Making a fragmented and inefficient container industry more profitable through PortCDM

Making a fragmented and inefficient container industry more profitable through PortCDM
24/08/2018

Introduction

Japanese automakers Toyota and Honda are renowned for their relentless focus on cost reduction through first class optimization of their supply chains. In August 2018, they are reporting improving profits while US automakers are issuing profit warnings. Toyota and Honda have successfully connected operational databases from the supporting business eco-systems in such a way that databases can be analysed intensively (AI, Business Analytics, etc.) to identify cost saving opportunities utilizing the Japanese kaizen philosophy for continuous improvement. They have learned that data-driven enterprises are more successful.

In contrast, the self-organizing and fragmented nature of the maritime industry has traditionally deprived all actors of the data needed to achieve high levels of efficiency. Fragmentation is toxic to efficiency, but now we have an antidote – digital data sharing.

The maritime segment of the container industry is very mature, but it is low-profit, fragmented and too many operations are not optimally synchronized. However, the adoption of the principles of Port Collaborative Decision Making (PortCDM) as an enabler of the Sea Traffic Management (STM) concept for shipping companies (within or outside alliances), ports, and terminals could substantially reduce the overall costs. Adopting PortCDM could decrease ships’ idle-time and unnecessary bunker consumption, by maximising vessel and terminal utilisation, as well as by making port and land-side operations significantly more efficient. PortCDM is a gateway to digital data sharing and improved efficiency for all.

This concept note will start with a discussion of key actors (shipping lines, ports, terminals). Following this, the importance of alliances and the network effect of those alliances on efficiency in general will be discussed, and the concept note will end with a short description of how the PortCDM concept will substantially contribute to overall improvements in efficiency.
Stakeholder positioning and industry fragmentation in the maritime eco-system

The key stakeholders within the Maritime eco-system are the shipping companies, the ports and the different types of terminals. Terminals are part of a port, and the division of roles between the port and its terminals varies widely. We shall discuss the role of these three below to identify the lack of optimal communication due to a lack of (standardized) information.

Shipping companies

Shipping companies operating box vessels (containers) can be divided into three macro-categories: global operators (such as Maersk, MSC, CMA-CGM); medium size operators with a focus on specific trades (such as intra-regional operators); and niche carriers focusing on small volumes and high- revenue, protected trades (such as Matson & Zim). Liners, as container shipping companies are referred to, operate in an asset-intensive, fragmented industry that grew extremely rapidly between the 60s and 80s, resulting in a scenario where, for decades, companies focused more on fast expansion and volume business than on efficiency, diversification, technologies, and operational excellence.

Therefore, the industry intrinsically has very low profit margins and is particularly exposed to profit swings caused by price fluctuations for oil and steel (respectively influencing the cost of running and buying vessels), as well as global demand for containerised transportation. Above all, the imbalance between the global demand and the supply of vessels for years caused an oversupply of capacity.

As a consequence, freight rates have been on the decline during the last decade causing liner revenue streams to shrink. Many trade-lanes are imbalanced, resulting in high costs and no revenue associated with the re-positioning of empty containers. This is prevalent on the Asia-Europe and Asia-North America trades where often 50% of the containers in the “backhaul” to Asia are transported empty.

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