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FuelEU Pooling, Carbon Markets, and Regulatory Fragmentation with Friederike Hesse · UnDocked: The Maritime Transformation Show

• Raal: Hello everybody and welcome to this episode of Undocked. Hello Nick. I'm good thank you and welcome to Friederike Hesse of Zero 44, our special guest today. Nick Chubb: Hello, Raal how are you? Friederike Hesse: Thank you, hello to you both. Raal: It's great to have you here and especially as we know you've had a very busy week you've been at Geneva Dry. Yeah, yeah and how was the show? Friederike Hesse: I was, was, yeah. It was good, room. Geneva beautiful, obviously. But everyone also really eager to connect and discuss. And we had a digital, dry heart, heart dry talk about digitalization and which was very lively and yeah, no, good, very good conference. Raal: funny, I've just come back from a conference myself it's sort of, remember the days when the digitalization sort of part of this would be sort of like one session or something. And it nowadays it sort of pretty much dominates, ⁓ Nick Chubb: This episode of Undocked is brought to you by Lloyd's Maritime Academy. it comes to professional development, trust matters. With in over 185 countries and decades of experience, ⁓ Lloyd's Academy is one of the most established names in maritime education. Their qualifications are industry recognized, their content is expert led, and their focus is simple. The whole conference. Friederike Hesse: Yeah, plus AI obviously was mentioned a little bit. Raal: Well, yeah, I mean that actually said on an event I was at yesterday, just before I came to give a presentation on AI, I just can't wait for this AI hype be over and it just goes away. ⁓ I was delighted to hear that one. Anyway, course, I mean, you're familiar to many in maritime. Nick Chubb: helping you to succeed. thousands of professionals who've already invested in their future. Download prospectus today by searching for Lloyd's Maritime Academy. Friederike Hesse: Yeah. Nick Chubb: Hahaha Friederike Hesse: Hahaha. Raal: digitalization world and certainly anyone that was at Geneva Drive won't know you but a lot of our listeners won't know you and Zero 44. But let's start with you first. We always like to hear people's journey into the industry and how did you find your way into the wonderful world of maritime? Friederike Hesse: a little bit by accident, I would say. So I was originally trained as an economist and I worked in German government for a bit. I worked in strategy consulting in large corporates across actually various industries. And then turned to digital company building here in Berlin. We have quite a strong startup ecosystem in the city. And worked for five years in another startup, kind of that through a growth phase and then when I left after someone had bought that company I ran into flagship founders here in Berlin and flagship founders don't know if they've been on the podcast already but I think Nick you have good relationship there. Nick Chubb: Yeah, I the flagship guys, yeah. Friederike Hesse: Exactly. So their idea is to bring people outside the industry into the industry by working on digital challenges that they have discovered with their shareholders who are all from the industry, right? And to think there's many things you can tackle shipping with data and ⁓ digital And when they discover a space that's big enough for a new company, they look for people to do it. And I ran into flagship founders because they were part of my wider network, I would say. And they told me about Maritime, they told me about the decarbonization efforts that are going on, the regulation that was coming. This was end of 2021. So was around the corner, not yet entirely EU ETS in all clarity, not yet Fuel.eu. Yeah, and then I did my homework. I read Martin Stopford, as I always say, I'm a fangirl, and really enjoyed ⁓ understanding industry. obviously, ⁓ the regulatory side maybe a bit closer home for me. Yeah, and then in January 2022, we started the company. ⁓ Nick Chubb: Can I ask about, was home day, wasn't it? Just give us some sense of journey you on with home day. First, what did the app do? And then, where was business when you joined and when you ⁓ left? Friederike Hesse: Yeah, true. Yeah, it was and is a startup that tries to digitalize the selling of private homes. So trying in the beginning, the vision was, we completely replace the real estate agent? So a relation to shipping would be, can we get rid of the broker? Right. ⁓ can already tell you it didn't work. ⁓ like people. But we tried to do was, first of all, Nick Chubb: Yeah. Raal: Yeah. Friederike Hesse: get the private sellers of homes onto the Home Day platform with lots of online marketing efforts and then have them in a more digitized process for selling their home and then the buyer side kind of viewing appointment bookings and whatnot, lots of digital tools, right? And the company was founded by three friends and when I joined, think Home Day was one and a half years old, we were roughly 30, 35 people. And I was coming in as Chief Operations Officer, so looking at the whole, the selling process. And we always did manual scaling first, as we called it, so try to tackle it with people and then build the software and the process behind it, which is, again, a good way to describe what we're doing at 044 today. First understand you actually want to build ⁓ in digital then actually do it. Nick Chubb: parallel. are the lessons that neatly over? for example, do it first, build software around it. And what are some the things that you came into the industry expecting to be similar to real estate market actually you found were totally different? Friederike Hesse: I would say, mean, I'm not in ship valuation at all, right? But when you look at the process, how I think people in the industry are putting a monetary value on a ship that's actually quite similar, or some of the methods are similar to how you would put value on a real estate item. So those are similarities, then gets tough to find, because it's a completely different product that I'm working on. So Home Day was... business to consumer. It was really a process where we were matchmakers, where people had to go through certain steps. So it was very much a workflow business. Now