Guest Blog: Andreas Christogiannis and the Ocean Engineering Systems Management Track

Hi Everyone,
I know it has been a while since the last post. Stay tuned for a Plant Trek blog entry. The following is a guest blog post from Andrea Christogiannis. He was on my core team this summer and can speak definitively about his experience with the Ocean Engineering Systems Management track. Enjoy!

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Ships ahoy!!!

My name is Andreas Christogiannis. I am an LGO 2014 student and the first LGO to join the new Mech.E “Ocean Engineering Systems Management” track.

Let me share a story about the business of ocean shipping and the re-formation of the MIT International Shipping Club…

When Captain Odysseus bought his first ship, “MV (motor vessel) Lisa”, he entered an unimpressive business: shipping fertilizer. The ship’s seller had put him in touch with a trader in East Africa who would buy any shipment he could get his hands on. The trader agreed with Captain Odysseus on a 3 year long “COA” (contract of affreightment): MV Lisa would load fertilizer in Malaysia once a month and carry it over the Indian Ocean to the port of Dar Es Salam in Tanzania, East Africa. The ship had a cargo capacity of 23,000 tons; for every ton shipped, MV Lisa would earn $8.5; for 23,000 tons shipped, she would earn $195,500. Minus monthly operating costs of $135,000, MV Lisa would make a monthly operating profit of $60,500. Or $2,178,000 over the three years the COA lasted.

Captain Odysseus was rubbing his hands, thinking that he had only paid $1,750,000 for the 26 year old ship. In less than three years his investment would pay off!

His joy didn’t last long though. While MV Lisa was hard at work plowing the Indian Ocean every month and earning freight for her owner, China was hit by an unprecedented draught. The Chinese government started chartering (hiring) any dry cargo ships that were available to ship grain to China. Because of the port infrastructure in China, the most attractive ships were of the size of MV Lisa. This spike in demand for carrying capacity caused a spike in hire rates for this ship type: From earning a mediocre $7,000-8,000 per day, ships similar to MV Lisa (“handysizes”) gradually demanded and achieved daily hire rates of 10, 15, 20, 25 thousand dollars per day!

                                                                                       

But why was Captain Odysseus unhappy? Because his ship was earning an equivalent of roughly $6,500 while the market was booming at $25,000! And he was locked in a three year contract, during which he had no chance to share the upside of this market.

He knew he could not have predicted the draught in China and the increase in hire rates it caused, but this wasn’t enough to calm him down.

In his mind, he wasn’t making $6,500 per day; he was losing $18,500 per day by not being part of the $25,000 per-day spot market for handysize ships.

What should he do?

During his last trip to Oslo, Captain Odysseus had met Bjorn, a Norwegian banker who pitched to him some hedging tools called forward freight agreements (FFAs). Basically, using these so called “shipping derivatives” you could take a long or a short position on the freight market for a specific shipping route. If only he had a way to predict when the market would turn south again, he would sell it short and make a huge profit. Meanwhile, his MV Lisa was still carrying fertilizer to Africa for much less money compared to what ships on the spot market (available for hire) were earning.

Captain Odysseus called the Norwegian financial wizard, but was informed that he had taken a new job with a shipping private equity fund in Hartford, CT. When he finally tracked down Bjorn, he explained the situation that was keeping him awake at night. He then asked Bjorn to structure for him an FFA that would bet against this market. The timing should be right, though: you don’t want to sell the market short too soon!

He felt he could trust Bjorn; during Bjorn’s presentation in Oslo he had observed his very strong analytical and quantitative skills. However, Bjorn’s response surprised him: instead of betting against the market, Captain Odysseus should bet in favor of it! Bjorn’s reasoning was simple: China would keep buying grain shipments and thus hiring ships for many months to come, since Southeast Asia was now entering its annual dry season and production was expected to stay at low levels.

