How Captive Shared Service

Centers Can Propel Shipping

Companies
A WNS Perspective

wns
 Executive Summary
The international shipping industry is a vital cog that growth, some others have still not found comfort in
keeps the wheels of the global economy moving, making handing over a part of their operations to a partner. They
up for almost 90 percent of global trade by volume. The have, instead, adopted another business strategy of
economic storm of 2008-09 lashed at the industry so consolidating operations into captive Shared Service
hard that even years later, growth rates are still far from Centers (SSC).
recovery.
This point of view helps analyze how shipping companies
Shipping companies are constantly challenging can realize business benefits by setting up SSCs, and
themselves with newer business strategies in an effort to further derive increased business value even after the
survive, and even grow, despite the harsh SSC matures. The point of view also contains a caselet
macro-economic environs. While some have adopted on how a leading shipping and logistics player benefited
partnering with Business Process Management (BPM) when WNS re-badged its SSC.
service providers as an efficient way of ensuring business

Introduction
Oceans have been the most popular, and the only means of international transportation until a few decades ago. Things
have changed over the years … ships now carry goods rather than people, and sea travel has become more of a
recreational activity.

The economic meltdown resulted in a massive dip in world trade, and consequently, maritime trade. It impacted the
industry’s three main segments: tanker, dry bulk and container. The industry grew 4 percent in 2011, and since then, it
has witnessed a very slow rebound. Despite these constraints, the international shipping industry still makes up around
90 percent of global trade by volume, and connects large sectors of the global economy.

Two broad factors are influencing the shipping industry:

Oversupply Purchase of Larger Ships

In the global shipping industry, supply far exceeds The demand for larger ships has been fuelled by two
demand. Shipping rates have nosedived, as have the primary factors – operating costs and environmental
prices of ships. The turnaround in demand in the concerns. After rates for container shipping collapsed
shipping industry depends on global economic recovery, in the wake of the global recession in 2008-09,
which itself is slower than anticipated. Several other orders to the shipbuilding industry were cancelled in
macro-economic factors could prevent the industry from bulk.
witnessing corrections, such as volatility in oil and steel
prices. Some shipping companies have sought to buck However, larger ships are turning out to be a boon for
the trend by investing in newer, larger ships at lower shippers and for the global environment. These ships
prices. But unless demand rebounds, the industry’s consume half the fuel per container as compared to
problem of oversupply is likely to only worsen. older and smaller ships, while carrying three times
the cargo. Plus, insurance and staffing costs are also
half. A megaship requires the same 20-odd crew as a
smaller ship! However, as the mega ships add excess
capacity, it is snowballing into a reduction in freight
rates, thus impacting the profitability of shipping
companies.
The Way Ahead
For many shipping companies, this period of uncertainty and flux presents
itself as an opportunity to re-align business strategies with shifting paradigms.
With a turnaround in business unclear on the horizon, the need-of-the-hour is
to keep costs under control, increase process efficiencies, re-structure
operating models and offer superior customer service. Many of them are
turning to offshore Business Process Management (BPM) service providers to
leverage cost efficiencies, world-class processes and abundant resource pools.

But not all companies are comfortable in handing over their back-office
operations to a third-party. These organizations are choosing to consolidate
operations into captive Shared Service Centers (SSC), or Global In-house
Centers (GIC).

Tackling the Challenge of Complexity

One of the biggest challenges while implementing a global SSC is complexity
– organizational, functional and political. Complexity, therefore, increases the
risk of failure. To mitigate risk, companies rope in a trusted partner to guide
them through the maze of decisions involved in consolidating back-office
functions such as documentation, operations, finance, HR, procurement and
analytics. Support in the form of an experienced partner can help hasten
business benefits and growth.

Shipping companies, who consider captive shared service centers as a viable

option, can work with experienced BPM service providers to set up one. Large
BPM players have usually implemented dozens of delivery centers across the
world for multiple clients and successfully transitioned hundreds of complex
processes. Shipping companies can leverage this experience in a number of
ways, depending on their appetite to engage, and minimize the risk of failure.
The Lifecycle of a Captive Shared Services Center
Once a captive center has been established, it may go through several phases, from low-cost provider to change agent
and eventually to a strategic partner.

