International | Jun 09 2021
As 2021 is exposing many of the flaws and fragilities of the global shipping industry, disruption seems but the logical response. However, reforming the industry is far easier said than done
-Prices for global shipping have skyrocketed with follow-through consequences for economies in general
-An estimated 80% of the world’s goods are transported by sea
-Oligopolistic and ancient industry structure looks ripe for disruption, but easier said than done
By Ed Kennedy
In March of this year the Suez Canal incident gave the world a swift illustration of the global shipping industry’s vulnerabilities.
In doing so, it reminded business and consumers that for all perceived ease and efficiency in an international supply chain when it runs smoothly, it’s one that remains in a daily danger of profoundly disruptive threats.
In turn, due to this dynamic - and the sheer size and complexity of a truly global industry - the sector will never be famous for speedy and decisive change.
This said, the shipping sector is an industry that’ll increasingly have to contend with more rapid change given the impact of the covid-19 pandemic, and the challenges that await in a post-pandemic world.
Furthermore, though shipping is effectively as old as human civilisation itself, the unrelenting speed of digitisation and economic globalisation - a temporary slowdown due to the pandemic notwithstanding - means operators in the industry must embrace change, or watch profits dwindle as change leaves them behind.
It’s why now is a worthwhile time to examine shipping in-depth, its issues and opportunities.
Crisis in the Canal
For anyone who missed the Suez story back in March - or perhaps only had time to smirk with wry amusement as an explosion of memes popped up on social media - a quick recap of why the incident was so significant offers a window into the structure (and relative frailty) of a shipping business when there’s a substantial incident at sea.
On 23 March the Ever Given - one of the largest shipping containers in the world spanning around 400 metres in length - was on a journey from Malaysia to the Netherlands when it got stuck in the Suez Canal, near the tiny Egyptian village of Manshiyet Rugola. In doing so it brought all traffic in the Canal to a standstill.
Often when there’s a crisis with a ship the difficulty in resolving it is due to the complexity of a ship’s legal structure. As the Ever Given is a Panamanian-registered and Japanese-owned vessel that was stuck in Egyptian-controlled waters, such a situation would’ve been par for the course. But this time it was simply a physical matter. The ship ended up ‘wedged’ horizontally on the banks of a canal that at its narrowest point is held to be just 300 metres wide.
There remains ongoing debate surrounding the exact cause of the ship running aground - reportedly it was traveling in excess of the Canal speed limit before getting stuck - but whatever the cause, the consequences of the incident have been colossal.
Though the ship was eventually refloated, the Suez Canal Authority holds the cost of losses and damages from the blockage will be north of US$1bn.
For context, an estimate from early 2020 held entire cost of loss from the coronavirus pandemic would be US$1.7bn.
Containing the Issue
While the Suez incident was an exceptional event, it represents a vivid example of how quickly a crisis can arise in the industry, and send regular operations far off course, exposing the fragility of a business model that countless ships operate with daily.
The pandemic has created a complex problem for the sector. Although demand for shipping goods has soared since the worldwide outbreak of covid-19, the shortage of shipping containers has resulted in substantial delays in shipping goods, and the drastic inflation of shipping and container prices.
According to the Freightos Baltic Index - which measures price movements of 40-foot containers in 12 major maritime lanes - the average weekly price in July 2019 was around US$1340, in July 2020 around US$1800, and now over US$5000 in early June 2021.
Given when measured by volume it’s estimated around 80% of the world’s goods are transported by sea, it's easy to see why such a sudden spike in delays and costs represents a diabolical cocktail.
The knock-on effect for retail has been immense, with IKEA’s Singapore division notably labelling it a “global transport crisis.”
For businesses relying on the transport of goods via sea, the ongoing threat of snap lockdowns which can restrict operations locally, compounded by the upheaval in the shipping sector, represents a double whammy of danger to their bottom line.
Part of the challenge with the container shortage owes to the inability of the sector to know precisely just how many containers are out there.
Although there are lots of containers right now sailing along on a vessel somewhere, many others are sitting idle in ports. Others still are understood to be sitting unused in warehouses beyond the port.
Then there’s been the problem of some private firms - sensing a spike in demand on the way - stockpiling containers, and selling them off to the highest bidder.
Because of the international nature of the industry, an issue like container shortages indeed has no easy fix.
But just as an issue in the industry can span the globe, the advantage of an era where economic digitisation and globalisation are rapidly progressing is the potential for a solid solution that has a great roll out with one business or port, to then be easily replicated elsewhere.
A Snapshot of Shipping’s Problem Solvers
4Fold by Holland Container Innovations
Notwithstanding the shortage of containers, for ship captains on deck and port managers on dry land, empty shipping containers can be the bane of their existence.
Containers certainly find use when loading goods into them and transporting them, but once unloaded they may sit idle taking up space, and getting in the way.
Holland Container Innovations offer a way to address this. Their 4Fold folding shipping containers can be folded and flattened when empty.
Not only does this provide a solution that could save an immense deal of space at port and at sea, but 4Fold also contends their foldable containers could save up to -37% in costs and CO2 emissions.
As a price comparison service for freight forwarders, Freightos provides a marketplace for users to book, manage, and track shipments.
Akin to a tourist using a travel website to book every step in their holiday from the moment they depart home to when they arrive at the hotel, Freightos seeks to streamline the shipping of goods from manufacturer to consumer via an all-in-one platform.
Launching in 2012, today Freightos has 240 employees operating across six countries to provide air, ocean, and trucking quotes from more than 75 logistics providers.
Octopi by Navis
Octopi offers a cloud-based platform on which organisations can manage their terminal operations within one centralised place.
Their software-as-a-service (SaaS) product caters to terminals that deal with both containers and mixed cargo, and enables its users to do away with antiquated systems that rely on spreadsheets, and even just pen and paper!
As a result, Octopi can not only improve efficiency, but reduce errors and loss for a shipping operation.
The future of shipping will certainly require improvements in port - but so too at sea. It’s no secret one of the biggest hurdles to increasing efficiency in the shipping industry is maintaining quality communication and documentation on ships.
DeepSea seeks to streamline this, with an emphasis on a product that offers data-driven insights.
Via DeepSea, daily reporting can be automated, ongoing optimisations of vessels streamlined (helped via the platform’s predictive alerting), and the capacity to benchmark a vessel’s performance against the global fleet made easy.
Innovation in the Era of Oligopoly
A focal point of debate in shipping is the existence of the oligopoly among the carriers.