Shipping & Logistics

Building Sustainability into Logistics with End-to-End Intelligent Automation

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Author(s)

Abhishek Singh

Senior Director – Digital Transformation, Shipping & Logistics

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Key Points

Amid rising regulatory scrutiny and a slew of marketplace changes following the pandemic and geopolitical disruptions, shipping and logistics companies are under pressure to build sustainable business models at a lower cost.
Even as enterprises contend with an evolving and volatile marketplace, the lack of automated and intelligent systems is impeding them from achieving their sustainability goals.
Digitally integrated systems underpinned by intelligent automation, analytics and advisory services are the key to future-proofing enterprises while ensuring larger and more sustained gains.

As the world shifts back into high gear, the global logistics market¹ is set to soar to USD 13,326 Billion by 2027. To make the most of this exciting opportunity, the Shipping and Logistics (S&L) industry must address and overcome some of its most pressing challenges.

This is where sustainability in the S&L sector is becoming critical. Over the past decade, stakeholders have been putting pressure on companies to build true value based on their economic, environmental and social impact and by touching upon every aspect of the industry value cycle to establish a seamless connection between business and sustainability goals.

Since the brush with a deadly global pandemic, logistics companies have become less reactive to this mandate and more proactive in their approach to sustainability. Many are seized with the urgency of embracing advanced technologies, analytics and advisory services to future-proof their businesses while improving efficiency and productivity.

A Closer Look at the Key Changes and Challenges

As S&L companies strive to unlock next-level efficiencies, hindering them are challenges around continued and intense regulatory scrutiny, a looming increase in costs (of fuel, continuing port congestion, and charter and contract rates) and the pressures of expanded Mergers and Acquisitions (M&A).

1. Increased Regulatory Scrutiny

Even as enterprises look to re-vitalize their supply chains post-pandemic-induced lockdowns, port congestion and container shortages have plagued international business. Carriers made record profits in 2020 and 2021, primarily by charging higher prices to offset the enormous rates they have had to pay at ports. Drewry, an independent maritime research consultancy, reports that, in 2021, ocean carriers generated about USD 190 Billion in profits² and USD 130 Billion in fresh cash!

This has led to intense regulatory scrutiny amid concerns over possible market concentration and allegations of profiteering amid the global supply chain crisis. In fact, the US Government and the Federal Maritime Commission (FMC) are looking into importers’ complaints about excessive detention and demurrage charges, and exporters’ allegations of carriers not allocating adequate equipment for American exports on the backhaul legs.

This increased scrutiny will likely be a persistent trend over the next two years until the market situation is corrected and a semblance of parity is restored between carriers and shippers.

2. Anticipated High Costs for Carriers

Carriers now have to likely contend with increasing fuel costs, continuing port congestion, high charter rates (due to supply constraints) and high contract rates (either spot rates or long-term agreements with higher-than-average contractual rates).

Additionally, shipping carriers must comply with regulations lowering the permissible sulphur content in bunker fuel or else face penalties and risk negative publicity. Carriers have recourse to three options to ensure compliance, each involving considerable cost and specific pros and cons:

Installation of scrubbers (aka exhaust gas cleaning systems). This will involve heavy upfront CAPEX investment, in the range of USD 1-5 Million depending on vessel type and size. It will also bring about a loss of revenue and and slots during retrofitting. Plus, quite a few ports do not permit vessels fitted with open-loop scrubbers, as they frown on the discharge of scrubber wash water into their territorial and port waters
Purchase of Low Sulphur Fuel Oil (LSFO) bunkers that re compliant with mandates. While this addresses the issue of time and money lost in retrofitting, it causes a surge in operating expenses owing to the much higher cost of LSFO fuel
Use of an alternate fuel type, such as LNG, which poses its own challenges, such as initial capital investment and time to install

Companies are now investing in CFO advisory services and analytics-driven business insights to understand the best options.