High Inflection Points

Strategic
partner

Change
VALUE PROVIDED

Agent Company
Differentiator

Start-up Internal
Business
partner
Low-cost
provider

Low Time
Lifecycle of a typical captive SSC

Key Features of Each Stage

Low-cost provider Change agent Strategic partner

In this phase, the captive Here, the focus is on a few key At this stage, the center
center’s proof of concept meets transactional processes. It manages end-to-end strategic
or exceeds the business case. It transforms processes through a processes. It leads global best
takes advantage of labor culture of continuous practice centers of excellence
arbitrage and meets expectations improvement. Senior executives and also global process
of service delivery. of the center are now a part of innovation. It also creates and
the leadership team. manages new captive centers.

At each inflection point, the questions Key decisions that have to be made:
that need to be taken into consideration
What is the operating model that will give the company
are: the next generation of savings?
Has the center achieved most of the labor arbitrage Should the company expand, move, or sell the center?
available for the specific location(s)? What is the investment needed to move to the next
How should turnover and competition for top talent be level? What is the realistic ROI?
dealt with? What other investments are competing for funds, talent
How can the facility, systems and talent be upgraded? and management mindshare?
How can the company get more value from the captive
center?
 Setting up a Captive Shared Service Center

Business Process Management (BPM) service providers bring to the table their depth of experience that comes from
having implemented dozens of delivery centers all over the world for multiple clients, completing dozens or even
hundreds of successful process transitions.

This depth of experience can be leveraged in four broad ways to establish a captive SSC. Depending on the shipping
company’s appetite to engage, it can choose one of the four models.

The key features of these four models are given below:

CONSULTANCY IMPLEMENTATION HYBRID CENTER BUILD-OPERATE-

PARTNERSHIP TRANSFER (BOT)

The BPM partner In this model, the The BPM partner The BPM partner
consults with the BPM service provider essentially operates operates the captive
shipping company to assists shipping the infrastructure. The center for a
help identify companies in setting shipping company pre-defined period
activities to be up the center. The deputes its key senior before transferring its
migrated to the BPM partner deploys management, ownership to the
offshore captive a support team of managerial staff and shipping company.
center. The BPM operations leaders, SMEs at the captive During this period, the
partner’s resources process Subject center for an agreed BPM partner is
provide solution, Matter Experts period. The BPM responsible for
documentation and (SME), quality and partner creates an managing end-to-end
transition support to training managers to extended arm of the operations right until
the company in this assist the captive shipping company by the transfer of
effort. center in managing providing access to ownership is
SLAs, KPI reporting talent and best completed. The
and overall practices. This model partner provides
governance. leverages all the resources and
benefits of outsourcing facilities, and owns
coupled with control the shipping
and visibility of a company’s operations
captive center. for the period of the
contract. The BPM
service provider is also
responsible for
managing all risks and
their mitigation.
 Moving Up the Value Chain
Challenges that Shipping
The decision to set up and run a captive SSC can sometimes seem far
easier than getting it to move up the value chain as the centers may face
Companies can Face with
several challenges, including high operating costs, lack of ability to scale Moving Up the Value Chain
and taking the right steps towards business transformation.

