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Reducing inefficiencies

Improvements in the industry cash flow depend on how we feel about data and collaboration

23/07/2018

On the surface, the airline and container shipping industries are quite similar, but only one of these has truly digitalised its actions. Compared to the other, this one also has a significantly better cash flow performance. What do you think, which industry is which?

AUTHOR: ANDY BARRONS

If you compare the container shipping industry with the commercial aviation industry, both are asset-heavy and exposed to global competition, and economic risks (fuel and operational disruptions). Both also sell goods with low marginal cost that require close matching of demand and capacity.

And yet the two industries have approached the use of data and systems in totally different ways:

Airlines rely on sharing industry data for decision-making on demand planning and traffic. They make use of strong industry organisations such as IATA, who gather, consolidate and distribute market data based on shared bookings and routes data.

Compared to the container shipping industry, the airlines have invested more into rigorous and thorough network and fleet planning. To maximise the utilisation of their transport assets, they have placed significant bets on scheduling tools, and they have adopted advanced systems to analyse data for forecasting and analysis. All this supports their ambition to effectively segment their customer and product offering.

This work is still largely missing from our industry, where the lack of data sharing is evident. Siloed planning processes and systems may have negatively impacted the industry ability to provide a reliable service that shippers would be willing to pay higher rates for.

The magnitude of the financial impact is even greater, if you consider that this lack of data and technologies has most probably sped up a commoditization trend that has significantly reduced industry cash flows.

Image caption:
Orient Overseas International Limited (OOIL) Asia-Europe average freight rate vs.
China Containerized Freight Index (CCFI) China-Europe freight index vs.
Shanghai Containerized Freight Index (SCFI) Shanghai-Europe freight rate

Consolidation and existing business models have not slowed this trend. However, by sharing data - and through digitalisation - the industry might find ways to flatten or reverse the downward curve. This would represent a huge industry gain in long-term cash flows, and it is a compelling reason to get started now.

Alan Field, in his whitepaper “How real-time cloud-based data sharing will benefit the maritime sector” provides a thoughtful overview on the value of collaboration and data sharing to improve operational efficiency and customer service levels of the maritime industry.

In the same study, 98 percent of interviewed shipping industry executives and professionals believe that it is important that the industry adopts new technologies to enable real-time collaboration. More than half of respondents believe their operational performance would improve by at least 50 percent with these new technologies.

The ways to improve the industry cash flow are clear for anyone to see. And yet the industry has become a case study in slow adoption of digital technologies when compared to other industries with similar business models.

What are your thoughts?

What do you think, when will the change start? Or has it already started, and is just hard to notice still? Where are figures pointing to a more positive direction? Join the discussion below, or at Twitter with the hashtag #smarterbettertogether.

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