Container carriers have tried integrating ocean and overland transportation before; it may have a better chance to catch on now thanks to supply chain technology advances.
This year has seen a resurgence in the idea of container carriers integrating ocean and overland transportation to provide a more seamless shipping experience for cargo owners.
Industry leader Maersk kicked off 2018 by announcing its vision to become a global integrator of shipping and logistics services, and other container carriers are expected to follow suit.
In April, French carrier CMA CGM took a 25 percent stake in third-party provider and freight forwarder CEVA Logistics, not long after announcing its plan to build and operate a 10,000-square-meter cold storage facility at the London Gateway container port in the United Kingdom. And Chinese state-owned line COSCO has been aggressively expanding its landside logistics capabilities in Asia and Europe in support of China’s Belt and Road initiative.
The concept behind a true end-to-end logistics service is nothing new, but it may have a better chance to catch on this time around thanks to the accelerating development of supply chain technology.
Early Stumbles. First, let’s examine a few of the reasons previous attempts at integrated services have not been successful.
The development of shipping lines’ logistics business has taken a variety of forms — from low-level logistics service add-ons such as customs management, inland haulage and LTL consolidation, right through to separately branded full-scale 3PL businesses — but thus far none have made a significant breakthrough in the market.
Part of the reason for this is that regardless of the form they took, these logistics activities have generally operated as peripheral businesses supporting the carrier’s main liner network. They have been used as an instrument to secure large-scale beneficial cargo owner (BCO) volume and target strategic business on key trades.
As a result, shipping lines have struggled to integrate their asset-based liner operations with the non-asset-based, mode-neutral and more entrepreneurial-oriented forwarding and logistics activities. The human resources required to operate and manage these myriad businesses is very different and not easily compatible, and even logistics companies continue to struggle with integrating their transaction-based freight forwarding activities with process-focused contract logistics work.
In the vast majority of cases, these remain separately managed entities, supported by coordinated client management teams.
Meanwhile, the inland portion of the container shipping supply chain is under intense pressure to achieve rapid efficiency gains.
The evolution of carrier alliances and larger vessels have increased the risk of congestion if smart planning and shipment release systems are not in place at ports and terminals, making the integration of inland and port operations a key factor in overall supply chain velocity and efficiency.
And increasing compliance requirements, whether for security or environmental purposes, require more data to be passed and checked on the land side.
Shrewd cargo owners also understand the opportunity to make additional gains in efficiency if they gain access to more information around detention and demurrage charges, and their expectations for more land-sea integrated services present a clear opportunity for technology-driven operators.
Digital Drivers. So what has changed? For starters, the digitization and automation of basic logistics transaction tasks have provided opportunities that did not previously exist, such as end-to-end visibility and up-to-the-minute execution, landside logistics connectivity, electronic documentation, supply chain financing and cargo insurance.
The development of connected containers using smart devices has allowed for near real-time geolocation and calculation of lead time and exception management and can easily feed a BCO’s “control tower” logistics operations with actionable data. Some recent studies on smart container solutions indicate potential savings on in-transit inventory of 10 percent and a 40 percent improvement in estimated arrival times.
These applications enable carriers to strengthen their value proposition to BCOs by providing direct control and visibility on sensitive goods. With continued investment in remote monitoring technology, as well as inland facilities, it will soon become feasible for shipping lines to offer an integrated end-to-end cool chain solution incorporating quality assurance, packing and final-mile delivery.
Telematics and mobile applications are enabling easy-to-use, low-cost communication between container drayage depots and operators. This traditionally fragmented activity can now be operated remotely and synchronized more efficiently. Adoption of such connected technology has enabled some operators to increase handling capacity by as much as 40 percent.
Technology is driving the automation of paper-based tasks that have traditionally been performed by freight forwarders. In particular, the development of electronic documentation, such as bills of lading and certificates, alongside simplification of global trade and compliance management systems has facilitated such advances.
A joint venture between IBM and Maersk to study the potential use of blockchain technology to simplify and secure the end-to-end documentation trail demonstrates the potential for shipping lines to take over the supply chain data pipeline process from traditional incumbents and the likelihood that other carriers may invest in similar collaborative platforms.
