Sitting at the airport awaiting my flight back home provides an opportunity to reflect back on my experience at the TPM 2019 conference in Long Beach, California. For those that are not familiar with the TPM conference, or Trans-Pacific Maritime, it is the premier conference for the container shipping industry. Just about every major player in the industry, from Shippers to Freight Forwarders to Service Providers, is at this conference.Given that this was my first conference, I am unable to comment or compare it to previous conferences. What I did find was that the speakers and presenters were very good. From the very first Keynote, by Daniel Yergin, Vice Chairman of IHS Markit, to each subsequent speaker, each one was a powerhouse within the industry and represented their company’s extremely well.
2020 IMO fuel sulfur regulation
The single biggest theme of the conference was the IMO 2020 regulation that will be coming into effect within the next 12 months. This regulation will require ocean carriers to either utilize new low-sulfur bunker fuels or install scrubbers on their current equipment to remove sulfur and nitrogen oxides. The overarching point is that this new regulation is going to cost carriers in a very significant way. Installing scrubbers on current equipment is an investment of several million dollars per vessel. What’s more, that vessel will need to be repositioned twice without cargo, resulting in lost revenue for that asset. Further, there are only a handful of companies that are capable of providing the scrubber service, and everyone has a backlog that will take years to get through. It is clear that carriers looking to solve this IMO regulation with scrubbers are in for a long duration for execution. Using low-sulfur bunker fuels is the least expensive option, as there is little that needs to be done from a vessel perspective. It is very much analogous to using high octane fuel in your car instead of regular octane. However, there are two challenges that carriers face regarding this option. The first is that low-sulfur bunker fuels cost about 50 percent more than high-sulfur fuel oil, increasing operating costs significantly. Second, as this is the easiest solution to the problem, demand for low-sulfur fuel will increase, resulting in increasing fuel prices, and therefore increasing costs for shippers. To complicate matters even further, ports will need to be able to support different bunker fuel demands, and many ports are not ready and/or capable of doing this, at least in the short term.To summarize this problem, cost for carriers will be increasing, and dramatically so. Carriers have already indicated that most, if not all, of the costs will be passed on to the shippers in one way or another. Additionally, there is good indication that carrier capacity is going to decrease in the near term as ships go out of service for retrofitting and certain carriers go out of business as they are poorly positioned to deal with this issue. All of this will result in fewer options for shippers with increased variability of service.
Supply Chain Technology
The second theme of the conference was technology, and how the various players within the global supply chain are looking to technology to solve many of the pressing problems within the supply chain. One idea that seemed ever-present in the conversation was the “lack of trusted and/or verifiable data”. Blockchain, or distributed ledger technology, was top of mind and many hoped it would solve the problem. The problem is that I believe this to be somewhat of a red herring - a mischaracterized or misunderstood issue. For shippers, the set of documents and data that they care about tend to be things like Purchase Orders (POs), Advanced Ship Notices (ASNs), Packing Lists, Bills of Lading (BLs), and Commercial Invoices (CIs). While the Shipper controls the data on the PO and the vendor/carrier/freight forwarder controls the data from the other documents, there doesn’t seem to be a lack of trust between the parties. In fact, when each of the parties issues their documentation, it seems as though each party trusts the information contained in each shipment.The real problem it seems is that most parties do not have the capability to relate the information from each of the documents back to each previous point in the process. For instance, the packing list is a reflection of a shipment. From a Shipper’s perspective, it should relate back, in some way, to the shipment that they expect to receive. Similarly, the commercial invoice is a financial reflection of the shipment, which should relate back to the PO (or POs). Now, the information may be as expected, or not, on both the Packing List and CI. But right, or not, trust is not the issue at hand. It is a matter of correct information.But wait, you say - the issue is not a matter of trust between the shipper and its vendor. The issue is that all the ancillary players in the industry require the documents to effect the shipment, and given that they do not have access to the original PO(s), they too require a reliable source of documentation. While this may be the case, and distributed ledger technology is a potential solution to the problem, there are also some downsides to it. For instance, it is incredibly costly to create and maintain. It also requires a level of standardization that has heretofore not been achievable. There are competing interests for the various players in the industry, and it seems unlikely to me that the larger players in the industry will get together in a way that will facilitate this. And so, it is my estimation that the use of blockchain in the supply chain isn’t quite as close to a reality as some people would have you believe. That isn’t to say that I do not believe that technology will not solve some incredibly large challenges. Supply chain execution platforms are quickly gaining functionality and becoming more commonplace. Not to toot 3rdwave’s horn too loudly, but 3rdwave does solve many of the challenges that people hope blockchain to solve. Currently, our focus is on helping Shippers, but at some point in the near future, we will be expanding beyond to include freight forwarders and customs brokers. Similarly, companies like Tradeshift are attempting to standardize the process of purchasing, invoicing, and payment. While not specifically focused on blockchain, the Tradeshift solution inadvertently solves most of the challenges that blockchain proponents are trying to solve, without the cost and need for agreement.
