The digital transformation of trade logistics
For international trade logistics to fully benefit from the digital transformation, we need global standards, cybersecurity, and an open competitive market, says the Chief of UNCTAD’s Trade Logistics Branch.
Technological progress will never be as slow as today, and the potential for further improvement in international trade logistics is immense. The “Internet of Things”, in combination with ever more availability of data – thanks to tools such as Automatic Identification System (AIS) for ships and tracking devices for trucks and containers – will allow for exponential growth of automated processes and transactions. The combination of enhanced digital and physical connectivity will help carriers, seaports and inland transport providers integrate their processes with the shippers’ globalised supply chains – and all this sooner rather than later with the help of Artificial Intelligence (AI).
Smart logistics operations have already led to a significant reduction of expenditures on inventory holdings, while more money is spent on fast, reliable and – where possible – Just In Time deliveries. The growth of e-commerce accentuates the need for further logistics improvements. An upcoming UNCTAD Policy Brief suggests that border agency cooperation, Single Windows, and the facilitation of expedited shipments are particularly relevant to promote e-commerce.
Several recent initiatives are assessing the opportunities that come with these new technologies. Optimising vessel speeds and paths, for example, can reduce waiting times in ports and CO2 emissions. Port authorities and terminal operators have joined forces to optimise port and intermodal connections. Shippers and other stakeholders have been supporting a maritime logistics dialogue to encourage the exchange of data and collaboration along global supply chains.
Now, for the time being, the exchange of data between players in the supply chain is not as smooth as it could be. Key obstacles include 1) the use of different standards, 2) concerns about data security and 3) potential objections from competition authorities.
- Standards: The most important standard for international trade has been the container. In today’s digital transformation, standards for data will be just as important. The challenge is to encourage the use and development of the necessary standards, including by the industry itself, while avoiding that these become closed standards that could exclude some players.
- Data security: Cyber-security is of growing concern as we become more and more dependent on sharing and storing data online. The recent scandals with social networks and their sharing of private data serve as a reminder that our data may be difficult to control once shared in cyberspace. Some tools, such as distributed ledger technologies, promise to be secure, yet they still depend on interfaces that may not be so secure.
- Competition: Sharing data to improve operations is one thing. Using this same data after that to collude in capacity management or price setting is another. Before a shipping line or terminal operator can share a client’s data with suppliers or other clients, it will need to be sure that this complies with competition legislation. The challenge for governments and competition authorities is to ensure that service providers can make the best use of the digital transformation, while at the same time safeguard that these benefits are passed on to the clients, the shippers.
Container transport providers, shippers and intermediaries compete in wanting to control the entire supply chain. This competition helps the rise in end-to-end visibility to manage capacity utilisation better. Fully controlled supply chains are one way to facilitate the effort of total supply chain visibility, as data can be shared more efficiently within a company than between different parties. Maersk, the largest container shipping company, has recently decided to focus its business on transport, including liner shipping, terminal operations, and logistics, while at the same time divesting from energy and bulk shipping. To also benefit from the opportunities offered by the digital transformation, smaller companies participating in the supply chain need to find ways to collaborate more – within applicable laws that govern data protection and competition.
Often, technologies are not the main problem. Within a seaport, setting up the technological dimension of a Port Community System is not necessarily the most difficult part; the challenge is instead the politics of making different stakeholders cooperate and trust each other. The same applies for national Single Windows for foreign trade or global platforms for international trade logistics. While the technologies for sharing data exist, many stakeholders don’t feel ready to do so yet – and there lies the principal challenge that the logistics industry faces as it looks to benefit from the digital transformation.
See also UNCTAD’s work on Technology, Innovation and Logistics, including specifically our Review of Maritime Transport, support to trade logistics, and the eTrade for all initiative.