for himself, the criteria or things like that. It’s just a much more advanced algorithm. Of course, the clients, that entered our page on day one, have to be dragged into this solution yet again, to see how far we’ve jumped since then.
And, in this early stage, which was the most difficult decision you and your team had to make?
Well, of course, to disrupt the company processes. Our own business model. To put that under disruption. A couple of managers were uncertain of what’s going to happen and how this thing was going to turn. So, a couple of them left. It was a difficult process. We needed a lot of hard work, a lot of fine tuning, because I could not jeopardize having one business go broke and build another one. It’s just a different type of a solution. But all the things we’ve built so far, just helped making it possible.
We needed a lot of hard work, a lot of fine tuning, because I could not jeopardize having one business go broke and build another one.
What piece of advice would you give entrepreneurs that want to develop their startups to achieve traction?
I left this question unanswered in my earlier preparation for this interview. In fact, it’s a difficult question. I never go into recommendations, because every entrepreneur has to make tough decisions. There are a lot of entrepreneurs out there who are by far more successful by having nothing, putting it into a nice wrap, selling it for a couple of millions and then disappearing. Of course, for them, probably, it was a successful decision and this is one of the ways of doing it, for example, in the US.
In Europe, there is more accountability and especially when you’re from the transport industry, you can’t go making a fool of yourself. Because, everybody knows you in this industry, you’re a person that they trust. Especially, when you are coming out of a certain business and you start making a fool yourself, you can lose not only the new idea – the future of the new idea – but also the customers that used to work with you over these years.
That accountability puts a lot of restraints and extra pressure on you to actually think what you do before you start fooling the public. That’s something that is also challenging. You can’t start building something until you are absolutely sure you can deliver. That’s again, even more challenging, because the money you collect or the money you use – if you are a self-funded project – has to end up in a success. That’s something that always keeps me away of recommending something.
Everybody has their own way. Sometimes a success for you is earning a couple of bucks, then running away and starting a new life. For others, success is transforming the industry and leaving something behind in history. It all depends on what happiness or your success is for yourself, what are you looking for to achieve from that business.
Sometimes a success for you is earning a couple of bucks, then running away and starting a new life. For others, success is transforming the industry and leaving something behind in history.
For me, it’s just indeed transforming the market and being accountable to stay behind your promises, which are the most important factors and recommendations because that builds your credibility. That’s what keeps my main business going and that’s what brings extra traction to what I’m trying to achieve and built in digital.
FROM IDEA TO TRACTION…
- Time: 4 years
- Number of Pivots: 1 pivot
- Initial team background/composition: 2 software engineers, 1 PHD mathematician, 1 system analytic, 1 designer and a group of chartering managers from dry-bulk, general and heavy cargo shipping and fleet chartering.
- Methodologies/Frameworks used: Agile.
- Relevant Services/tools used: Jira
- Relevant practices: KPI’s and disruptive unique technology dedicated to the team build up and work efficiency.
- Funding to Traction: Bootstrap
- Relevant mentors/advisors: we originate from the Shipping group with a wide knowledge of shopping and transport. We have several senior advisors, as well as use the effort of our 45 person international shipping team.
- Relevant materials/books/resources: linear programming, big data analysis, machine learning, artificial intelligence.
MORE ABOUT ALEXANDER VARVARENKO
As an Owner of a Shipping Company – VARAMAR – with offices in Ukraine, Germany, France, Cyprus and UAE – Alexander Varvarenko (Twitter; LinkedIn) not only travelled in almost all places of the world, but also established trade between countries and continents, and made a huge input into international relations. As a holder of MBA Degrees in Shipping and Port Management from both the Ukrainian National Mari-time University (Ukraine) and Shipbroker’s Institute (UK), VARAMAR has become a significant figure in international Shipping and Transport community. While building up VARAMAR as one of the most diversified shipping company, VARAMAR became the main carriers for General Electric, Tenaris, Siemens, Cimolai and other international grands. Among the projects VARAMAR helped execute are construction of Qatar Stadiums, OCULUS Project in New York, Wind Turbine parks in Argentina, Brazil, Ukraine, China, Australia. Throughout his years living in Belgium and Ukraine, Alexander Varvarenko has organized numerous business and commercial trade delegations to Middle East, Georgia and Russia. Varamar Group today is one of Ukraine’s most active Exhibition and conference participant, exhibiting in over 12 countries/events each year, and being represented in over 20 conferences. Belgian citizenship and Ukrainian routes help Alexander Varvarenko remain a key representative of BENELUX countries in the South of Ukraine, help organize trade missions and find investment opportunities in the region. As a Founder of the Maritime Club and CEO Club Odessa, Alexander Varvarenko organizes yearly international events and cultural events hosting unto 1000 people, comprising of State representatives, CEO’s of companies from over 35 countries. In 2017 Alexander became an active member of Yound President’s Organisation, IClub, and was chosen as a member of the board of the French-Ukrainian Cultural Center.
MORE ABOUT SHIPNEXT
ShipNEXT (Twitter; LinkedIn) is a digital, automated, shipping Marketplace and a Block-chain based eco-system. It not only allows an instant matching of Cargo with Ship/Transport mode, but allows for freight-auctioning, Contract management (including Smart-contracts), freight exchange, and eventually tracking. ShipNEXT now welcomes other block-chain systems to join SHIPNEXT in building an eco-system that would include trucking companies, ware-house logistics provides, ports, suppliers of fuel and spare-parts, and regulatory bodies to create a global blockchain aiming at an automated, transparent, cost-efficient delivery of cargo (goods, dry- and wet-bulk commodities) worldwide.