On-demand container shipping

On-demand container shipping

Digitalisation will eventually mean that ocean transport of containers will be organised in a much more efficient manner. If the ‘liner’ part of container shipping has no place in a modern digitalised world, where does this leave the operators? Roar Adland, shipping chair professor at the Norwegian School of Economics delves into the future of the box trades.

While the container has no doubt revolutionised the world of ocean freight, it is interesting to note that the business model of liner shipping really is a legacy system. Basically the previous system of fixed sailing frequencies was continued from the days of the passenger and freight steamers, harking back to the days of the British Empire. Malcolm McLean’s box didn’t revolutionize everything. My take is that the next stage of the container revolution will change this too.

Let me go out on a limb and claim that buyers of ocean freight don’t really care about sailing frequency – they might not even care all that much about transit times, depending on what’s inside the box. What they do care about is a guaranteed time of delivery at the destination. Digitalisation will eventually mean that ocean transport of containers will be organised in a much more efficient manner – call it on-demand container shipping.

In fact, going forward, digitalisation and the corresponding changes in the global manufacturing networks will make the current business model seem even more inefficient than it is today. Why? A more distributed manufacturing network (e.g. local production in FabLabs), and more personalised on-demand production replacing mass production, will lead to a completely different logistics network. The transportation network will itself be ‘distributed’ in the sense that point-to-point volumes may be smaller and less predictable but where the number of points served is greater.

The winners in this system will be those that have some visibility of these complex flows and effectively control the logistics – think the future Amazons and Alibabas of the world. With enough aggregation and digitalised visibility of the cargo flows, these ‘super-shippers’ will be able to organise ocean freight in an optimal manner. This may entail the chartering of only the tonnage needed, departing only when needed (and presumably with the highest possible utilisation along the route), and servicing only the ports needed for the particular voyage. This is basically the concept of ‘transportation as a service’ applied to ocean freight. This is exactly why Alibaba’s efforts in consolidating outbound Chinese ocean freight on their digital platform OneTouch is so fascinating, as detailed by Lars Jensen in the excellent piece What is happening with Alibaba and liner shipping?

So, if the ‘liner’ part of container shipping has no place in a modern digitalised world, where does this leave the operators? Undoubtedly these discussions are high up on the list in strategic boardroom discussions already. And if they are not, they had better be soon.

It is unlikely that ‘super-shippers’ will see ship operation as their core business, and rightly so. Thus, those worrying about Amazon Shipping coming in as a direct competitor to the top names in the industry probably need not worry. As signalled by the relationships currently being forged, it is more likely that operators and ‘super-shippers’ will join forces in optimising the logistics. Indeed, a major benefit of a business model where utilisation trumps frequency is that the economics of chartering a vessel improves even if container rates do not increase.

A completely different and more complex picture emerges when looking at optimal vessel size, fleet mix and the economics of tonnage providers. That’s for another day.

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2 Comments

  1. Reo
    May 24, 2017 at 2:01 pm

    I love to hear Professors talk. They seem to know a lot about little. To suggest Malcolm McLean did not revolutionize trade by containers is ignoring History and in fact a refresher class in history might help. When you say clients don’t care about shipping sailing dates or transit times they just care about guaranteed delivery is amazing. You also forgot match sailing dates plus transit times equals a arrival date to the delivery port. Then you add in the domestic time and guess what, you finally get what they do care about is delivery for sure. So adding gives you the same answer but without the other its just a date until it doesn’t delivery on time then if you were in the real world of logistics the finger pointing begins. Then all the additions add up to the problem.

    1. Frank
      May 25, 2017 at 1:45 am

      “To suggest Malcom McLean did not revolutionize trade by containers is ignoring history”.

      Lucky no one suggested it then!