In addition to control of the end-to-end physical cargo movement and associated information flows, the one-stop-shop logistics solution can be further improved by the inclusion of trade finance and cargo insurance.
CMA CGM, for example, has already recognized this potential with the recent launch of its Serenity insurance service, which includes an insurance policy to cover costs in case of container damage during handling and another mechanism that aims to compensate shippers in instances of payment default by their customers.
Large BCOs have ready access to funding to support their supply chain finance requirements, but SME shippers face challenges in this regard and will therefore be a particular target of smart trade finance and payment solutions.
Other Avenues. Technology is not the only way to attain the goal of integrated shipping solutions, as any technology has its specific limitations, and challenges remain in certain areas where standard digital solutions do not apply.
Customs declarations, for instance, are a country-based process. In many states, they require complex, paper-based human intervention, something that simply cannot be fully standardized and digitized.
Carriers may struggle to compete with more process-orientated incumbents, despite the potential offered by rising cross border e-commerce and less-than-container-load (LCL) trade.
In addition, forwarders and 3PLs tend to be more client focused on an intrinsic level, as the value of their asset-light business is driven by the book of customer business they control. By contrast, the value of a carrier’s business is determined more by its assets and its value creation than by how it leverages these assets.
Forwarders have proven to be very capable at customer acquisition and retention, as witnessed by their growing share of the container shipping market, but technology alone cannot bridge these sometimes conflicting aspirations.
Furthermore, forwarders having access to multiple service providers across different transport modes enables them to provide a more credible response to reliability and supply chain resilience concerns than carriers, however horizontally integrated, possibly could.
Adding another variable to the mix, global container terminal operators are significantly increasing their control on landside logistics. DP World, for example, has acquired logistics companies in India, which recently unveiled a $3 billion investment plan for inland logistics infrastructure.
Similarly, PSA International has taken a 60 percent stake in an inland translating and storage terminal in Ashcroft, British Columbia, just east of the Port of Vancouver, giving the terminal operator access to a direct link to the main rail network of Canadian National.
Because ports must attract shippers, and by extension the carriers that serve them, cargo owners are at the center of these initiatives.
One example of this dynamic is the Peel Off program at the Port of Los Angeles, which aims to increase shipment velocity for high-volume shippers by putting containers on the next available truck, similar to how taxi cabs pick up passengers at the airport.
Existing Examples. Integration of land with sea operations is more than a simple service enhancement of traditional maritime service providers. It provides new service options and additional value for BCOs as well as broader economic and environmental gains.
In June, the newly formed shipping company ONE and Genesee & Wyoming’s U.K. intermodal train transport subsidiary Freightliner signed a partnership that will not only bring reliability, safety and sustainability but reduce greenhouse gas emissions by nearly 70 percent when compared to road transport.
Over the last decade, short-sea carriers have demonstrated their ability to develop door-to-door integrated services — including warehousing and distribution network coverage as well as payment solutions — with a much higher degree of customer centricity than large carriers.
Deep sea container shipping lines have been keeping a close eye on this approach, hoping to expand the model on a global scale, but it will require a certain degree of standardization and packaging of logistics services that can be brought to market and operated at scale.
The recent launch of faster and guaranteed services by the likes of APL and Hyundai Merchant Marine is a step in this direction, as are investments in short-sea operators.
Even so, integration remains the key and technology the differentiator.
Inland container logistics needs scalability, data and process re-engineering. It requires market-wide adoption and alignment of players’ operational systems through an acceptance of a minimum set of standard practices. This will not be easy as it may require public and multiple private stakeholders to collaborate.
Moreover, there are certain structural challenges involved depending on the region, like chassis management in North America, for example.
And carriers may still struggle with forecasting their empty container positioning needs.
Beyond technology, simply moving to more standardized processes can be a challenge in and of itself. And the key to success of carrier one-stop-shop ambitions remains their ability to integrate disparate entities with different business models and skills sets.
In the past, these challenges were too great to overcome, but the goal of a carrier-operated end-to-end logistics service may now be more achievable with the support of technology.
Philippe Salles is the head of e-business, transport and supply chains at Drewry Supply Chain Advisors. He may be contacted via email at [email protected].
