Planning ports with purpose

Dr. Indra Vonck, Deloitte Port Services. Credit: Deloitte Port Services

Ports are limited by what they can change to maximise evolving trends. Dr Indra Vonck, port expert at Deloitte Port Services, notes that while technology can even the playing field, not all investments need to be the smartest

The success of most ports continues to depend on trade, and trade is affected by basic demographics. More people, more wealth, and new products that are either produced or consumed in the region will generate cargo flow through ports.

The most successful ports will continue to be the ones located in regions where these demographics are favourable. The shift of middle-class wealth from Europe and the US to Asia, combined with an ageing population, will have quite a strong impact on the traditional East-West trade flows as we see them today. Asia is producing more and more for itself, and links to an increase in local production, including new technologies such as 3D printing. This shift will see a move from the large hub-to-hub transport flows to a more dispersed regional flow, with smaller and more frequent sailings.

The second biggest influencer is the backdrop of increased protectionism and political uncertainty. This trend will also drive more regional trade. Ports that can cope with this uncertainty and are able to gain support from their local governments will have an advantage
over the competition.

Making abstraction from the main demographic trends, successful ports in the past have been those that are best connected, both to the hinterland and international shipping routes. Decent connectivity in most parts of the world is becoming the norm rather than the exception, resulting in an increasing level playing field.

Second to connectivity is port productivity. The container industry has made several major leaps forward in terms of productivity over the past 50 years, but it seems to have hit a ceiling. Automated terminals are still not delivering the expected productivity and cost gains, causing more ports to look into digitisation as the next big thing.

Since the port industry’s evolution is mostly driven through reaction to their clients’ developments – such as shipping lines and third- and fourth-party logistics providers – the importance of being digitised also depends on the client base.

In Europe, Australia, the Middle East, and most parts of Asia, a non-digitised port is prone to losing quite a lot of business since clients expect an integrated digital solution. In these regions, digital infrastructure, such as port community systems (PCS), are just as important as the physical infrastructure. The importance of digitisation in Africa and South America remains on the backburner as the regions’ logistics chains are slower to adapt, but we will still see an increasing level of digitisation over the coming decade.

Stakeholder slowdown

The final set of trends links more to the social licence to operate, and is prevalent in Australia, Europe, and the US. Even if a port manages to fulfil all the prerequisites – be ‘smart’, digital, hedge the correct cargo flows, and navigate uncertain political waters – growth can still be stemmed by local stakeholders’ resistance to expansion. Limiting factors can include emissions impact on local urban and residential areas, environmental constraints, and an increased movement of freight in the hinterland.

A top-down and bottom-up social licence for ports to flourish must be generally accepted by all stakeholders. Strong urban development near a port can have devastating effects on projected growth. Development in urban areas will often take priority over port improvements, as there is often more money to be made by urban real estate, and limited land must be used in the most optimal, profitable, and green way.

All these factors suggest that port location will likely continue to be a primary selling point. Small ports might reap the benefits from more regional trade and a different product mix over the coming years. Digitisation and being smart is in most cases a result of clients raising the bar to a level that ports must meet. Since these investments are not as time- and capital-intensive as traditional port expansions, it is quite easy to level the playing field in a relatively short amount of time.

However, ports should exercise caution when considering digitising their operations. At its core, being a ‘smart’ port is applying digital Industry 4.0 (fourth industrial revolution) technologies, such as automated processes, data exchange, the internet of things (IoT), cloud computing, and artificial intelligence.

Smart with purpose

Unfortunately, technology is often being implemented without a clear strategic and operational focus, being smart just to be smart. A similar trend arose with a lot of companies gathering data just to gather data during the ‘big data’ hype, resulting in an abundance of potentially useful data pools with limited applicability. The analogy holds true for ports. Having a PCS in place and gathering tonnes of sensor data does not mean that the technology is used in the way it is intended, often leading to inefficiencies and value loss. Even the smartest ports in the world struggle to derive the maximum amount of value out of their technological innovations.

Consider also that the full ‘smart’ digital port concept is similar to a state-of-the-art automated invoicing or back-office system. It can be very useful for large, complex organisations to run such systems, but for the vast majority of ports and organisations it is a very costly investment. To use a car analogy, for most companies and major ports, buying a ‘smart’ port suit of technologies, would be like buying a custom-made Rolls-Royce, when a decent stock car, ranging from a Skoda to a BMW depending on the budget and complexity, would be far more beneficial to their needs.

If a port is at a point where smart technologies must be adopted to meet its clients’ needs, it should start the process with a detailed analysis of how it organises its operations.
Deloitte uses the Strategy Cascade to explain how this works. This framework forces you to think about what your vision is, where you want to play, how you can win, and what capabilities need to be in place. Ports must:

  • Determine why you want to do it, which value/business do you want to create
  • Identify and pinpoint technologies that can help you achieve these goals (automation, digitisation, IOT, PCS, terminal operating system, or any combination of
    these technologies)
  • Decide which capabilities the organisation needs to adapt to incorporate these changes, for example, team up with technology experts, do everything inhouse and if so, under which structure.

If you skip one of these steps, the chances are that the smart outcome will be at best moderately intelligent. There are three main reasons why ports would invest in smart port technology: cutting costs – removing operational expenses in favour of larger capital expenses up front, increasing revenue – often to appeal to the client through efficiency gains or better supply chain visibility, and keeping up with the competition.

Assessing smart growth

Ports located in regions with cheaper labour will have less need to be smart. We often see clients asking us to price for a smart port solution, even though the market conditions do not warrant this. An evolving competitive environment and demographics could alter this status quo over time.

There are certain ports that serve as perfect examples to all the things that are possible in the port industry. These ports often derive a lot of value from the innovation strategies and different digital solutions they either develop or apply into their daily business.

Examples include Rotterdam’s PCS and digital port solutions, Antwerp’s multiple innovation tracks and a strong innovation ecosystem allowing for drone testing and experimentation, and Hamburg’s pioneering work on IoT applications.

Port of Jebel Ali and Abu Dhabi ports are leading in automation and regional innovation. Los Angeles port is a perfect example of how a port has teamed up with a technology provider IBM in smart solutions.

The beauty of these ports and these projects is that they serve as inspiration of what is possible. By allowing and pushing these innovations, ports can shape the new generation of maritime rules and regulations linked to these technological evolutions.

The one caveat here is that this role should not be the ambition for every port. Like other sectors, certain companies and organisations are leading the pack. It is often safer for others to be more selective in which innovations to pursue.