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Global Supply Chain News: Digitization to Transform the Container Shipping Industry, Euro Academic Says


Era of Fixed Sailings will Give Way to More Flexible Systems that Focus on Time-Definite Deliveries, Driven by New "Super Shippers"

June 13, 2017
SCDigest Editorial Staff

The ocean shipping container may indeed be the "box that changed the world," but while the invention from legendary innovator Malcom McLean revolutionized how ocean freight was physically handled, much about the movement of freight on ocean ships remained unchanged then and now.

Supply Chain Digest Says...

We already have a "super shipper," however, in Walmart, whose volumes are still some four times that of Amazon, and that has not changed the traditional business model to date,

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"It is interesting to note that the business model of liner shipping really is a legacy system," writes Roar Adland, shipping chair professor at the Norwegian School of Economics on the web site. "Basically the previous system of fixed sailing frequencies was continued from the days of the passenger and freight steamers, harking back to the days of the British Empire."

But Adland expects the long-term status quo to change soon, driven by digital innovation and new entrants into the market for moving freight.

Buyers of ocean freight really don't really care about sailing frequencies, and often don't even really care all that much about transit times, depending on what's inside the box, Adland says.

"What they do care about is a guaranteed time of delivery at the destination," he notes, arguing that digitalization will eventually mean that ocean transport of containers will be organized in a much more efficient manner, or what Adland calls "on-demand container shipping."

What will that look like?

Adland says that digitization and the corresponding changes in the global manufacturing networks will make the current business model seem even more inefficient than it is today. Why?

"A more distributed manufacturing network (e.g. local production) and more personalized on-demand production replacing mass production, will lead to a completely different logistics network," Adland says. "The transportation network will itself be "distributed: in the sense that point-to-point volumes may be smaller and less predictable but where the number of points served is greater."

Sounds to SCDigest like ecommerce coming to ocean freight moves.

Adland says that the winners in this system will be those that have some "visibility of these complex flows and effectively control the logistics – think the future Amazons and Alibabas of the world."

With enough aggregation and digitalized visibility of the cargo flows, what Adland calls "super-shippers" will be able to organize ocean freight in a more optimal manner than is the case today.

"This may involve more precision chartering of only the tonnage needed, departing only when needed (and presumably with the highest possible utilization along the route), and servicing only the ports needed for the particular voyage," Adland says. "This is basically the concept of "transportation as a service" applied to ocean freight," adding that" this is exactly why Alibaba's efforts in consolidating outbound Chinese ocean freight on their digital platform OneTouch is so fascinating."

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The multi-billion dollar question, of course, is where this leaves current ocean container lines, nearly all bulking up with larger and larger megaships, operating in alliances with other carriers that are resulting in fewer sailings, research rom Lloyd's and others is showing. That doesn't sound at all like on-demand container shipping.

"It is unlikely that super-shippers will see ship operation as their core business, and rightly so," Adland concludes, meaning concerns about Amazon Shipping coming in as a direct competitor to the top names in the industry are likely overblown. But, as signaled by the relationships currently being forged, "it is more likely that operators and super-shippers will join forces in optimizing the logistics.

In fact, a major benefit of a new business model where utilization of assets trumps frequency is that the economics of chartering a vessel improves even if container rates do not increase, Adland says. A completely different and more complex picture emerges when looking at optimal vessel size, fleet mix and the economics of tonnage providers, he observes.

Our view: It is interesting to note that the basic sailing model hasn't much changed in 50 years since the dawn of the container era. And as we noted, carriers are in effect doubling down on that model with the megaships and the alliances. We already have a "super shipper," however, in Walmart, whose volumes are still some four times that of Amazon, and that has not changed the traditional business model to date. Still, will improved visibility to demand create a leaner, more on-demand paradigm? Likely so, but it is likely to take quite a bit of time - though Amazon might force the issue if things moves to slowly.

Do you agree with Adland's future vision? Why or why not? How fast will we see "container shipping on-demand."Let us know your thoughts at the Feedback ection below.


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