Chapter 2.4 – Digital Transformation

Authors: Dr. Jean-Paul Rodrigue, Dr. Theo Notteboom & Dr. Athanasios Pallis

Digital transformation is the integration of information technologies into business processes, changing how they operate and deliver value to their customers.

1. The Digital Transformation of Ports

Like several sectors of the economy, the port and maritime industry have been impacted by digital transformation. Technology is used to improve, at times substantially, the performance or reach of organizations, including their management, operations, and assets. Information technologies, combined with leadership, can turn technology into transformations. Digital transformation implies a cultural change that requires organizations to challenge the status quo and incorporate technology continually. Still, digital transformation has been an ongoing process since the 1990s with the massive diffusion of personal computers in organizations, a process expanded by networking in the early 2000s. By 2010, a critical mass of storage and processing capabilities embedded in ubiquitous and large-scale information networks allowed new forms of digital transformation to occur.

Digital transformation challenges organizations to adopt a set of key notions that have an impact on their governance and organization and which strategies and business models should be implemented. These generic corporate challenges can also be found in the logistics industry, shipping, and ports. For example, port and logistics companies take on a customer-centric approach by adjusting objectives to include key performance indicators and metrics that measure customer satisfaction and, if necessary, by overhauling the business processes that are seen as less efficient. Service reliability in a digital era does not only imply that a company can deliver a service, but it should also do so efficiently, conveniently, and repetitively, a concept associated with the ease of doing business.

Another key to competitiveness relates to cooperation between supply chain partners and digital and integrated data solutions. Horizontal collaboration between transport companies and logistics service providers deal with the need for shorter, convenient, more sustainable, and cost-efficient supply chains. This entails additional complexities, mainly where it concerns mutual trust concerning data-sharing protocols and protecting the respective competitiveness. Thus, cooperation is typically associated with new governance models to build trust among the parties involved and achieve a fair distribution of costs, efforts, revenues, and returns. However, several concerns exist when developing cooperation initiatives and introducing performance measurement tools and systems across supply chains:

  • Lack of trust. Organizations are reluctant to share their internal data. Trust in data sharing, acquisition, and monitoring needs to be built as most of the data can be perceived as market sensitive.
  • Lack of understanding. Many managers focus on internal systems, so moving to an inter-organizational scale often demands the development of a deeper understanding of what plays when co-operating with other parties in the chain.
  • Lack of control. Managers and organizations are often focused on initiatives and measures they can fully control. Inter-organizational measures are challenging to manage and thus control.
  • Different goals and objectives. The cooperation between organizations might lead to a confrontation between different goals and differing views on achieving these goals.
  • Information systems. Information systems often have to be adapted to include non-traditional information relating to (green) supply chain performance. Also, information exchanges between organizations might be complicated by a lack of standards (in terms of units to use, structure, format) and harmonized protocols and procedures.
  • Difficulty in linking to customer value. Not all organizations see the corporate and stakeholder value of co-operating with other organizations or have difficulties identifying and measuring possible value.
  • Deciding where to begin. Organizations might face challenges when starting to develop supply chain-wide practices and related performance measurements.

Service providers in logistics, shipping, and ports improve supply chains with the support of IT systems that are increasingly performant. The data component leverages performant and pro-active service providers to transform into organizations with a new outlook on logistics services. Next to an increasing number of traditional activities being outsourced, such as transport, warehousing, and various types of value-added services, the presence of collaborative platforms enables service providers to develop new types of logistics services.

Further, logistics, shipping, and port companies are rethinking their hiring strategies as the nature of jobs transforms with technology. Service providers invest in self-service systems to internally replace operational staff and improve the ease of doing business for customers. For example, advances have been made in cargo booking systems, cargo tracking systems, and invoicing, which have become paperless and available online. The ultimate objective behind these digital systems is to have staff perform only the tasks that the systems cannot do, such as exceptions. This implies staff moves towards new managerial, commercial, and programming roles as basic logistics tasks get automated.

Data integrity and privacy challenges and risks have soared with the rise of digitalization and technology. The logistics, shipping, and port industry is challenged to safeguard the data being communicated across players. In the past few years, several market players have been confronted with large-scale cyber-attacks. For example, in 2017, a ransomware cyber-attack infected Maersk Line and its terminal sister company, APM Terminals. In the same year, the “WannaCry” ransomware attack caused gridlock at FedEx. Such incidents with wide ramifications on supply chains have mobilized market players to increase cybersecurity efforts. Failure to protect data hampers the digital revolution as this represents a risk not only for the end customers but also for the suppliers.

2. Disruptive ICT Innovations for Ports

A. Automation and innovation

The port and logistics sector is implementing technology and digital transformation strategies to a certain extent. Some innovations are particularly relevant and will affect almost all aspects of the transportation process. There are four categories of automation:

  • Robotics encompasses the use of robotics in container handling equipment such as automated mooring systems and automated ship-to-shore cranes. With automated ship-to-shore cranes, over 90% of the work duties are performed autonomously with the final movement of the spread guided by an operator from a remote control room. Most container ports that have employed a significant form of robotics-based automation within the terminal have similarly incorporated automation into process-based and decision-based elements of the terminal operations.
  • Process automation involves the use of technology to automate processes external to cargo handling. These include gate processes in which a combination of hardware and software is used to minimize human involvement through appointment systems, vehicle and container identification detection, radiation scanning, driver identification, and routing within the terminal. It typically involves gate systems in which optical character recognition (OCR) and radio frequency identification (RFID) automate the inspection, clearance, and tracking of people and equipment moving into, out of, and within a terminal, with supervision and exceptions handled from a control room.
  • Decision-making automation involves using technology to guide and optimize decisions related to stowage and yard planning, container positioning, and vehicle and equipment scheduling. It involves intelligent terminal operating systems (TOS) technology to optimize planning, monitoring asset utilization, and administrative tasks.
  • Digitalization involves applying digital technologies to commercial operations, planning, and support functions, with a particular emphasis on data aggregation and analytics, and network optimization.

