Pitfalls of digitalisation in shipping and freight

Digitisation, Digitalisation, Digital Transformation are some buzz words that have recently taken the shipping and freight industry by storm..

Let’s take a quick look at what these terms mean and what it is all about..

  • Digitization may be defined as the transition from an analog format to a digital format..
  • Digitalisation is the use of digitization and digital technologies like Blockchain, AI, Machine Learning and Automation to convert your business to a digital business..
  • Digital Transformation is a strategic transformation of the business processes and models to leverage the opportunities created by the digital technologies which can result in improved customer service and value additions to the business..

Digitization and digitalization are about technology whereas digital transformation is about the customer.. So,

  • we digitize information;
  • digitalise processes and roles required for the operation of a business; and we eventually
  • digitally transform the business and its strategy

The decade that passed, saw the rise of several hundred startups in the shipping and freight industry heralding the arrival of the Digital Freight Forwarder and Digital Alliances by shipping lines designed to offer customers digital freight solutions..

Many shipping lines, freight forwarders, logistics service providers, ports, financial institutions and other private entities are working on digitalisation options and testing it in many different ways through various pilot projects..


 

Ok, so why do we need digitalisation..??

 

1) Well, for starters, Global Trade is growing;

As per the WTO, the current World Merchandise Trade is in excess of US$ 19,670,000,000,000 – that is US$ 19.67 Trillion.. The value of global merchandise grew by 10% while the volume of global merchandise grew by 3% in 2018..  In 2019, the merchandise trade volume growth will fall to 2.6% but will rebound to 3% in 2020..

The Global Trade Share in 2019 was as below

Global Import Trade Share in 2019

 

Global Export Trade Share in 2019

 

2) Ships are getting bigger ;

 

3) Circulation of containers and ships is growing ;

pitfalls of digitalisation

 

4) The fourth industrial revolution is here – 4IR has been defined by Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum as “new technologies that are fusing the physical, digital and biological worlds, impacting all disciplines, economies and industries, and even challenging ideas about what it means to be human.“..

JOC quoted Wolfgang Lehmacher, World Economic Forum’s head of supply chain and transport industry as outlining 1) digital society and platforms; 2) visibility and transparency; 3) advanced manufacturing; 4) e-commerce and omni-channel; 5) automation and electrification; and 6) new modes and new systems as the six 4IR trends that would bring opportunities and threats to the shipping industry..

So everyone in the shipping and freight industry needs to acknowledge and understand that digitalisation is not a buzz word and it is inevitable because sustaining and handling these volumes manually is not possible..

 

Some examples and benefits of digitalisation in shipping are

  • Dynamic pricing – allows traders/sellers to be agile in their trade dealings ;
  • Online bookings – makes it convenient for customers to make bookings on the go, pick and pack containers ;
  • Paperless Bills of Lading & Trade Documentation – allows the quick transmission of documents to the various authorities and customer at destination which has the potential to reduce errors and omissions, demurrage, detention and storage costs ;
  • Blockchain Documentation – allows for a streamlined and quicker documentation process through sharing of data ;
  • Smart Containers – Real time visibility allows the customer to track their containers as and when required which means the customers can plan their inventory and production accordingly ;
  • Technology like 3D laser scanning provides a fast and safe way to assess ISO tank container integrity ;
  • And many more ……………………….

But not all is hunky dory with digitalisation because there are certain pitfalls of digitalisation..

 

Some pitfalls of Digitalisation are

  1. Adopting digitalisation because it is the buzz and without gaining a proper understanding of what it is all about ;
  2. A lot of the users are not clear on the basics of the industry that is being digitalised and lack practical experience to implement it ;
  3. Depending on digitalisation to cover all aspects of our business ;
  4. Not understanding that digitalisation is NOT the objective or business ;
  5. There are no set/accepted global standards for digitalisation yet ;
  6. Security concerns ;
  7. Too much dependence on tech and systems once it has been implemented ;
  8. Digitalisation depends on who is creating the technology ;
  9. Dependence on digitalisation allows for service to be compromised ;
  10. Storage & Retrieval

 

 

How to avoid these pitfalls

1. Have a clear understanding of the business

Simple and logical as it may sound, many of the issues in the industry currently happens because the various desks handling the business act like a post office or conveyor belt for the information and pass it on without understanding or verifying the same.. Get the information from the customer, pass it to the line or get the information from the port and pass it on to the customer..

Whether digital or manual, the business of shipping involves a lot of documentation..

Therefore, the people handling the business, especially at the documentation desks need to understand the different types of documents issued for a shipment, who issues the documents, why they are issued and what happens if the incorrect documents are issued to the incorrect entity..

Like, the difference between a House Bill of Lading and a Master Bill of Lading and endorsements required on the various types of bill of lading..

Here is a real life example..

An exporter secured a loan from a finance company to buy hides & skin.. The shipper booked the cargo using a Freight Forwarder who issued the shipper with Original House Bills which were deposited with the finance company as security by the shipper..

Difference between House Billl of Lading and Master Bill of LadingThe freight forwarder had made the booking with the carrier and once the shipment sailed, they obtained the Master bill from the carrier.. As per their usual process, the Master Bills were telex released at origin..