at Zero 44, we are business to business. We build software for shipping companies, for owners and operators primarily. And it's about them managing compliance in the context of their business. there isn't even a pre-existing process for it, right? When we started, the regulation wasn't even there yet. So no one in the industry had a process that we could simply digitalize. It was more about finding out together with our early customers, what do we need to do here and who is doing it in the organization and learning like that. So that's actually quite different from what happened at Home Day. Raal: Well, this is one of the things I was going to bring up. Like, you when you come into maritime from outside, I did 20 years ago and there's a lot to get your head around, a lot to learn, but you picked a real doozy, didn't you? Coming into trying to do it. I mean, I've been sort of fairly, I consider myself to be fairly well versed in this sort of decarbonisation space and it's still, I mean, the stuff around fuel EU and the complexities around. Friederike Hesse: You Nick Chubb: You Raal: of that and then the net zero framework and all those kind of lovely things, which hopefully you can educate us all about today. It's incredibly complicated, isn't it? mean, like at level, all of is complicated. So I mean, maybe this is a good point to sort of talk about the USP of 044 and what it is, what problem you're really trying to solve for people. Friederike Hesse: Yeah, I mean, I would say it's maybe even a blessing a little bit that the regulation side is so complicated because obviously in the very beginning I had very little knowledge of the actual shipping business. And when you come in and try sell people something and you're really new to what they're actually doing. So I think getting firm on the regulation, understanding that and having a little bit of advantage over customer ⁓ and them a reason to talk to me because they didn't have the time to really look at the regulations. I could bring that at least, right? And then from them learn more about the industry and their business. And our USP is really that we're coming to this from the business side. I think many people in shipping approach it from naval architecture, from weather routing, from voyage optimization, from efficiency gains. And I think these are all super important topics. Raal: Right. Friederike Hesse: but it's totally not my or my co-founders or my team's expertise, right? ⁓ could we bring to the table? I think we have a ⁓ good understanding of how businesses in general operate, how they make money. And ⁓ I tried to learn in the shipping industry of time was when I met a new customer, how exactly are you making money? And it was surprisingly difficult to research that on paper. ⁓ Even Martin Stopford, he's probably the most helpful because in his book he at least gives you a few examples. But I reached out to some of the investors or flagship founders and said, could you give me kind of the annual P &L of a ship? And that took them some effort. They have voyage P &Ls, but not really ship P &Ls and so on, right? I wanted to understand, okay, how does this business work? And what we do at Zero 44 is we... Raal: Yeah. Friederike Hesse: really take the specific business case. is it a voyage charter business? Is it a time chart business? Is this a charter we're working for? Is this an owner? Is this an operator? Yes or no and so on. in context, we then look at the regulation. So we take in the noon reports of the customers. We know their data. We know the exposure to the regulation the ships have had. But then we bring in the charter agreement and understand ⁓ is the agreement here about responsibilities, about cost sharing, ⁓ strategic decision making. And with that ⁓ view on the data, we then help our customers develop those strategies and execute them. And that is quite unique also because we weren't from the industry. think we never... ⁓ focused on one segment. very first development partner was MPC Containership. So yes, the first kind of idea from container shipping, but ⁓ we have dry bulk ⁓ customers, Geneva Dry. We have tanker customers, we have project cargo customers, we have parceling options in our platform to allow you to split your data across different cargo and so on and so forth, right? So we really take the business perspective on compliance. Raal: Yeah, just to help everybody because there's a lot of things to get our heads around here and to really understand and appreciate what the software is doing. think it's really helpful to maybe kind of just dwell a moment on the regulation and really boil it down to the principle of the regulation. This is really an attempt to sort of, well, think it's probably a nudge is not strong enough, is it? ⁓ It's nudge ⁓ to of push people into. ⁓ Friederike Hesse: Push. Raal: what we all know needs to happen, but everyone seems to be very reluctant to fund personally, which is the transition away from conventional right? Is that kind of the root of it? Fundamentally. Friederike Hesse: Yeah, no, definitely. And I think what we're seeing is different kinds of regulation that look at different ways to incentivize people, let's not call it push, incentivize people to decarbonize. And I there's two main directions this is taking. And EUETS and FULI-U are the two examples. And now for the IMO net zero framework and so on, mixtures of that are being debated. Raal: That's the word I was to use. ⁓ Friederike Hesse: So EUETS is basically saying each ton of CO2 or CO2 equivalent that you put into the air, you have to pay for. And so that asks us to just reduce the amount. And that could well be efficiency gains, you know, use less fuels and thus emit less and you're already benefiting. That's EUETS. Then they put a market around that and a volatile price and union registries and lots of complications and correction factors. But that's the idea. So it's more expensive if I'm emit more full stock. FuelEU is a bit more specific because it from the idea that actually efficiency gains alone won't be enough to get to carbon zero eventually. We need to change the fuel mix and there's a chicken and egg problem. If we don't have demand for sustainable fuels, then the suppliers won't invest in ⁓ building supply. ⁓ and in R &D and