- The shipping and logistics industry must find new ways to optimize processes in the midst of COVID-19 pandemic.
- Capacity utilization and lack of transparency are major challenges for ocean carriers and truckers alike.
- By exploiting the best practices, tools and technologies used in other industries, the shipping and logistics industries can solve the transparency and capacity challenges.
With all of the additional challenges now present due to the COVID-19 pandemic, the shipping and logistics industry must find new ways to optimize processes, reports Nasdaq.
Major challenges for ocean carriers amid pandemic
Capacity utilization and lack of transparency are major challenges for ocean carriers and truckers alike, and that comes at a cost to both the end-consumers and the environment.
New transparent marketplaces powered by advanced technology from the capital markets could pave the way for greater efficiency and much needed digital transformation.
Nasdaq’s Hanne Johansson, Market Technology – Head of Business Development for Shipping and Logistics, and Ben Haaland, Business Development Manager – New Markets, explain the plight of the shipping and logistics sector amid the pandemic.
Why does sub-optimal capacity utilization take a toll on the industry and the environment?
Hanne: When it comes to ocean shipping containers, there’s often a mismatch between ship capacity and available cargo. A relatively straightforward supply and demand issue has become an industry-wide nuisance, resulting in lost revenue, unpredictable costs and unnecessary emissions.
Goods end up being delayed, companies are forced to carry extra inventory, and entire supply chains are affected. Service failures like these should incur a penalty, but the current nature of the business makes it difficult to enforce contracts.
“These problems can worsen during disruptions, which can cause equipment dislocation and a buildup in cargo sitting idle, causing distress to the entire supply chain,” says Hanne.
Ben: The trucking industry recognizes the need to cut down on the number of empty trucks or “deadhead miles.” This occurs when a trucker drives an empty trailer during the trip to pick up a load.
Another issue is partially loaded trucks that don’t utilize all the available cargo carrying capacity.
Ben adds, “Ultimately, sub-optimal capacity utilization takes a toll on the economy and contributes to fuel inefficiency, bad air quality, traffic congestion and general waste.”
What are some challenges with solutions that shippers are currently using to book freight?
Hanne: The industry is talking about how digitization can eliminate manual processes, streamline operations, add a layer of trust, improve transparency and provide the ability to share data in a more secure fashion.
In trucking, several digital freight matching platforms are available. Machine learning algorithms are also gaining traction to match trucks to shipments and automatically evaluate billions of load combinations to determine the ideal way to combine shipments.
There are several online platforms in the ocean container segment as well. But carriers are only putting a small percentage of their capacity on them because many are reluctant to give away too much information.
Hanne continues, “Most of the existing booking platforms allow shippers to book online and perhaps handle invoicing, but they can’t track the entire transaction lifecycle. If I want to ship something overseas in a container, I need to go into several booking platforms to get the best price.”
Ben: In other words, there are many different platforms, but carriers aren’t aggregating their capacity on booking platforms because there’s a lack of trust. Fragmentation and no aggregation of capacity mean that shippers can’t get a clear view of availability and pricing.
Meanwhile, COVID-19 is having a huge impact on trade, and it’s added another layer of complexity when it comes to utilization. While personal consumption has declined overall, people are buying domestically produced goods and having them shipped directly to their homes.
This means that long haul trips have decreased while local trips under 100 miles have increased by more than 100% in the U.S., according to research.
Ultimately, the shipping and logistics industries have had to adjust to this new reality when they are already facing challenges with time-consuming manual processes and non-optimal utilization rates.
How can marketplace structures and technology fill the gaps left by existing solutions?
Hanne: Marketplace technology can help the shipping and logistics industry solve some of its supply and demand challenges as well as optimize the supply chain.
The most commonly used solutions by shippers generally focus on the supply side of a market – where a shipper asks for a service and is quoted a price.
But marketplaces can also bring in the demand side of the equation – where shippers bid for a service by stating the amount they want to pay – which could be a long-awaited disruptive force in logistics.
How can marketplaces contribute to operational efficiency and sustainability?
Hanne: Shipping marketplaces can aggregate capacity supply and demand. As a result, buyers and sellers can discover prices and execute transactions efficiently, which saves time, reduces costs and contributes to sustainability. They can negotiate contracts as equal participants on a transparent market and enjoy a guarantee that all parties comply with agreed terms.
Time-consuming manual processes could be eliminated, capacity forecasting could be improved, and overbooking on ocean vessels and running empty trucks could be reduced significantly. Carriers can benefit by boosting revenues, lowering costs and achieving sustainability goals.
Ben: Marketplaces aggregate, standardize and disseminate market data. This is about streamlining and optimizing the supply chain with the help of technology solutions commonly used in the capital markets.
Data integrity enables the whole supply chain to benefit from greater visibility, transparency and predictability, allowing businesses to improve customer service and forecast costs, revenues and time spent on the shipping process.
Briefly, what is Nasdaq’s marketplace solution for the shipping industry?
“Our Marketplace Services Platform allows participants to electronically execute standardized or complex transactions, including renegotiations, auctions and RFQs. Beyond matching buyers and sellers, marketplaces are a rich source of data, and their owners can monetize the data and leverage it to enhance business decisions,” says Ben.
He added, “Built by market operators, for market operators, the Nasdaq’s Marketplace Services Platform matches buyers and sellers with ease, facilitating the frictionless exchange of assets and data. The suite of services is scalable and interoperable, allowing your business to add on new modules as you expand.”
Hanne continues, “Nasdaq provides the technology that powers our own markets and more than 120 other marketplaces, financial regulators and post-trade organizations around the world. The technology enables marketplaces to scale, allowing for large numbers of trades and participants.”
“We have a trade workflow-based matching engine that allows buyers and sellers to track the entire transaction lifecycle. Additionally, we provide a layer of trust by storing the data on a blockchain. This can significantly reduce the paper trail and time spent on administration for supply chain stakeholders, as well as protect the transactions and decisions in the blockchain,” he concluded.
The key takeaway
- There is tremendous potential to transform and disrupt the shipping and logistics business, future-proof the industry and identify new growth opportunities using market mechanisms that allow for real-time negotiation on price. Ultimately, new shipping marketplaces can be structured in several ways.
- By tapping the best practices, tools and technologies used in other industries, including the capital markets, the shipping and logistics industries can solve the transparency and capacity challenges they are grappling with, increase revenue and reduce costs.
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Source: Nasdaq