Captain Odysseus was not convinced; his gut feeling was telling him that if you are too late for a “party”, you should not try getting in; you should stay “sober” and wait for the next day to do a couple deals with the unsuspicious hangover party goers.

He decided not to decide and to do nothing. Out of nowhere, another unexpected development proved both him and Bjorn wrong: China did keep buying grain shipments. However, to reduce its supply chain risk, the Asian giant’s government had a state owned grain company order from Chinese shipyards no less than a hundred new building handysize ships; yes, the type and size similar to MV Lisa. As months passed and new ships entered the ocean, the market started a painful decline. Ships started making operating losses. Now it was too late to bet against the market: its decline was widely expected and already priced in the derivatives. Meanwhile, MV Lisa kept earning a fantastic $60,500 operating profit per month.

Captain Odysseus repaid the ship’s mortgage in less than 3 years and started thinking about acquiring foreclosed ships from bankrupt competitors…

The events in the above story have never happened. Also, the story is incomplete.

And this is exactly why it mirrors the business of Ocean Shipping:

·  Unprecedented events shape the industry every day, 24/7. This industry is global by definition and knowledge of geography, politics, cultures, and weather patterns is equally important to economics, negotiations, engineering, and operations.

·  Decision making always relies on incomplete information.

·  Experts in the industry will openly admit that there are many things they haven’t yet learned or cannot possibly know.

·  Short term risk & return VS long term risk management and averaged out earnings: MV Lisa’s earnings once looked disappointing; a few months later she was beating the market.

·  Rigorous analysis VS gut feeling: none alone is sufficient for success. Also, taking action at the right time is of paramount importance.

·  A ship is a lady. “She” asks for care and attention and can change your life.

Isn’t that exciting? Welcome to the world of Shipping!

The MIT International Shipping Club

Coming from Greece (15% of the global sea trade is done with Greek-owned and operated ships) and having worked in that industry, I would take for granted that people know shipping and are excited about it.

When I came to MIT, I realized that people were excited about many fascinating industries; shipping was not one of them. That spurred the decision to create a student club which would make shipping more visible and more attractive to the MIT community.

It was not an easy task to get people on board; why should they spend time on shipping when they can have careers in engineering, consulting, or banking? As we learned in our Organizational Processes class the last fall, the early adopters should be found first: people that either already have an interest in shipping or are curious and inquisitive by nature.

A core team of early adopters from backgrounds as diverse as the Navy, shipping finance and offshore engineering was formed.

From then on the network started expanding: the club has captured the attention of other student organizations spanning from mining, to oil & gas and to marine engineering.

Our first event! -and a bit of a sales pitch J

Boosted by the support of Professor Henry Marcus and many MIT Ocean Engineering faculty, we are at the exciting point of hosting our first guest talk for 2013:

Dr Arlie Sterling of Marsoft will visit the MIT campus and talk about “Pricing of risk in the Shipping Industry”.

Understanding Shipping Risk is vital to anyone wanting to venture into the shipping industry. 

Shipowners and Banks use Risk and Market Analysis to make crucial decisions, such as:

- Enter or exit a shipping market? 

- Invest in high-value newbuilding fuel-saving ECO ships or low-priced second-hand vessels?

- Employ vessels on long-term time charters or trade them in the spot market?

- Stay in or exit ship-financing?

- Demand better terms or pricing on their new shipping loans?

Particulars of the event:

ETA: Monday, February 11th 2013, 12:00pm-1:00pm EST

Port: MIT Sloan E51-145

Misc: lunch and refreshments will be provided

We will be delighted to welcome all of you on board, as well as any of your classmates that are interested in the shipping industry!