whatnot. So what Fuel.EU does, it says you have to tell us what fuels you're using and then to each fuel we attach a certain greenhouse gas intensity and we set a limit that you are not to be above. And if you are above, again, there's a penalty. If you are below, you even can create what we call a surplus and then you can go to a marketplace and trade surplus. So get extra credits for your very good efforts. and hence the incentive to actually change the fuel mix. And not only just decrease. Raal: And that bit of it is why on your website says about turning carbon regulation into an opportunity, right? Yeah, yeah. ⁓ Friederike Hesse: Exactly, exactly. Because then you get into the world where you can say, okay, yes, I might be paying more for biofuel, for example, but when I sell that then to someone who doesn't have access to biofuels or just didn't want to, I can make some extra money. And for one customer, we are now also looking a lot into the voluntary carbon trading side where you can sell off to your customers who try to ⁓ reduce their scope emissions, right? And they have a willingness to pay. ⁓ you get into the world where you can say, okay, yes, I might be paying more for biofuel, for example, but when I sell that then to someone who doesn't have access to biofuels or just didn't want to, I can make some extra money. And for one customer, we are now also looking a lot into the voluntary carbon trading side where you can sell off to your customers who try to ⁓ reduce their scope emissions, right? And they have a willingness to pay. ⁓ Raal: Yes. Friederike Hesse: for an avoided ton of CO2. And so there's lots of ways to then get a payback your investment. for an avoided ton of CO2. And so there's lots of ways to then get a payback your investment. Raal: Yeah, absolutely. So so just to kind of just to pursue this bit a little bit, because I think it's kind of where where you start to see the complexity of it a little bit. So with that surplus as well that you talked about there and that marketplace, tell us where pooling in, because this is quite a novel kind of concept, right? Friederike Hesse: Yeah, it is. So under Fuel.eu is the idea that the regulation ⁓ people to reach these fuel targets or gas targets on average between ships. And this average now could be your own fleet. So you build an internal pool with your own ships, but you are also allowed to do that with other people. you can call your best friend, also ship owner, and say, shall we pool our ships? And that's a Fuliu pool then. And the thing is that there is no public marketplace for it. There is no EU registry Fuliu pools or anything where you find a market price and everything is transparent. No, it's actually left to private contracts, to private agreements. So what we've seen this year, it's now the first year of Fuliu that's over 2025. And actually today is the last day at which ⁓ Raal: where I was going. Friederike Hesse: Exactly, April 30th is today, the last day where you can register a pool in what they call the Fuel EU database. So in the end for reporting there is a system provided by the regulator, but not for the pooling effort itself. what we've seen is there software companies that have started building these pools or offering a platform to trade. Nick Chubb: ⁓ wow. Friederike Hesse: can be listing platforms, again, like a real estate listing platform, right? also some models there are really trying to support with the contract side, with giving guarantees and safety around this pooling and so on. Because what makes it complicated? You are calculating your data or you're reporting your data throughout the year. A full compliance period is always a calendar year. Then once the year is done, you know where you stand with surplus and deficit. And then in theory, you want to pool and put the ships together. But in order to get a good price and have an early agreement with your best buddy, you want to maybe do it a little bit earlier. So pooling agreements have been struck already in 2025, but then the data are still changing. And the pool in order to be compliant overall on average needs to make a tiny surplus. Otherwise all the ships... not compliant and so on, right? So there's risk in there, there's counterparty risk. What do you do if my data was wrong and now the verifier says it's different data? ⁓ all of this happened in March and April, so it was a very exciting time. Yeah. Raal: And worth saying, just to kind of, again, bring this home for people, also doing this against the backdrop of fuel uncertainty in terms of availability and more importantly, price, right, as well. Friederike Hesse: That is true. I mean, for pooling now in the early days, and when I say early days, I mean the first five years of Fuel E U, where it's only a 2 % greenhouse gas reduction that needs to be achieved on average. That, for example, is easily done if you just use fossil LNG. So, we are still in a market where the people who use fossil LNG and then some who have early on decided to use bio LNG on the same end. they have created a lot of surplus. So you could be kind of... certain is always a difficult word, but there was enough surplus now and there probably is in the foreseeable future. And then with biofuels being experimented with and more and more people accept that it's a good way, you could even create a little bit more surplus. So that's fine. But this will change in 2030 when it's all of a sudden 6 % reduction against the bassline. which means that fossil LNG won't be enough anymore and lots more biofuel is needed. So the supply uncertainty is certainly there. And that also means that when you think about retrofitting and renewal, ⁓ have to start thinking about which are the fuels that might come into play and where do I want to invest to then still be ready with my fleet to manage. Nick Chubb: you see that there's any in how ships are being operated today yet on these rules? Are you expecting it to come as the kind requirements ratchet up over the next five years? ⁓ Friederike Hesse: I think we're seeing lots of ways where these regulations have an effect. And sometimes it's an unwanted effect, I would say, and sometimes it's a wanted effect. So to give you one example, we haven't discussed CII much, the carbon intensity indicator that came first in 