Risk and the Power of Logistics

Progress is not a straight line on a graph with the X Axis being the measurement of time and the Y Axis the measurement of progress.

Many people, especially the English, used to think that it was. This English belief was known as the Whig interpretation of history. The phrase came from a short book with this title by Herbert Butterfield in which he described this view of the world as “the tendency in many historians to write on the side of Protestants and Whigs, to praise revolutions provided they have been successful, to emphasise certain principles of progress in the past and to produce a story which is the ratification if not the glorification of the present.” So, the British Empire was at its height during the period in which most of the “Whig” historians were writing, therefore everything leading up to the British Empire must have been inevitable and positive. It is reminiscent of the prevailing attitudes in Rome before the arrival of Hannibal. No one looking at the political debate and possible impact of Brexit today could believe in the inevitability of that graph of progress. No one following Italian or Iraqi or American politics over the last few years could see progress as anything other than a squiggly line drawn by a child with a crayon on the wall.

Many people in the energy industry grew up with a Whig interpretation of oil and gas prosperity. At the peak oil prices of 2008, when oil was $147.27 a barrel, its highest price ever, the present looked amazing so everything leading to that moment must have been amazing as well. Even the oil price shock of 1973 and the resulting policy changes that came could be read as a needed corrective on the road to the future. After all it eventually led to the Shale energy revolution. The combination of the financial crash and the rise of the climate movement should have banished Whigs from the energy industry forever, but there are lingering holdouts for this linear view of the world, most importantly in how we look at risk.

If you think history is about steady progress then you will think risk is a steadily reducing quality in the life you have to manage. It is not. Risk is a bundle of wires you are trying to untangle every day. You have to look at it and think. There is no point in either trying to hide it in a drawer or in just pulling on one part of tangle in the hope that the rest will untangle. Risk is a many-headed beast and you cannot tell which head will bite first. There has never been an era of such electrifying elements of risk which we must manage. In the Cynefin framework for thinking about problems matrix, if you work in the energy sector you begin and end the day in the chaotic and in the complex.

In this world of multi-faceted risk you have to plan. There is an unfashionable science which sits at the heart of our ability to manage risk. That is the science of planning and logistics. Information technology is at the heart of much of what Viaro Energy does as a trading company. Ninety per cent of cyber security procedures and processes are about the management of the logistics of information delivery and analysis. The underlying systems that will allow you and your company to survive a cyberattack are about good logistical process management. In doing what we do best, moving a cargo of fuel from one place to another and selling it, we are managing the many-headed beast of risk and we are managing it with a plan.

When I was young my father had a truck for making deliveries. I looked at his business and I realised that he could do much better with more than one truck but that I had to understand the logistics of moving things around to run that business. That was the first business I ran with him as a child and it taught me to plan carefully, to think about routes, supply chains, delivery schedules, weather conditions and human factors, all at the same time. Running a multinational company in this highly complex world of information flows, political change and climate crisis, the same fundamentals apply. Logistics sit at the heart of the successful management of risk and the management of risk sits at the very heart of doing well in trading in energy. It is not a poker game. Gambling is not the way to manage risk, it is the way to be destroyed by risk. In the kinds of deals that Viaro Energy has delivered so far and in the larger deals we wish to deliver in the future we cannot afford to gamble. It is not enough to think that you know the answer, you have to know that you know the answer.