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September 3 2018

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70 The Journal of Commerce | September 3 2018 www.joc.com Trading Places Peter Tirschwell ASK OCEAN CONTAINER shippers to name their top challenges and, to this day, "lack of visibility" will still be found at or near the top of the list. Of course, it may depend on when the question is asked; if you ask it now, securing vessel space out of Asia would probably rank higher. Lack of visibility in ocean ship- ping means not knowing where a container is at any moment in time, but, more importantly, when the transit deviates from the scheduled plan. A step in this direction would theoretically be active sensors coming down in price enough to be attached to dry containers so that an accurate position could be reported continuously to customers. At the 2017 TPM Conference, industry leaders said it would not be long before the price of sensors would be cheap enough in price to make them ubiquitous on the rough- ly 20 million dry containers shipped around the world. But nothing approaching that has happened, and there is no shortage of debate on when or if it will eventually occur. "I expect sensors to be attached to all containers within the next five years," said Anil Vitharana, former US president of United Arab Shipping. "There is no chance that carriers could recover the cost as an add on. It should be considered as a service enhancement." And this gets precisely to the question of how carriers should be investing. Historically, they have exhibited a contradictory willing- ness to invest in ships, which for the most part have destroyed value. They have been more unwilling to invest in game-changing technol- ogies that could deliver value to their customers and evolve them- selves away from the "Red Ocean" commoditized market position they currently occupy. From one perspective, it's rea- sonable to forgive carriers for hold- ing back on technology investments, like making their container fleets smart, when their investments have historically yielded disappointing returns; over the 20 years from 1995 to 2016, average return on invested capital for container carriers was 2.6 percent (against a cost of capital of 8.7 percent), according to Capital IQ and McKinsey. Such thinking, among other ex- amples, led APL in 2013 to abandon its short-lived Ocean 53-foot container, which apparel shippers loved but not apparently enough to pay anything extra for it. But if the standard is investment that yields an adequate return, given the track record, why invest in ships in the first place? Why not for that matter go into another business? If you are going to remain in container shipping, at some point you have to ask when an investment strategy based largely on assets while keeping technology at the margins needs to be reassessed. And let's face it, technology is at the margins for container lines, and has been for a long time. Technology for container lines is used to run their business, not to change the game. But it's faulty thinking. From the per- spective of risk, investment in ships is risky because they might contribute to overcapacity and tank the rates. Big technology projects carry their own risks — as DHL Global Forwarding learned with its scrap- ping of a global SAP rollout in 2015. The difference is that even if rates go down, a ship can still be sold, while an IT project gone bad is a write-off and likely a multiyear loss of time. But only technology can change the game with customers and begin the process, if there is to be one, of carriers repositioning themselves as creators of value; some say that is what they want to do. It's thus hard to see how, despite the uncertain payoff, container carriers can go in any other direction at this point. As the element of service ship- pers say they want most, visibility would be the place to start. Carriers know out of the gate, as Vitharana said, that there is no direct line of sight to a return from customers, but maybe there could be in asset management. In parcels and US trucking, visibility comes with the basic price of service, and shippers' expectations in ocean would surely be no different. But if the goal is to create meaningful value for customers, it's within carriers' power to do just that, even without deploying fleets of smart containers. When shippers say they want visibility, what is important is not the location of a container at any given point in time; that information is essentially meaningless. What is important is knowing when there is a deviation from the plan; in other words, when a ship will arrive late and by how much, preferably with an explanation that can be cascaded. Imperfection in schedule reliability is assumed: Glob- al schedule reliability was 66 percent in January, according to SeaIntel- ligence, though it has improved somewhat since then. Deviation from schedule is information that carriers possess but inexplicably have kept largely to themselves. They just need to invest in systems to be able to communicate it simply, accurately, and consistently. If they don't do it, others will. Kuehne + Nagel with its Sea Explorer tool is taking the idea to an- other level entirely, using Big Data and advanced analytics to create continuously updated ETAs on ships based on factors including weather, port congestion, and historical vessel speeds. If container lines take technol- ogy seriously, who knows what the results could be? JOC email: peter.tirschwell@ihsmarkit.com twitter: @petertirschwell Sensing a value opening If the goal is to create meaningful value for customers, it's within carriers' power to do just that.

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