The Turning Point for Smart Ports (Part 4) - Managing the Transition

This is the final of four parts of a technical paper about the digital transformation of traditional ports into “smart” platforms. The different parts of the work respond to four key questions and management challenges: “What’s at the core of the digital transformation (part 1)”, “How to enhance the value of automation (part 2)”, “What makes ports smart (part 3)”, and “How to manage the transition (part 4)”. Although the term “Smart Port” has been around for some time, only gradually its full magnitude unfolds. Now, I think the development has reached its turning point.

Research shows that 90 percent of the digital transformation projects and 70 percent of the large-scale efforts fail. People often do not understand why the company needs to change in the first place. People also fear that the digital efforts will cannibalize the existing offers. Managing people and addressing their concerns and expectations, while dealing with technical plans and challenges makes the digital transformation so hard.

The Fourth Industrial Revolution is about platforms and the art of tapping into resources provided by the ecosystem – which is a phenomenal idea but requires close collaboration and a new form of alignment, internally within organisations and with the external world. Reaping the benefits and mitigating the risks of the digitization era requires that all parties in the ecosystem automate, integrate and orchestrate. Broader automation is the foundation, i.e. the digitization of fixed and mobile assets, yards, locations, actions, payments, etc. Integration makes companies and ports ecosystem-ready, i.e. allows them through connectivity and exchange to benefit from value flows that start and end beyond the frontiers of the organisations. Orchestrating is the key to extracting value out of existing flows and creating new business models to generate additional revenues and profits.

Working together across the maritime world and other ecosystems is paramount to shift into the digital age. Best enabled by neutral third party digital architectures allowing for trust in the solution and the impartiality of the operator. Unclear remains at this point in time who will finally succeed in developing the common and broadly accepted structures and protocols, and how this digital world will be governed; this could also well be a new entrant.

Where to start

Clear is, though, that holding on to legacy tools and previous habits will hamper the transition to a more fluid supply chain. Most ports need to upgrade their way of operating. A number of infallible moves are available to get started, like 1- upgrading core IT systems, 2- replacing solutions based on electronic data interchange (EDI) with the more flexible application programming interface (API), 3- establishing advanced technology roadmaps, and 4- contemplating alliances with digital leaders.

By building platforms, those companies and governments well on the way will help larger but more importantly smaller partners in the ecosystem to get onto the digital bandwagon. Platforms facilitate interaction and align parties through its rules. However, each cultural sphere will move at its own pace – while the US and China will probably dash ahead, Europe might take its time to integrate new technologies where possible and replace obsolete solutions where appropriate. At the end, each approach will need to suit the stage of development and the needs of the respective countries and companies in question. However, the supply chain is a critical competitive factor for companies and nations. Once one collaborative stakeholder group along a specific supply chain will have achieved significant digital advantage other chains come under pressure. It will be interesting to see how the Chinese will digitize, integrate and orchestrate value flows along the Belt and Road Initiative.

Overcoming obstacles and objections

Along the way of digitization, various challenges and concerns need to be dealt with. Among them are cyber risk, communication network coverage gaps, and fears about change and jobs. Although none of these are expected to significantly slow down the digital movement, they need to be taken seriously.

·        Cyber risk

Gartner estimates that worldwide security spending will increase by 8% in 2018, to reach $96 billion. This estimated rise is explained by regulatory changes, growing awareness of cyber threat and the shift towards digital business strategies. In light of the rising challenges, the World Economic Forum established the Centre for Cybersecurity beginning 2018. The Centre initiates and supports efforts of public private collaboration to avoid cyberattacks and increase cyber resilience.