Applying to LGO/MBA and a simple checklist

     Sven Eriksson once said, "The greatest barrier to success is the fear of failure," and I believe this is one of the single most deterrents for many would-be LGO/MBAs. The fear to apply, put yourself on paper, and then be at the mercy of the admission committee, can overwhelm and undermine the ability for many to reach their goals. I have been there; in some sense we all have. But don’t take my word for it. Here are some quotes from current LGO students answering what were their biggest hurdles:

·      “psychologically getting over the fear of going back to school and debt”

·      “workload for the entire program; would I have time for my family”

·      “getting over the fear that I might not get in to MIT after I got dinged first round at another university. Also, deciding to pursue the MBA in the first place put me in a defensive position with my technical peers who did not understand the value proposition. They labeled me a sellout. I was going for pure MBA until I came across LGO and considered it a godsend.”

·      “Either overcoming procrastination or convincing myself that getting an MBA would actually be worth the time and money (looking past NPV)”

If you read nothing else from this blog today, decide for yourself to jump and don't look back, the rest of your life is waiting. 

     I have to preface this blog post with the following disclosure:

1. The current LGO students have absolutely no say in the admission process. The admission committees (adcom) completely own this process. 
2. To be an LGO student, you have to be "admitted" 3 times. Once by Sloan, once by LGO program office, and once by the engineering department. They are very thorough.
3. The contents of this blog do not necessarily represent the views or policies of the LGO Program nor the MIT Sloan MBA Program, its employees, officers, or students

For the rest of this post, I am assuming you are applying and want to know how to put your best foot forward. Here is a simple checklist that I used when applying:

My Checklist

1.     Did I write my essays and give an authentic representation of myself, genuine reflections on my experiences, shared failures and what I learned from them, and simply, “Does my story make sense?” (Don’t for the love of god use find and replace. That is a great way for you to waste 250 bucks and the time it took to put the application together; the adcoms know other school’s essays and can sniff this out like a bloodhound)

2.     Are “most” of my metrics in the middle 80% of the class statistics? http://lgo.mit.edu/apply/qualifications/

3.     Did I get letters of recommendation from “good” writers whom are going to spotlight my technical ability, leadership qualities, and are going to offer a genuine perspective on my accomplishments and failures?

4.     Do I adequately and authentically answer why I choose the [Systems, Electrical, Bio, etc] engineering department?

5.     Did I strategically use the additional “supplemental information” essay to say anything else to the adcom?

6.     Did I make sure that my application is free of simple grammatical mistakes and highlights and supplements my story? Did I read the essays out loud to a third party?

7.     Did I spotlight my professional goals, interests, and how MIT supports these interests?

8.     Did I adequately answer why LGO, why operations, and why MIT? (Hard)

9.     Lastly, did I send everything in and make sure my application is complete? Simple but this blocks quite a few people?

Finally a few pictures from "Movember" and LGO life

Half of my core team at the Fall Ball, with my beautiful wife Tiff

The "LGOs" of Movember minus a few

Spencer is so handsome (at Fall Ball)

