Điều khoản Logistics Digital Transformation Status and Forecast of Container Shipping Industry

Since Klaus Schwab suggested “the Fourth Industrial Revolution” at the World Economic Forum (WEF) on January 20th, 2016, discussions regarding it have continued in every industry. The keywords of the Fourth Industrial Revolution are “Hyperconnectivity” which blurs physical boundaries between industries and “Superintelligence” which analyzes hyperconnectivity.

Almost every industry including maritime logistics is witnessing new businesses by connecting industries and analyses, which is called “Digital Transformation.” Digital transformation is about creating new businesses by combining digital and physical factors.

In general, digital transformation progresses through three stages. The first stage is Digitization, which converts analog information into digital information. The second stage is Digitalization that utilizes information and communication technology (ICT) and accumulates information. The last stage is Digital Transformation, which creates new business models through hyper-connectivity, automation, etc.

The reason why digital transformation has become important in the container shipping industry is that it enables smarter logistics services and improves efficiency. Boston Consulting selected seven technologies essential for digital transformation in the shipping sector, which include platforms, IoT, Maritime Autonomous Surface Ship, blockchain, cyber security, etc. These technologies are widely applied in the Planning-Operation-Commercial-Support fields.

In particular, the container shipping industry that transports intermediary or end products is relatively faster in digital transformation than other ship types (dry cargo, tankers, etc.). This is because the container industry has great potential to be used in platform business that directly connects manufacturers and consumers. In other words, while cargo is mostly transported as a single item mainly by large shippers, containers transport diverse cargoes of small shippers, which raises high demand for convenience from small shippers when signing transport contracts. And this inconvenience can be addressed by a platform business.

Three effects could be expected through digital transformation in the container shipping market.

First, an improvement in container services. A representative service is “Instant Quotation”, the real-time reservation service provided by global container shipping companies and digital forwarders. As real-time booking services in the container industry become available, it not only creates new sales channels but also reduces transaction costs. In 2022, a European digital logistics platform company conducted an interesting experiment, requesting quotations for a specific route to 155 shipping and logistics companies. However, among these companies, only 54 responded and only about 20 sent the exact quotations for the requested route. (Quicargo 2022).

Moreover, the gap between the suggested lowest and highest freight rates was more than 200%, showing a serious asymmetry in information about freight rates for shippers. However, when using the provided platform through digital transformation, shippers have the advantage of conveniently comparing and analyzing freight rates at any time. Ocean carriers can not only collect information on shippers but also use these data in various ways for sales activities in the future.

Second, an expansion of container services. In order for products to be delivered to consumers in cross-border transactions, they go through various stages, including inland transportation-port (customs clearance)-sea/air transport, etc. Traditionally, companies of each service of transportation are fragmented. For example, container companies are responsible for transportation between ports, and inland transportation companies are in charge of transportation from ports to destinations. However, platforms offered by shipping companies and forwarders integrate and connect fragmented transportation stages. Shippers can use those services without having to find out rates for each step, therefore service expansion occurs for both users and providers. Some global carriers are attempting to transform into comprehensive logistics companies by providing door-to-door services on their platforms.

Third, cost reduction. For shipping companies, cost reduction is possible through optimizing fleet operation and container boxes. According to a study by Hu, Huang & Zhao (2019), an additional income of approximately $120 million could be obtained by comparing traditional slot allocation methods and optimization through the platform for intra-Asian container services. In addition, it analyzed that optimizing empty containers resulted in cost reduction.

Optimization is also used in operations where fuel consumption can be reduced by suggesting an optimal route using the external environment (tide, wind direction, wind speed, temperature, etc.) and operation data (fuel consumption, engine power, etc.). Global container shipping companies, including Maersk, are reducing fuel consumption by 3-5% through route optimization. In addition, the number of carriers introducing and operating this system is gradually increasing.

In addition, shipping companies can reduce back office manpower thanks to the expansion of platforms. According to a study by Han et al. (2022), about 300 quotations are sent in order to conclude five maritime transportation contracts. Offline transactions inevitably require investment of manpower's time and expenses, but using a platform can decrease the manpower and costs required to manage this, thereby reducing costs for shipping companies.

Through digital transformation, shippers can lower logistics information costs to streamline purchase, transportation and inventory management, and logistics management costs to plan reasonably and coordinate logistics activities. With the digital transformation, carriers and digital forwarders can reduce manpower input, time, and costs incurred during cargo transportation by offering software as a service (SaaS) to shippers. In the “Corporate Logistics Cost Survey” conducted by the Ministry of Trade, Industry and Energy, it said logistics information and management costs among Korea's maritime transportation costs as of 2021 were KRW 243.5 billion and KRW 743.2 billion, respectively. Therefore, digital transformation is expected to be a means of reducing logistics information and management costs.

