How to achieve cost saving through digitalisation in shipping

digitalization - shipping and freight resourceDigitalisation is the use of digitisation (the transition from an analog format to a digital format) and digital technologies to convert your business to a digital business..

Digitalisation has been the buzzword in the shipping and freight industry in the last decade.. Its influence and coverage in the industry is increasing day by day..

It has been reported that as many as 125+ tech companies are currently involved in disrupting the shipping, freight, supply chain and logistics space with digital technologies..

Earlier this year, we conducted a COVID-19 impact survey in conjunction with Ocean Insights, and a State of Freight Digitalisation market analysis in conjunction with Haven Inc., in an effort to gauge the freight industry’s readiness to invest in digital technologies..

Some of the points that arose from these surveys are discussed further down in this article..


 

Why do we need digitalisation..??

For those of you who may not be aware of the types of digitalisation we are speaking about here, below are some examples of digitalisation in the shipping and freight industry..

  • Digital Freight Platforms
  • Electronic Bills of Lading
  • Blockchain Documentation
  • Paperless Trade Documentation
  • AI (Artificial Intelligence)
  • IoT (Internet of Things)
  • Automated ports
  • Robotics
  • Smart Containers

cost saving through digitalisation

The shipping and freight industry needs digitalisation for various reasons..

World trade is growing, increasing by 26% since 2008 and in 2019 reached US$ 19,051,000,000,000 (US$ 19.051 Trillion)..

cost saving through digitalisation

Global container market is projected to have the potential to grow as shown below

As of this article, there are 24,074,743 TEUs (that’s 24+ million TEUs) circulating around the world carrying global trade in 6,136 ships across various trade lanes.. 

As you can imagine, such high volumes involves a massive amount of paperwork and record keeping which is increasing day by day all over the world placing severe strain on the staff that are working with this..

This increase in paperwork can also cause errors as these are mostly done manually..

Digitalisation is the solution to effectively and efficiently address these problems..
 

What are the main drivers of Digitalisation..??

There are a few drivers of digitalisation in the industry, mainly

  • Need for speed
  • Improved efficiency
  • Differentiation
  • New competition models
  • Integration
  • Optimize utilization
  • Cost models

However, the biggest accelerator of digitalisation in shipping and freight industry in recent times would have to be SARS-CoV-2 popularly known as COVID-19.. 

In the COVID-19 impact survey that we ran on this site, one of the important trends unearthed was that 42.2% expressed readiness to change supply chain strategies with 59.2% of responders indicating their operations were significantly affected by COVID-19 and lack of digitalisation of their systems..

Additionally, the survey indicated a renewed surge in the demand for technology solutions, with 67.6% of the survey takers indicating they will invest in technology based on the impact they felt from COVID-19 and the current market conditions..

Apart from the increase in efficiency and speed to market, one of the main advantages of digitalisation is cost saving..

There are several areas where cost can be saved using digitalisation.. Central among this cost saving opportunity is Time which is an important commodity and when it comes to shipping and freight, time is really money..

Digitalisation can assist customers a great deal in terms of saving cost on avoidable costs through predictive technology..

 

What are avoidable costs..??

Well, there are several charges payable in a sea freight shipment.. Costs like Freight, BAF, Transportation, ISPS, Seal, Hazardous surcharge etc are legitimate and unavoidable costs based on the commodity..

However, charges like Storage, Demurrage, Detention and abandoned cargo are all charges that are “avoidable” through proper planning, understanding of the business and its execution..

As an example, these costs are normally caused by

  • Documentary delays which leads to delay in clearing cargo at destination
  • Incorrect documentation which leads to delay in clearing cargo at destination
  • Loss of Documents which could take a long time to fix for example if an original bill of lading is lost
  • Stops – like customs or inspection stops
  • Lack of visibility of when the cargo is arriving at destination
  • Laziness on the part of the people handling the shipments which leads to such errors

These avoidable costs and other costs could be saved through effective use of systems and digitalisation.. Through digitalisation, you could

  • Manage and avoid excess inventory
  • Identify and solve pain points through predictive analysis which could assist in free time optimisation, avoiding port congestion, demurrage and detention analysis using data
  • Save costs through usage of smart digital procurement practices for example, with tender
  • Expedite document transfer like below

cost saving through digitalisation document transfer

 

How far are we with digitalisation in the shipping and freight industry..??

Well, the results of both the surveys mentioned above revealed that :

  • 35 %  of the respondents were not prepared at all to handle the COVID-19 pandemic in terms of their systems whereas  54% stated they were somewhat prepared ;
  • 42% of the respondents said they would change their shipping and supply chain strategy based on their experience with the COVID-19 pandemic with 67% of them saying they would invest in technology ;
  • 50% of participants did not use any software for freight management, 23% were using part digital/part manual processes, 20% used custom built software and 7% used off-the-shelf products ;
  • 35% of the respondents complained that manual processes leads to delays in their operation which in turn translates to costs for them and their customers ;
  • On average only 7.6% of the Quotation, Booking, Documentation, Track & Trace, and Freight Audit process was automated with 34.6% of these process being done manually and 55.6% using a mixture of digital and manual processes..

 

Conclusion

The bottom line is that, digitalisation is inevitable and very soon, those who don’t adopt it will find it difficult to stay afloat..

While we have Smart Containers, Smart Bills Of Lading, Smart Ships, Smart Ports, Smart Contracts and Smart Warehouses, this alone will not help in saving costs through digitalisation because we also need smart people with awareness of digitalisation and the pitfalls of digitalisation..

Digitalisation cannot create awareness.. Companies and staff should have the awareness and knowledge of the business requirements and how cost savings can be achieved through digitalisation before digitalisation can be implemented..

 

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4 thoughts on “How to achieve cost saving through digitalisation in shipping”

  1. Hariesh, Great article. I especially like the picture of the BL flow. I would add one comment though on that. When you think about Maersk, MSC, and CMA-CGM combined that represents roughly $9.5 Trillion dollars of liability (as the BL represents a contract for carriage). So for them something like a blockchain enabled eBL that gives them complete control is almost a must.

    Reply
    • Hi Erik, glad you found it useful.. From a liability perspective, whether it is a physical bill or electronic bill, the line’s liability stays the same as per their terms and conditions and the convention chosen.. The blockchain here is only assisting in the transfer of documents.. Line’s liability remains same..

  2. Well done. Once again an in depth article on current changes affecting shipping. This is presented in easy to follow sentences and not becoming bogged down in techno speak which leaves the newcomer to the trade feeling stressed out. Thank you for once again. John

    Reply

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