Negotiation talk with the 14's at Walker Memorial 

My Ambassador Day Experience

     A couple of years prior, when I was still contemplating which schools I wanted to apply to, I decided to attend the LGO program's Ambassador Day. I didn't particularly know what to expect and found myself reading up on the program, some of the faculty, and which people were in the program office. I still remember wrestling over the shirt I was going to wear with my suit (which I still had from my undergrad interviews 5 years prior), and which tie: red shows passion and intensity, blue demonstrates depth and stability, etc. I choose red.
    The day arrived and I suited up and jumped on the T to show up 15 minutes early as you never know with this Boston subway system. I was surprised by the number of other people attending Ambassador Day and promptly began introducing myself. Everyone was very friendly and I still remember shaking the hand of this one guy who later offered to help me better my sentence correction ability on the GMAT. After everyone arrived I remember getting matched with this other LGO who was going to take us to a Sloan class. I was very nervous as I was the odd man out, and thought about what happens if the prof cold calls me. Surely they won't do that right? I was too embarrassed to ask and chalked it up to a delusion of self-importance and walked in to my first Sloan classroom.
     After coming from the University of Texas, where some classes can be up to 400 students, I realized that this was a rather cozy 40-ish students; pretty awesome if you ask me. On the flipside, I was thinking, "now the professor really could ask me something I don't know." But that didn't happen and I was worried for nothing. The class was taught by Professor Joseph Doyle, and the course was Economics for Business Decisions 15.010. I remember thinking that he led a particularly interesting lecture and only cold called a couple folks during the lecture. Most of the students seemed down to earth and even talked to me about what I was doing and why I should apply. First impression was pretty awesome.
     After my first Sloan class we went to an information session where current LGO students gave invaluable, and candid, information about the program and what they love about MIT. I felt like I could relate to every person on the panel and noticed how different they seemed to be from all the "across the river" business school students I met the week prior. I gained insight into what tracks people were doing and why, and started to understand what the program timeline meant for most typical LGOs.
     Following the information session, I had lunch with a current student and she was very instrumental in helping shape my opinion on the program. If you have the chance to talk to a current LGO student, take it, as you will get first hand knowledge on the program. I can't stress this point enough.
     After, the information session it gets a little fuzzy in my memory (3 years ago). However I remember   getting to meet the program director, multiple sloan affiliated program office people, and a ton of other LGOs. Everyone was very personable and intent on making sure that I was having a good day and that all my questions and concerns were being answered. I was rather impressed with MIT's ability to give me a single day LGO experience.

     In closing, if you are still on the fence about whether or not to come to Ambassador's day, know that this day was the single most important thing I could have done for myself in meeting the LGO program office, determining how I fit in with the school, and what LGO student life was all about. Your time and money will be well spent if you decide to visit. Plus lunch is included.

As I feel like a picture is warranted Here is one from our joint SDM/LGO halloween party. Yes we had fun.

Midterm Post-Mortem

     Thursday, as I was sitting in my final midterm of last week (midterm 3 of 3), a gentlemen gave a loud audible sigh of relief after he left the room, causing riotous laughter for the folks remaining in the classroom; this is MIT after all. As the time slowly slipped away, and I was furiously finishing my OP exam trying to remember the Political, Strategic, and Cultural Lenses, I remember thinking that everything was going to be fine; just remember to write your MIT ID on the test. Immediately after I finished my test, my professor offered me turkish delight and I noticed that I felt much better. If fact, I was now incredibly relieved because one of the most trying weeks in the Core was now behind me. Now it was time for the festivities...

     One of the LGOs' favorite Thursday hangouts is the Thirsty Ear, and after our exams, this was the perfect place to blow off some steam. After a fun game night at another LGO's place, we all headed to the Thirsty to sing some karaoke and imbibe some low cost beverages. The cool thing about the Thirsty is that it is on campus and is in a dorm. The bad thing about the Thirsty is that it is on campus and in a dorm so we have to shut down at 12:30. Here is a picture of some regulars:

     This past weekend, one of the LGOs graciously invited us all to participate in what I consider to be a great form of fellowship and cultural learning: a pig roast. Being from Texas, we typically put our meat in a smoker or on the BBQ pit, but this time, something was getting roasted on a spit Lord of the Flies style. I volunteered to drive up early and help prepare the feast. Below is a picture of the me manning the fire. Great memories. ...

If you are an LGO with a family, you have extra duties in making sure that you are nurturing and providing support. This weekend at the pig roast was another time for the LGOs with families to bring them out and enjoy a picturesque outing in New Hampshire. There were horses, carriages, food, laughter, and joy. Truly having a family and being an LGO is probably one of the best situations to be in.

