Its documentation process has remained largely unchanged for the past 600 years and were that process to be digitized, according to McKinsey & Company, shippers could save US$6.5 billion in direct costs and global traders would be looking at another US$40 billion in business.So, why hasn’t the maritime shipping industry embraced the digital industrial revolution that so many other major sectors around the world have embraced?
For starters, we are talking about a complex business sector that is necessarily inter-connected but not necessarily inter-dependent. It is also pathologically competitive and chronically unco-operative.
That is not a recipe for establishing a standardized industry-wide operational landscape on any level.
Little wonder then that shipping’s digital documentation progress has proceeded at a geological pace if it has proceeded at all.
But major shipping players know that must change. The COVID-19 pandemic’s confirmed that.
Chris Hall, Shipping Federation of Canada (SFC) president and CEO, told BIV that digitalizing the shipping industry’s documentation and applying technology to improve the efficiency of 91原创 supply chains is a top priority for shippers and the federation, which has been advocating for its incorporation in a wide range of operations for years.
In an interview prior to the federation’s Jan. 24-25 Mariners’ Workshop 2023 in 91原创, he said other countries are advancing digitalization implementation in their shipping sectors, “and we are going to be left behind if we don’t get on this.”
Being left behind in cargo movement and trade would be bad for Canada, considering that the two have contributed more than half of the country’s gross domestic product value every year since 1992. In 2021, Canada’s international merchandize trade hit $1.24 trillion.
But supply chain digitalization in Canada faces numerous hurdles. Atop the list: Too many ad hoc systems that operate in isolation and not enough political will to promote collaboration.
In short, a mix of solutions, but no mix master.
“What Canada is lacking and what we don’t do,” said SFC vice-president Karen Kancens, “is we don’t connect any of those platforms. Everything kind of exists in its own silo. So, you’ve got huge volumes of data that are flowing through these systems. But we’re not optimizing what could come of the data because the platforms aren’t connected.”
Ships entering 91原创 waters must also navigate complex bureaucratic waters to satisfy the information requirements from a wide variety of government departments and agencies.
“So, at the very beginning of the process, you’ve got a lot of inefficiencies,” Kancens said. “You’ve got a silo approach, you have no sharing of data, you have a lot of repeating … sending the same data elements to different entities. We have done very little work here in Canada on that side of it. And we need to get that in order on the regulated reporting side.”
That adds up to a significant supply chain cost and efficiency issue, considering that Canada’s export and import trade depends on foreign-flagged ships and shipping companies.
Canada’s 2022 National Supply Chain Task Force (NSCTF) report documents that significance.
Among its recommendations are digitalizing and creating “end-to-end transportation supply chain visibility for efficiency, accountability, planning, investment and security.”
But Canada is not alone in struggling to modernize shipping.
During a recent panel discussion on modernizing supply chain workflows organized by S&P Global, a financial information services company, Jaison Augustine estimated that shippers have to deal with more than 30 different documents, 250 copies and 27 to 40 regulatory and business entities with each maritime shipment of cargo.
In addition, the International Transport Forum notes that close to 50 per cent of container ships arrive at their destinations more than 12 hours behind schedule and paperwork involving approximately 200 documentation interactions along the supply chain add to congestion complications.
“So, you can imagine, it is a great opportunity for digitization and deployment of technology,” said Augustine.
But the executive vice-president and shipping and logistics business unit head for WNS Global Services, a process management company, pointed out that maritime shipping has been unable to exploit that digitalization opportunity the way banking, commercial aviation and other international industries have.
Why?
“I would argue [that it is] even more complex than these other industries …,” Augustine said. “There is no global plumbing; there is no inter-operability with systems; there are no common standards. The word electronic bill of lading was coined in the early 1990s. It is still a distant dream … in practical application.”
That non-digital bill of lading is a major obstacle to the efficient movement of marine cargo, which accounts for 90 per cent of goods shipped around the world.
A McKinsey report released in late 2022 estimates that the documentation process alone for bills of lading, most of which still rely on the physical transfer of paper records, can take six hours or more. Letters of credit, customs declarations and other trade documents also cannot be issued without bills of lading.
The pandemic magnified marine cargo inefficiencies with historic delays and logjams at major container terminals all over the world, but especially along North America’s West Coast.
So, the need to eliminate those inefficiencies is critical. But gaining elimination momentum remains the challenge.
The announced discontinuation in late 2022 of the TradeLens initiative spearheaded by A.P. Moller-Maersk (CPH:MAERSK-B), the world’s second-largest container shipping company, and tech colossus IBM [NYSE:IBM] was a major setback for applying blockchain technology and reliability to the global supply chain.
Augustine said the TradeLens announcement was discouraging.
“So, to me, it seems like the industry is still not ready to collaborate outside of their boundaries, to create common platforms and solutions.”