23. That's rating from A to E depending on how much carbon you emit per nautical mile traveled. because the nautical mile traveled is in the denominators. For example, a port stay is really bad for you because the ship is not on onshore power supply. In most cases, it's still burning and emitting. if the denominator is zero, we know ⁓ the mathematical effect is of that, right? So seen cases where if a committed to redelivering the ship in a sea rating, where in the final weeks the ship would go round very slowly without any cargo, burning extra fuel for no reason just to heal the CII rating. I mean, there's not thousands of these examples, but there are examples like that. So that's obviously not good. Yeah. Raal: This is why people hate that though, isn't it? mean, it's much, know, engineers in particular seem to find it, you know, idiotic. Yeah, yeah. Friederike Hesse: Not so great, yeah. But to give you one second example, which I like much more. So in 24, I don't think we had maybe a little bit, maybe not any biofuel on our platform. In 2025, a third of the vessels that are on our platform use biofuels. And that in an industry where everyone told me no, it's so dangerous for the engine and it's a mess and it's all terrible. We will never do it. And I mean, I'm proud to say that our customers also had very advice from our software, but yeah. A third have used biofuels and we haven't heard much complaining, right? It was obviously feasible and that's good. Raal: But when you look at Nick Chubb: Yeah, it's a major change. Friederike Hesse: Yeah. Raal: When you look at the complexity what doing, I remember someone explaining me around all and I thought it felt like this was a really good example, a tipping point of where software goes from being a kind of something that brings some efficiencies and takes care of some of these problems to being an essential component of what you're doing. I just don't see how anyone could do this without software. because there's so much data moving, you know, that you've got to correlate to and so many different stakeholders in that. and so many different places that it lives that data in terms of like, the of that data, you mentioned the agreements that you have to make sure everything lines up and that. Can you tell us a little bit around how the software kind of manages that or where software really kind of makes a difference in that? Friederike Hesse: Yeah, I think it's exactly what you say actually. There's so many moving parts that are all interrelated. Where's the ship even going? Because the regulations now, FULI-U and EU ETS, they only apply if the ship is on an EU voyage, right? If it isn't, they don't apply. So first of all, we need to understand where is the ship going? And for a liner trade, that's relatively easy But if you're spot trading, you do all kinds of pools where the ships go, wherever send them you decide that... Raal: Right, yes of course. Nick Chubb: Yeah. Friederike Hesse: make new decisions around that every day, it's much more complicated. Fuel prices change, stakeholders change, your agreements are different from what you expected and so on. So everything is moving and you need to bring that together and still make smart decisions. You have an enormous complexity and you want to bring that down to... ⁓ a where an operator, a chart ering manager can say, okay, this is now what I want to do, or this is the quote I have to give my customer and inform them that what the whole will cost and so on, right? And what software does. And that's what we are doing because we calculate a lot of data in the background and we can make sure that this complexity is handled. And if we get data updates from all the source system, from the... contract management systems from the noon reports, from the verifiers, from the union registry, from fuel prices and so on, we can actually them that transparency for their decision making. And yes, people try to do that with spreadsheets, but also by reducing complexity in a rougher format, right? By giving one just simple rules where they say, okay, we sacrifice those... 10 to 20 % final optimization just saying, let's for example, use for carbon insetting and voluntary trading. We only use the trades outside Europe. We won't look at the European trades because they are all dedicated to the EU So let's just separate this and this team can work on the tokenization for outside Europe and this team is working on EU. We say, but yeah, but then you lose. Because actually, what's great is you are allowed to tokenize and still use the full credit for EU ETS. So actually, the return on investment on an EU trade is so much more interesting. But if you exclude that to make your life simpler, you're losing out on that optimization. Just an example, But think that's really our challenge to that and to say, dare to embrace complexity. We will help you with that. That's exactly what software does. Nick Chubb: I'm curious, was this where you started when you first started going out to market? Because obviously this is long you went three years into ⁓ I the software today looks very different to how the software might have looked. Or at the ideas of what the software would be might have looked when you first started speaking to ship owners. So what was the of journey in terms of landing on where you're today? Friederike Hesse: were, I would say, mostly driven by the regulations themselves. So when we started in 22, so four years ago already, CII was clear. It was coming in January 23. So we first understood those rules and then our first use case with MPC container ships was they were owners of ships. They wanted these ships to be compliant. They are chartered out long-term to operators. who make all the decisions that drive CII, right? They choose the fuel mix, they choose the routes, they choose the speeds and so on. So MPC wanted an early warning of where is this ship going, what is it doing and is this CII rating endangered? Now CII again is an annual rating. So the first product we built was a data model where we predicted what the ship would do throughout the year. And we could say, okay, if the ship... continues in a trading pattern as it is on currently, CII rating by the end of the year will be this. So if they saw then in, ⁓ don't know, May, June, the