To enable the captive center to scale up the value chain, a shipping

Operating Costs
Unlike BPM companies, where
company can consider implementing any of the three most popular
there are multiple clients being
operating models:
serviced, captive centers have
• Asset Sale and Re-badging
only client – the shipping
• Captive Carve-out and Sale
company itself! With the result,
• Monetization of the Center
the center must spread its
current / future infrastructure
Asset Sale and Re-badging and upgrade costs only for that
one entity. This is unlike a
In this model, the BPM provider takes over the existing assets (IT and typical outsourcing engagement,
infrastructure) from a shipping company and `re-badges’ all employees in which the BPM partner
responsible for service delivery. The company signs a contract with the leverages its infrastructure across
provider for service delivery. many clients. Besides, the
captive center may have to
An integrated multi-level governance model smoothens the transition, with restrict itself only to one
an emphasis on risk identification and mitigation. Tools and technologies location, again in contrast to
are deployed to automate manual tasks and eliminate errors. For example, BPM companies that can choose
implementing an intelligent Optical Character Recognition tool can help to operate out of different
eliminate manual data entry of shipping instructions. locations in order to leverage
talent and costs.
The BPM provider then creates a customized metric management
framework for operations. Transactional pricing starts from day one of
operations, leading to instant variabilization of operational costs. Scale
Key Performance Indicators (KPI) around customer services are set after Captive centers would find it
being benchmarked to best-in-class with a defined program to improve rather hard to benefit from
performance. economies-of-scale unless they
can have a critical mass of
1000+ Full-time Equivalent
Captive Carve-out and Sale (FTE) employees in range.
In this model, captive operations such as assets and employees are
converted into a separate legal entity. The BPM service provider takes over Transformation
the entire captive center and pays for the value of the assets. The shipping Capabilities
company then signs a contract with the BPM provider for service delivery. A captive center would find
expanding services beyond its
Monetization of the Shared Services Center initial scope challenging. It
would also not invest as regularly
This model involves turning captive operations into a separate legal entity, as a BPM provider. The center
with the BPM service provider taking over a majority stake and paying the will find it difficult to expand
shipping company the value of the center’s assets. The company then signs services beyond its initial scope,
a contract with the BPM provider for service delivery. and may not have strong
research and analytical abilities.
However, in this case, the BPM provider can also use the captive center to A captive center simply does not
accept engagements from other clients. The profits from the entire have the experience gained
operations (work done for the shipping company plus other clients) are through engagements with a
then shared with the shipping company in proportion to its equity holding. variety of customers and
processes. Besides, most
Both the service provider and the shipping company can buy out the companies will be unwilling to
other’s stake and take over the captive center through an agreed valuation invest in developing that
process and formula. capability.
A Case in Point
A top global ocean carrier re-badges
its captive center in East Asia to WNS
A global container shipping line was
experiencing high costs and inefficiency
within its captive operation located in an East
Asian country. WNS re-badged all of the
client’s employees and took over the
operations, offering a unit transaction pricing
(UTP) model from day one. This process led to
instant variabilization of costs and
improvement in productivity through robust
metrics management and reporting structure.
Conclusion
With recovery a fair distance away, shipping companies can
effectively contain costs, improve process efficiencies and
offer effective customer service to protect future revenues.
Setting up a captive SSC can be an effective strategy in
achieving these elusive goals. The risks in setting up such
a center can be mitigated by leveraging the deep domain
experience of a Business Process Management (BPM)
provider to assist with the establishment and
operationalization of the captive center. Even after the
capacity of the center matures over time, the shipping
company can still derive business value by monetizing,
re-badging or hiving off the center.

About WNS
WNS (Holdings) Limited (NYSE: WNS) is a leading global WNS delivers an entire spectrum of business process
Business Process Management (BPM) company. WNS offers management services such as customer care, finance
business value to 200+ global clients by combining operational and accounting, human resource solutions, research and
excellence with deep domain expertise in key industry verticals, analytics, technology solutions, and industry-specific back-
including Banking and Financial Services, Healthcare, Insurance, and front-office processes. WNS has delivery centers
Manufacturing, Media and Entertainment, Professional Services, world-wide, including China, Costa Rica, India, the
Retail & Consumer Packaged Goods, Telecom and Diversified Philippines, Poland, Romania, South Africa,
Businesses, Shipping and Logistics, Travel and Leisure and Sri Lanka, UK and US.
Utilities.

To know more, write to us at

[email protected] or visit us at www.wns.com

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(C)Copyright 2015 WNS Global Services