3. Growing Emergence of Integrated Logistics Services Providers (ILSP)

Carriers are flush with cash from the record 2021-22 profits, and there is a growing cognizance of the necessity of strategically utilizing this windfall to strengthen their competitive position. A phenomenon that has been gaining traction over the past few years is the rise of ILSPs. This essentially refers to container carriers or port operators making concerted efforts to diversify their product portfolio, build last-mile delivery capabilities and provide end-to-end service. We may call it the evolution of pure-play transport or terminal owners into end-to-end transport and supply chain-related services providers.

Carriers like Maersk have always had a freight-forwarding arm and have now focused on targeted acquisitions in key markets. Other carriers have acquired global freight forwarders — CMA CGM acquired CEVA Logistics and MSC acquired Bolloré Logistics, to name two instances.

Instances like these are likely to place a strain on operating expenses. Logistics companies will need to tie up with partners who can offer efficient levels of standardization and digitization at different levels of the value chain.

The Way Forward for Agile, Future-ready Enterprises

Sustainability and growth outcomes at S&L enterprises often fall short of the goals, not just because of changing socio-economic and governance scenarios but also owing to foundational issues such as disparate warehouse management, transport management, order management and Enterprise Resource Planning (ERP) systems. Many firms are turning to automation and digital technologies to bring together the fragmented data troves for unified data sharing, meaningful analytics and the right insights for cost-effective operations.

Automated warehouse management systems can use Artificial Intelligence (AI) algorithms to connect warehouses and distribution, to name a few, and provide greater operational visibility and transparency. This, in turn, reduces time and effort to trace and recover products, thereby minimizing waste and potential penalties from delays and compliance issues.

A seamless, automated system for air cargo carriers can assure ‘anywhere, anytime’ delivery with speed, agility and flexibility through freight capacity optimization, thereby driving operational efficiencies and accelerating revenue growth. For shipping companies, it can offer greater visibility with innovative digital platforms, improve productivity and profitability, and deliver a superior Customer Experience (CX). For trucking organizations, it can create efficient and responsive ‘ship-to-collect’ cycles to increase customer stickiness and revenues, and reduce cost-to-serve.

In today’s digital-first environment, deploying intelligent automation and data analytics is critical to gain actionable insights on markets and customers, and implement them with real-time speed. For example, an end-to-end automated billing platform driven by AI and ML can continuously review data, and learn and deploy the correct information in the bill of lading through an embedded business rules validation engine. Similarly, a digitally integrated CX service model can leverage human-assisted design and a digital core of technology and analytics to create a holistic digital CX.

Automation further helps prepare optimized routes and shipping schedules, leading to reduced emissions. Freight automation addresses the backlog and congestion that shipping companies face. Several S&L companies have integrated automation, including robotic offloading and autonomous vehicles, into their working systems. A case in point: robotic offloading has increased the speed of cargo handling at Holland’s port by 50 percent.³

Taking it several steps further, the industry is now exploring the development of automated cargo ships as a viable option. We are also seeing the emergence of environmentally friendly shipping technology trends, such as voyage optimization and low-carbon fuels, which enable S&L companies to keep up with and address newer regulations.

An example of it all coming together is the Port of Rotterdam Authority’s USD 4 Billion project Maasvlakte 2⁴, the most advanced port in the world. Leveraging advanced and intelligent automation, the port handles integrated operations of ship-to-shore cranes, container navigation, self-unloading and more. In 2013, the existing port handled 12 million containers. By 2035, the advanced new port, with its flexible design suited for varying demand, will be handling a staggering 32 million containers. The energy needs for these vast and seamless operations are planned partly from windmill systems and coal and biomass plants. In addition, a large-scale carbon capture and storage demo program looks to put millions of tons of carbon dioxide a year into empty undersea oilfields.

For logistics companies, both the sender and receiver are equal customers. Holistic customer-centricity calls for active collaboration with various stakeholders to design innovative solutions around expressed and unexpressed customer needs. It is indeed time the shipping and logistics industry looked with greater intent and action at freight automation services. If done right, there is no doubt that it can raise the performance levels of companies while pushing the economy and society toward sustained success.