CII rating is actually in a D or E, they could call the chart very early and say, hey guys, if you continue like this, it's not great, right? Could you maybe do something else? And that was the first concrete use case. And that's what we built. And that was our MVP, as we call it in software development, the minimum viable product. And then built that, CII started. The industry wasn't very interested in CII, to be honest, because no penalty and ⁓ not many companies that said it has to be in a C, right? ⁓ Many just didn't care so much. But then it became clear that EU ETS would come in 24. Nick Chubb: Yeah. Friederike Hesse: and the rules for EU ETS became clear. So then we started building for EU ETS. Again, had development partners, now not only MPC, but also different project cargo, heavy lift company, for example. So got a different perspective on our contract layer so on in there. And I'm saying contracts because EU ETS was mostly about accounting and invoicing and still is. Because you are allowed to pass on the cost to the polluter, right? So you might want to save on efficiency and so on to make your ship more competitive and more attractive operators or for customers. But in the end you say, okay, what we emit, we have an extra cost and we forward that cost to the next in line and in the end the consumer will pay it, right? ⁓ So what we built there was so much more about, okay, how do we get the actuals into a reporting rhythm around EU ETS? How can we automate that, that chartering teams can send out these invoices easily? How do we integrate the union registry where you hold these EU allowances? How do we work with carbon traders who help you buy these allowances? and so on and so forth. We built basically an accounting and engine for EU ETS. And then became clear now FuelEU is coming and FuelEU is all this stuff about fuels and optimizing and fuel versus penalty costs. It's actually a more interesting regulation for someone like me because it's more interesting to build an intelligent tool. ⁓ So we picked up again the model we had built for the CII initially and made that much more sophisticated and allowed users then to ⁓ their planning. And on our platform, you can also then put your ships into a pool. You can make different compliance choices across the fleet and see the monetary effects that and so on. So that's how the... how the software developed and now it's continuing to do so with different client needs. So now we signed up larger customer who's involuntary trading. now we're adding the voluntary part to the platform and so, yeah. Nick Chubb: an example of jumping off the and then building the plane on the way down. ⁓ It's a very, iterative process. What's it like building a team around product and then, ⁓ enough, having to that team? from a model about... Raal: You Friederike Hesse: Yeah. Nick Chubb: fuel consumption for a chartered ship through into an invoicing and accounting engine for ETS, those are two very, very different things. What's like kind of making that transition internally? Friederike Hesse: I think in the beginning it's actually relatively easy if hopefully you picked a good initial team because I think in startups one of the really nice things about working in young companies is that you are a small team and don't have yet an organization where people are really stuck to a specific task, right? ⁓ And they say... ⁓ this task is my ownership and it's also my reason for being here and if this task goes away, I go away. No, it's typically the case that everyone who starts working in a startup is aware that you're learning and iterating and they love just that. So the team was always there to go all the way and add their ideas and yeah, no, so that wasn't really a challenge. Raal: just wanted to check one thing with you because I think you implied it when were saying about you can see the sort of impact of the choices. Is that sort of like a kind of a simulation of forward-looking? If we do this, this can be an anticipated outcome, that kind of thing, yeah. Friederike Hesse: Exactly. So what the model basically does is you tell the model you think this ship is doing. We're building a business as usual case for you where we look at what has this ship done in the past and then we say, okay, if that same thing is happening in the future with that share of European voyages and so on and the speeds that you typically have and all of this, then this would be your outcome. But then the user can go in and can plan concrete voyages, can play with speed, with draft. port stays and all things that drive energy need of the ship. And then the output of the model is energy need and then the user can go in and play with different ways to ⁓ that energy need. So using the MgO-LFO mix it has always used or now adding a biofuel or now adding wind propulsion or now adding onshore power supply and then we calculate what does this now mean. What have you invested to do that and what is your savings on the regulatory side? Raal: Yeah, that's really interesting because I remember hopefully it's gone away But I do remember there was a period where where there were certain people saying well I'm just gonna pay the penalty and not worry about it. Is that a mentality you've come up against? Friederike Hesse: I mean mentality for sure. The week before Geneva Drive there was Singapore Maritime Week and we co-hosted an event together with DNV there and we had Synergy Group and MPC on stage as practitioners to also talk about it and we discussed exactly that. Have we seen in 25 people really saying, I just pay the penalty. I would say we have seen it a little bit, people who also from their operators got the agreement to just pay the penalty back. So there was this view on, can we do this like EU ETS? We just forward the cost and then we're good. But it's not a dominant thing because the cost difference between this penalty and for example, the pooling price that has emerged, it's not public, but we would say somewhere between 180 and 200. euros per tonne of CO2 equivalent is probably the pooling price in 2025 and the penalty for that same amount is 640, right? So it's triple that pooling price, for example. So any operator who has learned this this year will probably say next year, hey, why would I pay the penalty, right? We