Life as an LGO in the fall

Fall is a time for change in Boston. The temperature, along with the foliage, is slowly changing indicating the start of another class of MBA students at MIT. For an MBA student at Sloan, the time in the beginning is some of the most exciting, as well as the most demanding. At MIT, a first-year (a first year MBA student) begins the Sloan Core. The courses are Economic Analysis for Business Decisions, Financial Accounting, Communication for Leaders, and Operational Processes. The core is special at MIT as you get all the classes that you need to take finished in one semester which give you incredible freedom in what you can take later on in the program. Although you work pretty consistently during the week, you also find time to network and build relationships with fellow students. This is usually through an activity such as a C-Function, trek, or simply going out to a local pub. As an MBA student, your network is just as important as the skills that you pick up in class. So the impetus for building this network and making connections should be given equal weight throughout the program. As an LGO, I find that one of my greatest challenges is to balance what I like to call the "activity deluge." To put it simply, you have to decide what NOT to do instead of what to do. For example, any given day of the week that ends in y, you could potentially be: 1) Getting caught up on reading, studying, engineering/business homework 2) Going to a company informational session 3) Attending a hackathon or start-up meeting 4) Playing a sport with other sloanies 5) Partying with other classmates celebrating being done with step 1 (only for a night) 6) Attending a guest lecture on some interesting subject 7) Going to a club meeting such as the MIT dance team, or cycle team, etc 8) Getting caught up on sleep :) 9) the list goes on. There is literally something to do every minute of every day you are in this program. This forces you to use some sort of organizational tool to schedule everything you want to squeeze in during the week. I prefer gmail calendar but some folks get by with gasp, a written calendar book. Truly, deciding what not to do is a great position to be in and you can pick out the things that matter most to you. For me personally, I want to experience everything that Sloan and the LGO program has to offer. This usually means less sleep and rest. I couldn't be happier. Here are just a few fun photos: This is from the Polar Beverage Plant Tour (awesome experience)

The is from the 80's C-Function Party (great night!)

This is my great summer core team (I really miss those peeps, they are awesome)

Summertime and the livin is easy?

The summer portion of the LGO program is one of the busiest and "most awesome" times according to many LGOs. In fact one of the cool things we had the pleasure of experiencing together was building planes for our Lean Tools class. This 8 hour marathon session teaches you about the importance of improving (leaning) your process, determining waste, finding the root cause, takt time, cycle time, touch time, etc. My team (infinit8) help set the record for plane building in this specific class session, and this wouldn't have been possible if we didn't use Lean principles.

What you see here is my team's attempt to corner the double capacity jet market. Special thanks to Ryan for constructing the jet engines. We also get to do some fun "mathy" things, especially in our System Optimization class. For an example:

This is a revenue maximization during markdown periods problem. Fun. Many folks get overwhelmed at the amount of work, readings, and cases that needs to get done. And what is likely impossible for one, becomes much more tenable, and enjoyable, when working in the summer teams of 6. That is a time to really get to know your classmates and it makes the whole summer way more easy. Here is my team; I couldn't be more impressed with them.

Andreas wasn't in that picture. So here he is being the first one up the obstacle on Thomson Island.

Yeah. Summertime and the livins easy...

Finding Time to Relax and Enjoy the Tech Dingies

When you jump on the LGO train, you will find it very easy to immerse yourself in a myriad of tasks and activities, and once the train of readings, cases, p-sets, and meetings gets going, the ability to jump off and enjoy the amenities at MIT is a challenge. As an LGO, I have become quite judicious with my free time and I have picked up activities and hobbies that provide nourishment to my soul and body in some aspect. Sailing at MIT was something that I absolutely had to try and the picture above was taken at my very first sailing class, given on Sunday's at the MIT Sailing Pavilion. How many universities have a sailing pavilion 100 m from campus which allows you to learn and operate a "tech dingy" with impunity? That day on the Charles was a remarkable one indeed, firstly because I was able to experience it with another LGO, and secondly, as we were able to tack, jibe, and dock the boat without ending up in the drink. That day is one that no one should miss. Just a few of the other notable activities that LGO's are participating in are: An LGO game days sundays Basketball games fridays Karaoke nights on thursdays