Also discouraged by the TradeLens failure was Rotem Hershko, Maersk’s head of business platforms.
In a statement accompanying the announcement, he said TradeLens had been launched as an open and neutral industry platform for a digitized global supply chain.
“Unfortunately, while we successfully developed a viable platform, the need for full global industry collaboration has not been achieved. As a result, TradeLens has not reached the level of commercial viability necessary to continue to work and meet the financial expectations as an independent business.”
Aside from shipping’s collaboration deficit, ocean carrier companies are burdened with a patchwork of legacy technology systems that many have and that many inherit when they acquire smaller companies or attempt to interconnect with different supply chain businesses.
Augustine added that upgrading employee skills and technological expertise is as important as technology in making any progress in digitizing marine cargo supply chains.
“This is not an industry where you can flip a switch and everything is going to work automatically, particularly in an expanding complex regulatory environment. You have the tariffs, and you have the sanctions. And you have all kinds of restrictions that you have to go through, which create more regulations and complexity to how you operate globally. And then you have all the sustainability initiatives, which again, require a lot of documentation and tracking of your entire value chain. How do you do that? You can have 21st century technology, but you cannot deliver that with 20th century people.”
So, what are the odds that the global marine cargo sector can find the collective collaboration, focus and funding needed to tap what the World Economic Forum estimates is a potential US$1.5 trillion digital efficiency payoff for logistics companies?
McKinsey’s report on unlocking global trade by digitalizing documentation thinks those odds are good.
It cites evidence from frontrunners in the market and comparable digitalization journeys in other industries that show ocean trade “can adopt digital trade documentation in three to four years and reach 100 per cent adoption by 2030.”
The report noted that the airline industry and the International Air Transport Association (IATA) increased the adoption of an electronic air cargo process from a small percentage in 2012 to more than 50 per cent five years later.
Meanwhile, the Digital Container Shipping Association (DCSA) is developing digitalization standards for smart containers, track and trace data and other ocean carrier processes.
The DCSA was formed in April 2019 by nine of the world’s largest ocean carrier companies to establish industry-wide standards for electronic bills of lading, vessel schedules and other information exchange building blocks.
The McKinsey report estimated that the IT investment required to incorporate a standardized digital bill of lading in ocean carrier operations is relatively low.
In an ocean carrier industry that generated US$400 billion in profit during the pandemic shipping boom that stretched from the second half of 2020 to the tail end of 2021, that investment should be manageable. It also makes good business sense, considering that it would be more than offset by savings from lower operating costs and increased supply chain efficiencies.
Aside from cost and inter-company co-operation complications they face, ocean carriers and other key links in the global supply chain have concerns about increased threats of cyberattacks that will accompany a more digitized shipping sector.
But, as the ITF notes, establishing at least minimum cybersecurity standards within the industry and systematically raising company and employee awareness about potential cybersecurity breaches would go a long way to reducing their threat to shipping operations.
The financial, environmental and economic benefits of applying digital efficiencies to the global supply chain far outweigh the potential disruption from cybercrime.
91原创-based Seaspan Corp. agrees.
Torsten Pedersen, the company’s chief operating officer, said digital transformation has become critically important for Seaspan, which is the world’s largest lessor of container ships. That importance is based not only on overall operational efficiencies for Seaspan but also on value-added propositions it can provide customers from deep data collection and environmental benefits it can generate from precise and automated measurements of moving containerized marine cargo from Point A to Point B.
“With the scale we have and with the scale that many of our customers have, even small improvements become bigger …,” Pedersen said. “On top of that, [because] we work with everybody, we can generate better benchmarking data, help our customers optimize their operations [and] then that’s a value-add for everybody. And while many of our big customers can benchmark themselves, we can benchmark them against everybody else.”
But, as the NSCTF report points out, because Canada remains behind other countries in modernizing its supply chain processes, “an intense and urgent focus on digitalization is needed to compete internationally.”
It estimates that investments of $4.4 trillion, or approximately $88 billion annually, are needed over the next 50 years to retool a transportation supply chain that “is reaching its limits.”
The main challenge here will be rethinking how the country approves and executes major infrastructure projects.
“To address our supply chain challenges, we need more infrastructure, we need better rail connections, better road connections, ports, bigger terminals,” said Kancens. “And that’s all great, yet we live in a country where the approval process for major infrastructure projects is really, really bogged down.”
She added that the main challenges in Canada and in other countries are more on the government regulatory side than on the technology side of the equation.
“It’s everything that’s on the analog side. It’s getting institutional buy in; it’s getting stakeholders, particularly on the government side, to change the accepted way of doing things. It’s behavioural change. And it’s difficult to implement. You also need leadership. You need people within government to advocate for this or it’s just not going to move. So, it’s driving the need for institutional change … and you’re not going to get that without political will.”