But in this case, they had issued the MBL as negotiable B/Ls with the same shipper/consignee/notify details as the HBL..!!

So now we have an HBL and MBL both in originals with the same details which means this shipment has 2 sets of bills of lading floating around..

When the actual consignee approached the carrier’s office for release, they were given the release of the goods because the MBL had been telex released.. The consignee secured these goods without payment to the shipper..

The finance company sued the shipper as they placed the HBL as security but that is worthless now because the cargo has been released without payment..

The mistake was that of one of the staff of the freight forwarder who was not aware that issuing an MBL with the same details as the HBL is not correct and could cause this issue..

 

2. Understand the practical issues involved in the shipping process and pay attention to the minutest of details

People handling the business should not just depend on the system and also ensure that they verify the information provided via the system..

For example, seafood products are best shipped at -20°C (-4°F) or lower.. These are shipping in Reefer Containers.. Now imagine if the temperate of the reefer container temp is set at 0°C instead of 0°F.. You can imagine the state of the fish when it gets to destination..

Image from : APL

Or forgetting the minus in -25°C when submitting the shipping documents to the shipping line or port..

Although the product may be described correctly as Frozen Fish, if the people handling the business do not co-relate the cargo to the temperature and other related carriage details, it would be disastrous..

 

3. Be aware of the products you are shipping or carrying

Let’s say the customer wants to ship this.. Nail Polish : day to day product present in almost all households and should be harmless for shipment.. Right..??

Wrong.. The Finished Product Name given by the client in the trade documentation could be Cover Girl Continuous Color Nail Polish..

There have been cases where the staff in the shipping line’s office ship this without realising that common Chemicals present in Nail Polish are Ethyl Acetate, Butyl Acetate, Nitrocellulose, Tosylamide/Epoxy Resin, Isopropyl Alcohol, Acetyl Tributyl Citrate, Sucrose Benzoate, Benzophenone-3, Trimethylpentanediyl Dibenzoate, Polyvinyl Butyral some of which are classified as hazardous..

Nail polish is therefore classified as hazardous goods under IMDG Code Class 3, UN 1266, PG II..

 

Or let’s say customer wants to ship HTH.. Your normal pool cleaner that you use in your pool, you swim in it.. So it should be a breeze to ship, right..??

Wrong.. You need to be aware of what HTH is.. DON’T TAKE THE CARGO NAME AT FACE VALUE.. HTH contains Calcium Hypochlorite which has been identified as the reason for many ship fires and many carriers have banned the carriage of this product on their ships..

In 2019, Calcium Hypochlorite was identified as a possible suspect in the fire on board the KMTC Hong Kong..

Now imagine this undeclared hazardous cargo was sitting under deck of the ship in the stow position (identified in red).. Imagine the consequences for the whole ship..

 

4. Have a Plan B if digitalisation let’s you down

Yes, digitalisation is helpful, but if you become too dependent on it and do not know any other way of doing things, then you have a big problem.. Even the largest container shipping line in the world experienced this problem when they were subject to a cyber attack in 2017 and many of their services were severely paralysed..

Even as recent as last week, as a precautionary measure, Toll Group made a decision to shut down a number of their systems in response to an IT cyber security incident which saw its systems were hacked.. This impacted several of Toll’s customer-facing applications as a result and had to go manual..

 

 

Conclusion

The moral of the story is that while digitalisation can help to a great extent in speeding up the process of shipping and enabling quicker trade, digitalisation can only “enable” certain processes in shipping..

Digitalisation cannot create awareness about the requirements of shipping..

Companies and its staff handling the business should have this awareness and knowledge and not expect digitalisation to answer or be the answer to all problems..

In conclusion, in order to leverage the benefits of digitalisation and avoid the pitfalls of digitalisation :

  1. Understand the processes involved ;
  2. Understand your client’s pain and their requirements ;
  3. If you are the customer, understand who you are dealing with ;
  4. Understand the limits of digitalization – that it is a staged process ;
  5. Acknowledge the need for training ;
  6. Don’t adopt new technology for the sake of new technology because you are dazzled by the buzzwords ;
  7. Create a mix of industry knowledge and technology within your team.. Whether you are a Digital Freight Forwarder or a Traditional Freight Forwarder ;
  8. Digitalisation should be one of the customer service tools, not the business itself ;
  9. The entire company must be ready and focused on digital transformation for it to succeed

*** End of Article ***

4 thoughts on “Pitfalls of digitalisation in shipping and freight”

  1. Was excited to read on this article, since our organization is moving very fast into digitization to improve the customer experience, however every market is different, The western countries may be completely excited to stop human interaction and be in control of everything via a PC, however is Africa ready? Specific to South Africa, customers are still very stuck in their ways and the current generation has rejected it in general. Despite a quote taking 30 seconds, they would rather wait 2-3 hours for an email. I feel right now, many organizations are forgetting the customer in all these changes. Yes with globalization and rapid growth, companies need to adapt fast to technology changes in order to keep up with the changing industry but are we actually ready?

    I guess the 2017 cyber attack – Nonpetya still lingers, sadly huge organizations such as Maersk Lines were complete down for days – ships idle at sea, clueless. Are we really ready? Hmm

    Reply

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