Visibility
The final theme that was very pervasive at TPM was that of Visibility. The term visibility was thrown around like candy, and it is quite clear, at least to me, that there is little clarity on its meaning from stakeholder to stakeholder. As a result, most shippers are not able to make sense of the marketplace and are stuck in a rut for how to achieve greater transparency within their supply chains.I spoke with many people in the industry, from software vendors to hardware vendors to 3PLs. Every individual from each company believed that they helped people with visibility, and the way they helped was so vastly different as to be completely unrecognizable from one to the other. One company I spoke with markets a GPS-enabled smart device that can be installed on every shipment that provides the shipment’s position in real-time. Separately, a 3PL suggested that if visibility were your company’s problem, using them would enable better visibility by using their freight forwarding service as they had a software platform that shippers could access to see where their shipments were in real-time. We have already spoken about blockchain and its proponents’ claims that it would increase visibility, and both IBM and Maersk were pushing that message. The issue that most everyone is missing is that visibility is about understanding. There is virtually an infinite number of data points that can be generated throughout a global supply chain, and while more data might be better than less data, the single biggest challenge that most companies face is the inability to collect various sets of data, and then (more importantly) make sense of it. This issue is so poorly understood by most people that companies are spending millions (or perhaps billions) of dollars trying things that have no possible way of making matters better. Let’s see how this applies to our previous visibility examples:In the instance of the GPS-enabled smart device that tracks shipments, it will relay the location of each shipment. In theory, that should make things easy for any company that has hundreds of shipments in motion at any given time. Now, the individual that is responsible for knowing where shipments are is more knowledgeable about the position of their shipments that they were before. But has this really helped? With hundreds of shipments in motion at any given time, knowing the exact location of all shipments creates a data challenge. Which shipments are delayed? Which shipments need engagement to resolve issues? What product is in jeopardy of being late? These are ultimately the questions that need to be answered if visibility is really to be improved. But GPS positioning alone cannot answer these questions.Blockchain has a very similar problem. While the promise of blockchain is to create a trusted set of data that all stakeholders are able to rely upon, it requires that they are capable of turning the blockchain data into usable organizational data. That, in turn, requires an enterprise system that is capable of making sense of external data. Unfortunately for most companies, their current enterprise systems (ERPs) are not designed for making use of this external data, and so organizations will be solving one problem, lack of trusted data, and creating an even bigger problem, lots of trusted data that that cannot be understood. Ultimately, having lots of data is meaningless without having the ability to understand and interpret the data.
Going Forward
The ONLY solution that seems to actually solve the visibility problem is to have a cross-supply chain application that is capable of making sense of each and every data point that is being collected. Moreover, to make sense of each data point requires the capability of having an expected value or an estimate of what each data point should be, and then be able to compare the actual result to the expectation. In short, having an expectation for every data point in the supply chain, and then comparing it to the actual value is the critical element that every company operating in the global supply chain must have to enable supply chain visibility. Without it, companies will be chasing data points that they are incapable of understanding, creating less visibility, not more. I am very much looking forward to next year’s TPM. I’m curious to see what themes will develop over the course of 2019 and into 2020. One thing that I think will continue to be the case is that technology and visibility will continue to swirl around as key focus areas for global supply chains. It is clear that there is still much work that is required for each of the stakeholders to move towards their desired goals of greater efficiency and effectiveness.
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