should find some other pricing agreement here that I owe you if we're in a fossil situation, right? So no, think penalty will... Raal: Yeah. Yeah. Friederike Hesse: not be a dominant strategy. Raal: But I'm thinking in a sales process, when you're trying to get that signature on the line, being able to estimate and show what the figures look like would be a pretty compelling business case, right? With the savings you mentioned there, yeah. ⁓ Friederike Hesse: Yeah. Exactly. And I mean, just because we talked so much about the complexity, right? So comparing the 640 to the 190, what I just did, that's again quite feasible, right? So now everyone out there says, yeah, now I've understood it all. So 640 against 190. But then you miss again, the extra income you could have from voluntary trading had you used biofuels yourself. you miss the extra positive effect on EU ETS had you used biofuels yourself the positive effect on CII had you used biofuels yourself. So by just paying a pooling price, by just buying surplus, yes, I'm saving a lot of money on fuel EU, but I'm not yet really reaping the full benefits of I could do and getting the optimal strategy in. And that exactly what we have to explain in sales and say, hey, and we can help you do that. then... Yeah, can save you money. Nick Chubb: imagine it would quite a ask to as a young company coming this area there's quite a lot of risk attached to it, a lot complexity attached to it. How do you overcome that in your sales process and, know, the... more conservative ship owners might turn around and say, we'll go to one of the class societies for kind of stuff. But ⁓ I see that what might an unloved feature on a larger piece of software, you've turned into a real kind of end-to-end product. But I assume you must meet some resistance in the process as well. ⁓ Friederike Hesse: Yes, of course we do. think the main resistance is another software tool. Why do I need something for this? This is just right? How hard can it be? And I gave this to this guy in my organization and he's telling me, it all under control? And that guy obviously would never say he doesn't have it under control because it's his job to have it under control. it's where still, I think, need a lot of learning that this is such a big topic, also a topic that won't go away. I'm also hearing again and again, yeah, well, with economy now under so much pressure, it will be rolled back. Nick Chubb: You Raal: Yes. Friederike Hesse: Maybe, but then I'm always saying, okay, we can hope for that now, but in the years while you're waiting for it to be rolled back, you can already lose a lot of money. And I could just for those years could save you that money. So why not just understand it's here now and work on it, right? yeah, there's a big reluctance to add yet another software tool. And that's what we have to explain. ⁓ Raal: you hit upon something there that I really wanted to get to. that the regulatory uncertainty we're suffering Nick and I did probably one of most shows, wasn't it? When the last fateful MEPC meeting where the can was kicked down the and... ⁓ Friederike Hesse: Yeah. Raal: And one of the things that we gravitated towards was, you know, I've been a vendor for many, many years in the industry. Nick does a lot of work with vendors and, I've seen in the past, the cost of, people who get ahead of the game. Like one good example of this was the ballast water convention many years ago, you know, and a lot of people who had these innovative solutions, they plowed loads of money into, and then they just moved the regulatory. deadline and a lot of these companies like you, you know, as you know, with a startup, timing is everything you've got to your bootstrapped, whatever you've got to, you know, you've got to get the sales in. and so I feel very, strongly about that side of it as well. Not just the kind of disappointment with, with the ambition as it were, but, but, but also like the, the impact and the knock on that it have. And you, said there, you've got this idea that people might be looking at it and saying, well, the regulation is probably going to change. get rolled back and all that sort of stuff. And then. But of course, the big one is the net zero framework, which, which, which, again, there was a lot of assumption that when the net zero framework came in, the EU might that. And that was actually, I think, one of the reasons why it got snarled up that there wasn't that commitment from the EU to say, yeah, sure, we'll drop ours if we got a. What's your view on where we are at the moment with the net zero framework? How's it looking from your perspective? Friederike Hesse: mean, hard to say, I'm not in the room in London. While recording this, they're discussing in London. I'm hearing though that, I just read a article from who's on the ground, that new proposals are popping up that are okay, maybe not the exact rules that we had in the net zero framework, but maybe there's other things we can do. Maybe... less strict targets, a slower path to carbon zero, let's make room for LNG being around a little bit longer maybe than the old proposal said. And there seems to be, from that article that I just read, even the even Saudi Arabia and so on, they are kind of signaling that they are at least willing to read this and consider this and so on. So my feeling is not that the world will certainly suddenly say, okay, we won't work on decarbonisation anymore at all, right? is really not my feeling. Plus political process in Europe, I can assess a little bit better because I'm closer to it. There is no sign of rolling back fuel EU currently just by itself, right? So if the IMO didn't come to anything, ⁓ I don't think the would completely step back on their Fit for 55 package and ⁓ because also it's all related. They have the energies directive where they're working on port infrastructure for fuels, for onshore power supply and so on, and then fuel EU. And ⁓ lots of different rules are interconnected and rolling this back. It's actually not even if you wanted to politically, it's not even simple, right? ⁓ So honestly don't see that coming at all. But what you were saying about regulatory uncertainty, the Raal: Yeah. Friederike Hesse: bad thing is we don't know exactly how the rules will look like. ⁓ And that