In many large enterprises the responsibility for building cyber resilience has moved from information technology (IT) departments to risk management teams that report directly to the board. Conjointly with law enforcement agencies companies are in the process of setting up cross-industry resilience networks. International Maritime Organization (IMO), Baltic and International Maritime Council (BIMCO), Maritime and Coastguard Agency (MCA), United States Coast Guard (USCG), Recognized Organizations (ROs) and other industry stakeholders have issued guidance and best practices to address the dark side of the digital economy and society. With WannaCry and Not-Petya we have become aware that cyber resilience is indispensable and not an industry challenge but a collective responsibility. Ports and the shipping industries need to collaborate with partners across the entire economy to quickly and efficiently ramp up cyber protection competencies and pre-emption capabilities.

·        Communication coverage

Platforms need connectivity. Lack of sufficient communication coverage is a barrier, also the lack of availability of 5G networks. Although needed for example for level five autonomous vehicles there is still a lot that can and needs to be done before 5G becomes indispensable. First, governments need to understand what is required now and ensure that the appropriate coverage is in place. Over time, they will naturally develop towards 5G.

Important to note is that technical specification of industrial networks, e.g. to enable nationwide tracking of goods and vehicles, differs from the needs of communication coverage for consumer services, which require significant bandwidth for the “heavy” applications. The private sector can help to make the appropriate investment decisions.

·        Jobs and labour markets

The fears and concerns about the impact of technology on jobs in large parts of the workforce and population need to be addressed by politicians and businesses leaders alike. People need activity and perspectives in life. As much as automated cars must not mean unmanned cars, automated terminals must not mean ports without workers. There should always be a place for humans. Automation is there to serve us, not the other way around. So far all revolutions had their disruptive impact, which, however, at the end created more jobs than the number of jobs destroyed. Some people doubt that this will also be the case in the Fourth Industrial Revolution.

Whatever happens, it lies in our hands how we build our world and share the wealth we conjointly with the machines create. In order to win the support of workers and large parts of the population the digital concepts need to include us. Automation should thus be ‘hybrid automation’, i.e. in one form or another the collaboration between humans and machines. Our vision should be a world of “cobots”, i.e. of robots that don’t replace us but work in tandem with humans.

Finally, the level playing field, privacy and data ownership etc. are additional concerns. Public and private sector need to develop the necessary policies and programmes conjointly. Some players might not be willing to join the digitization effort as they will lose with increasing visibility. Within governments and companies, leaders will have to overcome inertia and fears too. Admittedly, it is not going to be easy to transform a port into a kind of Google or Apple. But do we have a choice? If ports won’t digitize, someone else will digitize them – possibly a kind of “Uber or Airbnb for ports”.

Leveraging the metrics

Managing the digital age and transition requires reliable measurement. Today, people consider supply chains to be differentiators and revenue generators. The size of carbon footprints becomes increasingly important as a criteria of selection of suppliers and brands. Supply chains can create competitive advantage that cannot be easily copied or replicated. With data flows becoming the new value chains comes the rise of a new set of key performance indicators (KPIs), such as cash-conversion cycles, a metrics that expresses the length of time to convert resource inputs into cash flows, and inventory days of supply, a KPI that measures the average number of days a company holds inventory before this is sold. In the Fourth Industrial Revolution, companies can align their data so measurement comes from the same source and is comparable.

Again, better predictability, higher speed and fluidity is the name of the game. The faster and more reliable the throughput of goods, the better is the utilization of assets, the lower are capital needs, costs and potentially risks, and the happier are customers and consumers. Data that feeds the KPIs that help to improve the flow of goods from the source to the place of destination and beyond is of highest value. Smart port data makes the KPIs of port customers or the ports’ customers’ customers more robust. Reliable dashboards are not only extremely valuable for running the port operations but they are also of great support to manage the digital transformation. Nations but also industries might wish to consider a digital transformation index.

Technology impacts all areas of the business and will ensure as well that the field will be more or less level. Digitization will help the entire maritime ecosystem to reach a level of quality and cost, and a new standard. Advanced technologies will bring the supply chain to a stage where data-based facts determine the choice of carriers, logistics companies, ports etc. This will ensure that those investing in the future get in turn their fair share of return.

An abridged version of the entire paper (parts 1-4) was published at Port Technology.