From End to End #1: The Digital Value Chain of Shipping Company 4.0
Exploring the Seas of Change: How Lufthansa Industry Solutions (LHIND) is Transforming the Maritime Industry with Innovative Digital Solutions, Tackling Economic, Environmental, and Operational Challenges to Chart a Sustainable, Efficient Future
As we start our journey into the realm of digital transformation, our focus shifts to the maritime world, where the convergence of tradition and innovation creates a unique set of challenges and opportunities. In this part of our series, we delve into the intricate web of the digital value chain in the shipping industry, examining how Shipping Company 4.0 — our visionary concept — is steering the industry towards a sustainable and profitable horizon.
The sea, long a symbol of boundless opportunity and uncharted territories, now becomes the backdrop for an extraordinary digital revolution. In the next two posts, we will explore the key areas where the winds of change are most felt: (1) economic fluctuations and cost pressure, (2) staff situation, (3) complexity and efficiency, (4) environmental regulations and sustainability, (5) cyber security as well as (6) new digital standards.
Heading towards a digital future
For decades, the Port of Hamburg, the third largest in Europe, has been undergoing a profound transformation. The historic Speicherstadt has retired. Today, the HafenCity extends over an area of 240 hectares as a modern, new quarter in the Hanseatic city. The Elbphilharmonie towers proudly on the site of the former Kaispeicher A.
The port itself is undergoing a transformation towards digitalization. AGVs — Automated Guided Vehicles — transport containers fully automatically, assisted by laser-based tracking systems that support the van carriers. Autonomous trucks have successfully completed testing at the Altenwerder container terminal.
The Port of Hamburg is part of a transformation that is taking place worldwide at a rapid pace. Fully autonomous crane trucks have been on the road in Shanghai since 2018. The deep-water port of Yangshan is home to the largest automated container terminal in the world.
Europe‘s largest container handling facility at the Port of Rotterdam benefits from its own Internet-of-Things platform. Ports such as Jabal Ali are also increasingly relying on the possibilities of digital interconnectivity and technologies such as robotics, automation, and big data as well as virtual and augmented reality.
The key challenges of shipping
The technological future and the networking of port infrastructure often end at the quay wall. Yet, digitalization can help to overcome the key challenges that the shipping industry, and shipping companies in particular, face across borders.
1. Economic fluctuations and cost pressure | Blocked ports, stranded containers and disrupted supply chains have characterized the situation of the global economy in the Corona pandemic. As a result, freight rates have skyrocketed. The Freigthos Baltic Index recorded more than 11,000 US dollars per container at its peak. In the meantime, the index has returned to pre-pandemic levels with a value of 1,270 US dollars (as of July 20, 2023)
Freight rates on routes between Asia and Europe were 88 per cent below the previous year‘s level in April. The drop for routes between Northern Europe and the US Atlantic coast was around 56 per cent. The British consultancy Drewry expects importers and exporters to be granted discounts on contract rates of 55 to 85 per cent compared to the previous year. Monitoring by the Kiel Institute for the World Economy (IfW) has indicated that even goods on ships in storage will not lead to a positive turnaround.
At the same time, shipping companies are faced with rising costs. In the latest economic survey by IHK-Nord, to which 13 northern German chambers of industry and commerce belong, shipping companies identified energy and raw material prices as the greatest risk to economic development in the coming months, with 89.6 per cent of the mentions.
The optimization and cost pressure is enormous and is likely to increase in the coming years.
2. Staff situation | The shortage of skilled workers is not limited to the shipping industry; on the contrary, according to a study by PwC, the personnel situation is identified as one of the most serious problems for over half of all shipping companies (55 percent).
There is a lack of young talent in many areas. As well, new qualifications are also needed for the digital transformation. As a result, there is a considerable need for training and retraining measures within the companies, new ways of recruiting and further development of existing management skills within the organization.
In fact, there’s been a decrease in new entrants to the shipping industry. This is why shipping companies must focus on maintaining a positive external image to attract new employees.
3. Complexity and efficiency | The processes and constellations of different stakeholders that shipping companies deal with daily are becoming increasingly more complex. This also applies to the internal organization of many shipping companies, at all levels: from the organization chart to the IT landscape to ship operations. Nevertheless, it is essential to manage this complexity; otherwise, it can give rise to a cascade of consequential problems and impede the overall organization’s flexibility and agility. This can be effectively illustrated with a few examples.
In logistics, for example, shipping companies must deal with a variety of operational processes — the coordination of ship movements, different cargo types and quantities, ship maintenance and safety. The shipping industry is also highly regulated and subject to national and international regulations regarding environmental costs and working conditions.
Shipping companies often have high investments in vessels and infrastructure, which can lead to complex financing and budgeting. In 2022, orders for new ships reached a record high. Deliveries in 2023 and 2024 are expected to bring 2.34 million and 2.83 million TEUs of additional capacity into the market. But at the same time, some inefficient processes and procedures still exist both on board the ships and in their management and handling.
The empty transport of containers on its own costs the industry substantial amounts of money and accounts for around eight to twelve percent of total operating costs each year. At the same time, a lack of standardization stands in the way of efficiency gains and even contributes to risks along the logistics chains.
There are many examples of this, and they range from a lack of standard products in IT to common international standards. For this reason, it is important and urgent to digitalize processes that are still heavily paper-based and to create more transparency in deliveries and flows of goods.
Continuing Our Voyage
In the next installment of our blog, we will continue our exploration of the digital value chain, focusing in-depth on environmental regulations and sustainability, cybersecurity, and new digital standards. Until then: Ahoy!