makes it really hard to make an investment decision now for ship owners. that's, I think, really harmful to the whole endeavour that you can't really plan and place your bets on where to go with decarbonisation. Raal: Hmm. Yeah. Yeah. that influence your choice ⁓ the way you approach the software development? That sort of shifting sounds, that agility that you need there? mean, presumably as a startup with less legacy debt from some systems and stuff that you get, you can maybe pivot a bit more quickly in the way that Nick was saying and iterate quickly. But is something that was in your, as part of your... sort of planning that you were able to make quick moves in this way this works. Friederike Hesse: think in my learning, I that's also the strength of good software companies, is exactly to be that agile and to be able to react to learnings and to maybe even completely scrap what you built and start fresh because it just, you've now learned, ⁓ it didn't make sense what we built back then. I think that's key irrespective of the industry, irrespective of space that you're in, but it's probably especially true. Raal: Hmm. Friederike Hesse: in the circumstance we're discussing now. And example, we have a setup in the product. Also where we don't force our customers to do everything. We might even have a customer who's not trading much into Europe, but who still wants to manage the CII and observe, and they can have a package where they mainly see the CII functionality and they don't have to pay extra for FuelEU and EU ETS if they don't need it. so... or now UK ETS is coming in this year, right? And we're adding it in, but yeah, we're keeping it modular. have also in a way that should one of the regulations go away, we can just scrap that module and so on, yeah. Nick Chubb: The other thing that find really interesting is in ⁓ Not even with the absence of the net zero framework, because it is still potentially in play. already got UKETS, which is coming live, is it this year? I think is looking at measures. I've seen the state of just on its own is looking at its own package of measures. And I feel like we're going to end up in a really weird world you've got 28 different schemes are all going on trying to do roughly the same thing, but all with their own reporting setups. pooling requirements and it just feels like it's going to be complicated for everyone unless can get a kind global unified view in place. Friederike Hesse: Definitely, yeah. Raal: I that's the mistake that people make, it? The idea that we have this regulation, we won't to do all this stuff. the reality is that it will just become national or super national kind of, and more more fragmented and even harder to manage. that's what you were just to there, Nick. I mean, what's your thoughts on... on that side of things, if the nets, you know, you sort of see that there's potentially going to be a market for you with adding, adding, adding in all these kind of various different measurements as they come in different local set ups? ⁓ Friederike Hesse: Yeah, definitely. And I do think that this will become a reality then. I just this week forgot the exact authors of the report, but some NGO published a report where they looked into all the emission trading system setups across the globe. Not all of them affect shipping. So this was a global report where was road transport and energy sectors and whatnot, right? But they had a graph where they showed, okay, where is maritime included? And that can be local, as you said, single state up to a national or supranational like the ⁓ EU. And already have quite a fragmented world. And ⁓ don't think that go away. But I also think that and more people realize that and that's... probably the reason why believe there's ground for compromise and consensus in the end, but also why people keep going. And even countries like US might at some point say, maybe. But I they want the weakest rule possible, but they want a global rule. That's probably it, because it's better than the fragmentation. Nick Chubb: Yeah. Raal: Federica, a sort of changing the subject a little bit, like one of the things into maritime, maritime, don't have great women across the industry. It's particularly low, the numbers sort of particularly low obviously ⁓ for But we do worry as an industry that we're not doing enough or it's not inclusive, it's not an inclusive space. tech is not known for its inclusivity to women either, but I'd be very interested in your perspective of sort of coming in as a woman, as a business leader, as a technology leader into the maritime space. What's your experience been of that? Friederike Hesse: True. I mean, most of the time the room is just full of men in dark suits, right? for that sometimes also be an advantage, right? Because I'm more easily remembered than on a panel whatever, right? And it's been that way in all my... So when I started going to university, I went to a business school in Switzerland. There we had 25 % women, which is probably roughly the share that... we see in shipping in the onshore space, right? I was always in a minority wherever I worked. You get used to it, it's not great. I would say that shipping is traditional, right? ⁓ there's many rituals habits that are pretty male. ⁓ mean, that... let's be honest about it, right? Be it, I don't know, this Eisbein-Dinner in Hamburg, or some of the Poseidonia parties or so. It's not necessarily a environment where every woman would be comfortable. And ⁓ I think something that the industry can work on. Thinking about, okay, how can we enable networks, because industry is all about networks that... Raal: Yeah. Yeah. Friederike Hesse: that are inclusive. I think I'm a Vista member and I think they are doing a great job and I'm very happy about lots of men also joining there because it's really about connecting the worlds, right? But I think when people go to places they mostly meet up with their buddies and a beer and that's kind of the thing that then drives the industry and that discourages maybe women also to... ⁓ to rise up, right? Because I would say in chartering and ops and so on, we see many and lots of capable women, but do they become the heads the business? In ⁓ cases and that's typically due to a lack of mentoring and backing by ⁓ ones above Raal: That's