Lee Kok Leong, our special correspondent, talks to Inna Kuznetsova on what it takes for the shipping industry to move into the next stage of growth. There is a general agreement that innovation is a given but there is also a neglected but crucial factor as well.
In our current environment, it is just not enough for companies to engage in only commercial activities. A growing number of consumers, especially millennials, expects companies to stand for something bigger than what they sell.
And they do have the spending power to back up their demands. Rapid economic progress has raised the incomes of a huge number of people. For example, in China, 68 percent of urban households are now middle class and by mid 2020s, there will be 780 million middle-class households. In the age of activism and connectivity, shipping companies need both hard and soft factors to grow and thrive.
Hard factors are those that influence a company in a direct way like innovation and technology. Soft factors are those that are difficult to quantify but contribute equally, if not more, to a company’s profitability. For example, ethical business practices, company culture and some social causes that the company is promoting.
Inna Kuznetsova is currently a mentor, advisor, technology entrepreneur and board member of a number of companies and organizations, including as an independent non-executive director and chairperson of Remuneration, Nomination Committee, Global Ports Investments Plc (LSE: GLPR). She was previously in top management roles in INTTRA, CEVA and IBM.
Why do you think ethics and transparency are important in the shipping industry?
Customers forgive the technical hiccups, but not the lack of transparency. Ethics and transparency – and we are talking about the transparency to the issues, rather than openly published prices – are key for building trust.
Supply chains are very unique for every company and usually critical for its business success. A lack of notification of improper handling of goods or late deliveries may result in high losses including reputational damages, plants outages or unavailability of products in stores.
It is important for the cargo owner to be able to trust their providers of shipping services. How the container is packed and loaded, who the carriers are, how they care for the box, how the rules of international trade compliance are met and whether the paperwork is handled accurately, often defines the success of a beneficial cargo owner (BCO)’s business.
Unpredictable events lead to changes in shipping plans and do not always leave time to negotiate changes, like rerouting a truck route due to flooding. Trusting the providers of logistic services is key for peace of mind and business continuity.
You’re committed to strong corporate governance as the foundation for delivering sustainable shareholder value. Please explain.
The strong corporate governance implies a system of company policies and controls to ensure that the risks are managed well, the business is transparent to the shareholders, compliant to regulations, that it implements the best practices and is thus well positioned as a going concern for the long term.
If a violation, intentional or by oversight, is not discovered and addressed in time, it may cause huge losses, including reputational damage, thereby reducing the shareholder value. Strong governance and transparency form the foundation of a shareholder’s trust and are key for the company’s success.
Given your extensive experience in data analytics and IT, how do you think innovation can benefit the shipping industry?
I think this subject alone may take hours for discussion. Over the last year, we have seen the industry going over the tipping point in embracing digitalization and growing investments in multiple startups, networks and artificial intelligence (AI) implementation.
Shipping relies on a large number of standard processes and anything that can be standardized can be easily digitalized, optimized and eventually automated.
Analytics is just the means to look at the processes and optimizing them by the chosen parameters. Digitalization has already led to the prominence of networks and platforms. Since digital exchange of documents and data with each of the multiple trading partners through one-on-one connections is expensive, many companies opt for a possibility to perform it through one link to many.
This is an advantage offered by networks and they will continue to grow, leveraging new technologies such as blockchain and application program interfaces (APIs).
The wide-spread use of cloud and new connectivity options help to connect a variety of data sources. Examples include financial and operational data, trade compliance documentation, and land and sea movements.
Applying optimization tools, including machine learning and AI, to a broader set of data leads to new insights. We already see the first projects where AI lowers the costs by automating transactions, optimizes prices or utilization based on both current and historical data, or improves the responsiveness of customer service through natural language processing.
Imagine the world where we could ask the system for the cheapest way to deliver cargo from one point to another, including selecting between ports and carriers as well as reducing time through dwell time analysis, equipment availability checks and online booking.
Imagine getting a proactive notification when a cargo is delayed due to unpredicted events, a check on whether the current levels of inventory can sustain delays and best options to address it. Today, many elements of such solutions exist but require human intervention and cannot be scaled across multiple providers.
By establishing standards in such areas as dangerous goods shipping requirements and API access, the industry can accelerate the adoption of technology and reduce costs through automation.
I think, some of the areas where we will see immediate successes are all kind of rates handling – from electronic ingestion of contractual rates to online ordering and end-to-end optimization.
Other areas included reduced costs of cargo movements through better consolidation, street turns optimization and notifications about unexpected delays; applying machine AI to standardized transactions from booking to global compliance; and enhanced vertical integration of services from terminal to carrier to freight forwarder for a better customer experience.
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