Digitialisation in container shipping may not be the carriers’ doing

Much ink has been spilled on the subject of Maersk and Alibaba striking a deal allowing Maersk’s booking process to be accessed on the Alibaba’s e-commerce platform. After the initial shock of this announcement, industry commentators jumped in pointing out the small scale of the engagement, risk to Maersk’s reputation, glitches in the transaction management process, and the uncertain returns for either party. Many were wondering if Alibaba was even the right partner for Maersk. In parallel, and somewhat prematurely, the deal was also hailed as part of the digitalisation revolution occurring in shipping. In the background, there were also ideas of Alibaba and Amazon acquiring their own fleets and competing against the existing carriers.

If you look closer at the Maersk-Alibaba agreement, you will notice the key motivation in employing digitalisation. It comes down to solving the most annoying problem from the carriers’ point of view – no shows. Lack of predictability of bookings leads to wrong network design, wrong sailing schedule design, wrong port contract design, and most annoyingly, unreliable cost, revenue and profit forecasts. Clearly, deals between the carriers and e-commerce platform operators who could easily apply cancellation/no-show fees on the booker and thus reduce uncertainty of the cargo showing up for the sailing could be seen by the carriers as highly beneficial to solve the problem of no shows and enable them to further reduce their costs.

Solving the no shows problem is of no interest to the e-commerce platform owners. I don’t even think they are planning on making huge profits on the booking transactions, even if Maersk exposed all their services and all types of equipment on the existing e-commerce platforms. What’s more, platform owners would not make that much money even if all carriers exposed all of their services on the platforms, as fierce competition just between Amazon and Alibaba would quickly reduce that booking service charge to nothing.

Nonetheless, the Maersk-Alibaba deal, and others that will follow, has huge significance to the process of container shipping and the ensuing commoditisation of the carriers. When you look at the operating models of Alibaba, Amazon and many other companies acting as trading platforms, you will notice that there is an immense value being created in the form of data and data services that Alibaba and Amazon can profitably re-sell to shipping market participants. You might think that I am talking about the data related to the transaction itself, but you would be wrong.

The data that is so valuable for resale relates to failures and behaviours. While the carrier will only see the data on transactions relevant to their own offering, the platform will see everything that happened before and after the transaction was booked. They will see behaviours of specific shoppers: what is the origin, what is the destination, the quantities considered, conditions of carriage the shopper was looking for, the price sensitivity of each unique shopper, the seasonal patterns of the searches, circumstances of the shopper abandoning the shopping cart, subsequent searches after the booking has been made, and many other aspects of shopper’s searching behaviour. The value of this this profiling data far exceeds any profits to be made from being a middleman in the final transaction.

The value of the data on failures could even lead to the situation where the e-commerce portals would offer financial incentives to the carriers to sign up to their platforms. In turn, the insights resulting from all the shopper behaviour data can be easily resold in the form of profitable subscriptions to those very same carriers, ports, freight consolidators, freight forwarders, and countless other participants involved in handling the containerised cargo along its journey.

This approach is compatible with how the e-commerce platforms used shopper behaviour data in the past to drive their own profitable contracts with the sellers perusing the platforms. It firmly positions the platforms as merchants of information that no individual party would be able to accumulate. As the platforms get richer and richer in data, they will reduce the shipping companies to suppliers of containers and providers of sea transport service, the most commoditised aspects of their present business models.

In summary – don’t worry about Amazon or Alibaba forming their own fleets. Their power will be in forming information and insight bank that will make them much more powerful in the business of shipping.

Is there a way for carriers out of the commoditisation stress? It could be through adding services back in, as talked about by Maersk trying to reestablish connections between the ship and the business of shipping, thus assuring end-to-end carriage of goods by whatever means including sea, road, and air. Maersk’s decision to reunite the land logistics arm, the terminal business and the ships will not be available, or even possible, to other carriers. Even if it was, not all shipping lines believe in taking this approach, so over the next few years we will have a chance to compare the strategies and see their effects on the balance sheets.