Bringing ports into the digital age
Flexport is quietly revolutionising the freight forwarding industry. Its combination of software, data and complimentary forwarding services is steadily helping to transform a business that is at once one of the most globally important and yet least modernised. Moving goods and materials from one corner of the globe - be it by ship, plane or truck - is a trillion-dollar industry, and the likes of Flexport are finally removing the need for a fax machine.
But, says Flexport's VP EMEA Jan van Casteren, there's one corner of the world's commercial circulatory system that remains stubbornly resistant to change: Ports.
Here he details for SupplyChainDigital.com the three things ports can do to get with the programme.
Today’s consumers expect fast shipping times and low costs. In order to cater to their needs, retailers are increasingly integrating logistics technology to innovate the process. We’ve seen the introduction of Alibaba Logistics, a service that handles end-to-end shipping, and earlier this year Amazon [registration required] expanded into ocean and air freight. The delivery industry is ripe for disruption.
That said, ports have up until now remained unthreatened by disruption. They will always be an established partner for retailers because of the unlikelihood of new entrants and the geographic monopoly they have. There’s also the fact that retailers don’t want to build their own ports, as that requires so much time, expense and expertise.
However, this doesn’t mean ports can avoid innovation altogether - they have to compete against each other as well as against the potential of disruptive entrants. Below are three of the main ways ports can become more efficient and stay relevant.
1. Move to full data transparency
The move to full data transparency is a contentious issue, with some existing parties fiercely protecting the status quo. It’s not uncommon for freight forwarders to charge premiums, using the lack of data transparency as a way to cover up inefficiencies. As truckers get paid by the hour, long wait times translate into more money. In Long Beach, the average wait time for truckers hovers around 100 minutes [registration required], and it’s not unheard of for them to wait up to 8 hours and leaving without a container.
The problem is that port authorities tend to be passive when it comes to innovation, functioning more as landlords rather than investors.
However, as automation reaches more terminals, data is becoming increasingly accessible. With a smarter digital infrastructure, terminals can speed up supply chains and offer a more transparent service to customers. The Port Authority at Rotterdam is a good example of a port that’s conscious of innovating - it spends more than $2 billion a year upgrading physical and digital infrastructure and operations [registration required].
Crucially, updating digital infrastructure can be a sturdy defence against cyber attacks, a widespread concern after the recent ransomware attack which hit a number of global APM terminals as well as Maersk. It’s vital that ports are vigilant when it comes to security - they can implement penetration testing platforms like HackerOne which run continuous tests against systems to protect from any breaches. As logistics infrastructure becomes more interconnected and technology-dependent, security cannot afford to be an afterthought.
2. Automate your ports
On the face of it, automating a port seems like a pretty costly option. For example, it costs around $600 million for OOCL to move their newly-opened terminal at Long Beach, California from diesel, manpowered cranes to fully-automated electric cranes - with a large IT expenditure on top of this.
In the short term, this might appear to be unnecessary spending but in the long run, making these updates will save ports an enormous amount on labour costs. Ports that run on software work more efficiently and free up resources for other tasks.
The backlash against automation comes from labour unions who see their jobs at risk. And while it’s true that when it comes to traditionally union-protected labour pools, automation is supplanting a number of jobs, in reality it is generating new job opportunities for the development and maintenance of new technology. Aside from this, more efficient ports will gain market share, leading to the creation of more throughput as well as jobs. As is the case in any industry, tech innovation leads to more opportunities, not fewer.
3. Watch your carbon footprint
There are many reasons why ports should switch to electricity as their power supply of choice. Diesel-operated machines are hardly environmentally friendly - they directly affect quality of life and cause potential health problems for anyone in the port’s vicinity. Equally, they are expensive to maintain and are certainly not the most efficient option.
Electric and automated machines don’t need to take breaks, so their usage enables terminals to make higher margins. They also have a significantly reduced impact on the environment, with studies showing that electric cranes reduce the emission of air pollutants by around 70 per cent.
There continues to be resistance to the initiative to replace diesel with electric, the primary reason being high upfront costs. It’s true that it’s hard to measure benefits, and companies operating and investing in ports aren’t always bothered about the potentially huge reduction in healthcare costs for residents living near ports. Therefore, there needs to be sufficient incentives to drive this transformation. Governments and port authorities should use regulation, taxation and subsidies to motivate investors. Without a tangible goal and some measurable benefits to funding, the fear is that protecting the environment will remain a prisoner’s dilemma.