interesting. I think one of the things you've done there is sort of picked up an area of probably a sort of unconscious bias in the Because if you think like, no one would really think about the need to manage those kinds of social occasions. And you're absolutely right. we love a party, we love a social gathering. Everybody loves a matter and a gossip and they get together and we let our hair down. that's, you know, it's part of the, exactly as you said, it's where relationships are built, it's where Nick Chubb: you Raal: aren't really done, but the wheels are greased in terms of, you know, people getting to know and feeling comfortable with one another and all that sort of stuff. And whilst we might do a lot to manage like panels and say, well, we're going to make sure we're going to make a real effort to get women on panels. I most people would sort of say, well, of course the women are welcome. You why wouldn't they come in? But that intimidation of kind of walking in, as you said, and seeing this wall of middle-aged men in the... in the suits, know, all having a great laugh together, batch mates from years ago, or veterans that have been, you know, been through the wars together. And then you're having to try and break into that. So just sort of thinking about things like that, how you can kind of manage those sorts of situations and introduce people. Cause once you know someone, I make it always make an effort to try and particularly, you know, particularly new entrance into the. to the business, men or women, try to kind of connect them to people because people were kind to me in that regard. I think we should try and manage that of it because it is a really important part. Friederike Hesse: Yeah, and I mean, you're right, it's not only women, right? It could be any newcomer or outlier in the group for whatever reason, right? It would be a initiative or campaign to say, hey, on your next gathering, grab the person that's standing there on their own, right? And pull that person in. Because that's, yeah, that definitely, I think, would make a difference over time. Raal: Hmm. One time, I was just gonna say, it is one of the things I used to do when I was running marketing for my last company, and I always used to say at the events team, don't leave people on their own, with the customers and stuff, and always make sure to try and get them in and introduce them to people. So maybe that's kind of the easiest thing to do, is put it on the list of things for the events organizers to do, actually look to proactively bring people in. So yeah. Nick Chubb: Can I ask just how that translates to building a team? Because you don't just want maritime experts on your team and you don't ⁓ people on your who... can't get up to speed on the industry the point that they're not able to contribute in a meaningful way in terms of actually building out the product. So what the team look like at Zero in terms of those from a maritime background versus those not? And how do make sure that people ⁓ are coming in as from the industry get up to speed quickly? Friederike Hesse: I would say we're a mixed team. So when I go back to the beginning, so my co-founder and I were both not from the industry. Our first hire as a product manager was someone from the industry who had been on ⁓ a little least he had been an apprentice for ⁓ shipping a guy Germany and then... ⁓ worked for various shipping companies. So he came in really with the industry knowledge and that was super important because he just helped us ⁓ the abbreviations and the words and understand the data and everything. And went on from there and customer success, we hired someone from the industry but our head of customer success actually is a... Nick Chubb: Yeah. Friederike Hesse: He's a great guy and he worked in the wider logistics and supply chain space. So he had an idea of the industry, but he wasn't an insider and so on. The engineers, so the guys who are actually building, and it's all guys, are actually building the software, they are all not from the industry because they're trained software obviously. And we're now four and a half years old, so now kind of I would say I'm okay. can't call myself a shipping person, I haven't sailed and whatnot, right? But I would say I know what I'm talking about by now. So it's maybe becoming less important, but also in sales. So our VP of sales, Duncan, he has worked in shipping before because only then do you have the relationships and the networks and so on which you really need. So I think the mix is great. Nick Chubb: You Raal: I would say you're entering the danger zone of four and a half years. You may never leave. Friederike Hesse: be. Could I mean, it is great industry to work for. It's just so enormously interesting. mean, world affairs always of your daily job, right? It's really, really interesting. Nick Chubb: Yeah. There will be plenty more regulations coming down the track for you to build products for as well. What does the future hold for Friederike Hesse: Yeah, for sure. Raal: Yeah. Friederike Hesse: We take it step by step, I have learned. But definitely this year UK ETS. We lots of learnings from the first year of Fuelli U that we want to put into the product. We are working on a lot of new customers and hopefully also some of the ⁓ really large which would also be at next level. So today our largest customizer fleet of 100 ships, but mostly trading into Europe. ⁓ So if you go above that, then again, new functionality or user interface is needed. That's the new learning step for the company and so on. So to work on. Nick Chubb: That sounds exciting. And if listening wants to reach out, what's the best way to do it? ⁓ Friederike Hesse: just send me an email or reach me on LinkedIn. think it's relatively easy to find. I mean, there's a larger team. If you know anyone else, can reach out to anyone at 044, but just drop a message and I'll reply. You can also drop a message on the website even. Nick Chubb: was awesome. Frederica, really, really lovely to meet you. Thanks for coming on the show. Friederike Hesse: Thank you for having me, it was a pleasure. Raal: And best of luck with the future. Friederike Hesse: Thank you. And you too. It's a new podcast, right? So, or relatively new podcast, Raal: Okay. Nick Chubb: Yeah. Raal: Thank you.