In August 2018, TradeLens, a blockchain supply chain platform jointly invested and developed by Maersk, the world's largest container carrier, and IBM, decided to withdraw from business in early 2023. This served as an opportunity to change the digital transformation trend in the container industry. An awareness that no matter how good a service is, with various effects such as better efficiency and lower costs, etc., it cannot succeed in a market without public participation spread. Accordingly, the digital transformation taking place in the container shipping market in the future is likely to focus on universal businesses that users can relate to.

The first feasible business model is electronic bill of lading (e-B/L). Existing paper B/L not only incurs costs for issuance and storage, but also has the risk of being lost during the distribution process. However, since they can simplify trade procedures by reducing transaction costs and related document administration, all users in cross-border transactions want to adopt e-B/L. It is already introduced and operated in some areas, but its share is not yet high.

However, the Digital Container Shipping Association (DCSA), of which 9 of the top 10 global container shipping companies are members, has a goal of utilizing e-B/L by 100% by 2030 and is currently working on standardization to achieve this. Additionally, global shipping companies are working hard to expand e-B/L, such as GSBN (Global Shipping Business Network), in which Chinese shipping liner COSCO participates, already offering “Cargo Release,” a blockchain-based e-B/L service.

Second, carbon emission measurement and management business can be realized through digital transformation. Not only IMO, an international organization directly relevant to the shipping industry, but also all countries around the world are implementing regulations for decarbonization. In fact, companies recognize carbon emissions as a cost. In particular, the scope of greenhouse gas emissions is expanded from Scope 1 (directly emitted by companies) to Scope 2 (includes electricity used by companies) and Scope 3 (indirectly emitted, such as during distribution). Although there are differences by country, listed companies/banks/insurance companies with more than 500 employees in the EU, and large companies with a market capitalization of more than $700 million in the US are required to disclose Scope 3 from 2025. Therefore, it is expected that carbon emission management by container shipping companies who transport goods will take up bigger part.

As carbon emission measurement is fragmented in the manufacturing and service industries, it is difficult to integrate and manage it. That’s why pre-calculated standardized values are currently applied to sections where it is hard to estimate carbon emissions. In order to proactively manage carbon emissions, establishing a system that can accurately measure carbon emissions should precede.

The EU's Emission Trading System (ETS) has been launched in the shipping industry from this year. Thus, carriers are required to purchase carbon credits equivalent to their carbon emissions. Shipping companies buy carbon credits but the actual bearer is shippers, therefore carbon emission management is inevitably essential for both carriers and shippers. When looking at the ETS surcharges borne by shippers announced at the end of 2023, it was found that the rates charged by each shipping company differed significantly.

The ETS surcharge varies by each service depending on the size of ships and calling ports, but since the difference between the lowest and the highest surcharge is more than 100%, it may feel unreasonable for shippers who pay the cost. Thus, container shipping companies need reliable data on surcharges which can be backed by new businesses created by digital transformation.

As digital transformation means creating new businesses by combining various technologies, it may be unfamiliar to both shipping companies and shippers. Many global shipping companies and forwarders are strengthening their services for shippers, centering on digital transformation. Also, it can be a chance for shippers to enhance efficiency by utilizing these services. In the era of digital transformation, carriers, forwarders, and shippers all need to equip themselves with capabilities to make use of services. # Reference Hyang Yeon Lee (2022), Top-Tier Shipping Company Digital Transformation Promotion Strategy, pp. 1-34.
Gun Woo Choi (2022), A study on countermeasures of the container shipping industry in the post-covid era
Boston Consulting Group(2018), The Digital Imperative in Container Shipping
CARGO RELEASE APPLICATION Guide(https://www.gsbn.trade/cargo-release)
GHG Protocol (https://ghgprotocol.org/)
Han, T., Yang, D., Ji, P., & Wu, C. L. (2022). Effect of online quotation platform on container shipping orders. Maritime Policy & Management, 1-15.
Hu, J., Huang, Y., & Zhao, X. (2019). Research on the slot allocation of container liner under E-commerce environment. Computers & Industrial Engineering, 129, 556-562.
Quicargo, https://quicargo.com/blog/requesting-shipping-quotes/
Upply, https://market-insights.upply.com/en/container-shipping-surcharges-back-in-fashion

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