While ports aren’t under threat from other new business models, they can contribute more positively to the supply chain industry by becoming more integrated with technology to make them faster, cheaper, and safer to operate. By committing to investing in infrastructure for environmentally friendly automation and data collection and distribution, ports can stay competitive and become really effective, interactive tools for their partner shippers and carriers.
Driver shortages: Why the industry needs to be worried
While driver shortages are a global problem, with a recent survey from the International Road Transport Union suggesting that driver shortages are expected to increase by 25% year-on-year across its 23 member countries, the issue has very much made itself felt for UK businesses in recent weeks.
A perfect storm of factors, which many within the industry have been wary of, and warning about, for months, have led to a situation wherein businesses are suddenly facing significant difficulties around transporting goods to shelves on time, as well as inflated operating costs for doing so.
What’s more, the public may also see price rises as a result due to demand outmatching supply for certain product lines, which in turn brings with it the risk of customer dissatisfaction and a hit to brand and stakeholder reputation. Given that this price inflation has been speculated to hit in October, when the extended grace period on Brexit customs checks comes to an end, the worst may be yet to come.
"Steps must be taken to make a career in the industry a more attractive proposition for younger drivers, which will require a joint effort from government, industry bodies, and the sector as a whole"
That said, we have already been hearing reports of service interruption due to lack of driver availability, meaning that volumes aren’t being transported, or delivered, to required schedules and lead times. A real-world example of this occurred on the weekend of 4-6 June with convenience retailer Nisa, with deliveries to Nisa outlets across the UK affected by driver shortages to its logistics provider DHL.
But where has this skills shortage stemmed from?
Supply is the primary issue. Specifically, the number of available EU drivers has decreased by up to 15,000 drivers due to Brexit alone, and this has been further exacerbated by drivers returning to their home country during the COVID-19 pandemic, as well as changes to foreign exchange rates making UK a less desirable place to live and work. This, alongside the recent need to manage IR35 tax changes, has also led to significant inflation in driver and transport costs.
COVID-19 complications have also meant that there have been no HGV driver tests over the past year, meaning the expected 6,000-7,000 new drivers over the past year have not appeared. With the return of the hospitality sector we understand that this is a significant challenge with, for instance, order delivery lead times being extended.
It is little surprise, therefore, that the Road Haulage Association (RHA) earlier this month became the latest in a long line of industry spokespeople to write to the government about the driver shortage for trucks. The letter echoed the view held by much of the industry, that the cause of this issue is both multi-faceted and, at least in some aspects, long-standing.
So, many in the industry are in agreement as to the driving factors behind this crisis. But what can be done?
Simply enough, outside of businesses completely reorganising their supply chain network, external support is needed. In the short-term, the government should consider providing the industry with financial aid, and this can also be supported more widely with legislative change.
Specifically, immigration policy could be updated to place drivers on the shortage occupations list, which would go some way towards easing the burden created by foreign drivers returning to their home countries. Looking elsewhere, government should also look for ways to increase the availability of HGV driver tests after the blockage created by the coronavirus lockdowns.
Looking more long-term, steps must be taken to make a career in the industry a more attractive proposition for younger drivers, which will require a joint effort from government, industry bodies, and the sector as a whole. As it stands, multiple sources suggest that the average age of truck drivers in the UK is 48, with only one in every hundred drivers under the age of 25. We must therefore do more to increase the talent pipeline coming into the industry if we are to offset more significant skills shortages further down the line.
On the back of a turbulent year for the supply chain industry, it has become increasingly clear that the long-foretold shortage of drivers is now having a tangible and, in places, crippling effect on supply chains.
Drivers, and the wider supply chain industry, have rightly been recognised for the seismic role they played in keeping the nation moving and fed over the past year under unprecedented strain. If this level of service is to continue, we must now see Government answer calls to provide the support the sector needs, and work hand-in-hand with the industry to find a solution. If we do not see concrete action to this effect soon, we are likely to be in for a turbulent few months.
Rob Wright is executive director at SCALA, a leading provider of management services for the supply chain and logistics sector