Technologies such as the Internet of Things (IoT), Big Data, and Artificial Intelligence (AI) and their predictive capabilities have all, in one way or another, allowed for smarter and more efficient supply chains. Smart warehousing, real-time tracking, and supply chain visibility, including transportation assets, have become widespread in the industry. Blockchain is adding a new layer of transparency and credence between supply chain players.

B. Automation and robotics

Automation can be implemented at the level of processes, infrastructure, and mobile assets. Process automation can play a key role in the transformation of logistics service providers. For example, technological advances make it increasingly possible to dynamically integrate pricing, schedules, bookings, shipment visibility with customers, carriers, and marketplaces in real-time. Rate automation and shipment visibility technology facilitate online sales. This can create new opportunities for service providers, as these decision tools enable deeper integration with carriers, which will further facilitate shipment and asset allocation optimization.

Asset and infrastructure automation and the use of robots are not new to the logistics industry. For example, automated stacking systems in warehouses have been put in place since the early 1990s. The world’s first container terminal using automated stacking cranes and automated guided vehicles (AGV) became operational in Rotterdam in 1990. Driven by cost control (such as labor and land) and efficiency, automation in warehouses and terminals has firmly progressed in recent years. The extent of automation ranges from remotely controlled operations under safe and efficient conditions to fully autonomous operations with limited oversight.

Since the 2010s, automation started to move beyond the warehouse and terminal. When opting for automation in terminals or warehouses, market actors can fully control the working conditions for automated vehicles or equipment. Enclosed entities offer a controlled environment for automation less subject to random disruptions. However, outside these controlled environments, automated vehicles are subject to many influencing factors that cannot be controlled, such as the weather, traffic conditions, and topological conditions (turn priorities, one-ways). Moreover, using automated vehicles in the public domain (sea, land, and air) requires legislative and regulatory actions. A broad range of autonomous or remotely-controlled vehicles is being developed from small last-mile solutions (e.g. drones) to full-sized autonomous sea-going vessels. The development and implementation of these robots will entail their own threats and opportunities that may incite setbacks, unintended consequences, and new market opportunities.

The development of driverless trucks is in full swing. Because autonomous trucks will still be required to carry drivers (to handle exceptional conditions) for the foreseeable future and advanced levels of autonomous driving are still some time away. The immediate impact on logistics and port operations will most likely consist of increased efficiency because of assisted maneuvering, improved planning, and synchronized timing, allowing for increased terminal and truck operator efficiency. In a similar vein, drones are already being used for security surveillance and inventory checks in warehouses and some ports (such as Abu Dhabi’s Khalifa Port). They could also have a role in monitoring other logistics operations and detecting problems requiring maintenance. The main barriers to using drones are regulatory, but it may be only a short-term obstacle.

The first serious initiative for a crewless ship was unveiled in 2014 by Rolls Royce. The main challenges for having crewless ships are regulatory, considering international maritime conventions have clear specifications on minimum crew requirements. Another challenge is safety concerns, especially weather, obstacles, and in-trip repair requirements. This includes the uncertainty of how such autonomous or remotely operated ships would cope with unforeseen or irregular events. The main advantages include a reduction in fuel consumption, and therefore emissions. Even though safety is currently considered a concern, overcoming the challenges effectively would mean that maritime safety could be improved, as most shipping accidents result from human error, often related to fatigue. The debate focuses mainly on the projected costs. One concerns reduced operational costs where the absence of a crew can be seen as a liability in case of the need for repairs or problem-solving, resulting in higher operating costs. Another concern reduced construction costs because crewless ships do not require crew facilities such as cabins and galleys.

C. The Internet of Things (IoT) and big data analytics

The IoT refers to a wide and increasingly large range of physical objects (“things”) connected to a network and able to send and receive data. This effectively means all such items can be tracked and that any activity such item is engaged in, or any circumstances it is exposed to, can be monitored and measured. The IoT is a development that is rapidly taking place across all industries and throughout society. Such a network of communicating units opens up a large array of possibilities for logistics. These sensor-driven items will allow all assets, including autonomous and robotized vehicles and equipment, port equipment, infrastructure as well as the goods themselves to become connected. This will result in massive amounts of data being produced and made available for analysis. This offers a large array of possibilities for logistics and port operators and stakeholders to optimize and automate processes and gather an ever more precise and real-time insight into their operations.

To effectively and successfully implement applications built on the IoT, robust communications systems need to be in place. Ports, with containers and equipment interfering with signals, and warehouses with attenuated and scattered signals, are notoriously difficult environments. Even though many ports and warehouses have network infrastructure available, it is often not suited to IoT requirements of high bandwidth and secure protocols. The possibilities are vast, and the evolution of IoT and the use of big data creates prospects for logistics to become a data-centric industry where information takes precedence in the value proposition of logistics services over the actual ability to move cargo.

D. Simulation and virtual reality

Big data applications allow logistics service providers and port operators to fully exploit the advantages of simulation software. Operations can be modeled to analyze operational flows, pinpoint possible barriers, define enhancements, and simulate and assess a variety of design and throughput scenarios. This can be done for existing or newly planned facilities and networks. An additional benefit is that such simulation software can also be used to train staff in a realistic environment and allows for the simulation of all sorts of events to be problem solved.

Virtual reality (VR), defined as the expansion of physical reality by adding layers of computer-generated information to the real environment, will further support such simulations. In a logistics environment, one can envisage enhanced feeds from infrastructure, equipment, automated vehicles, and various drones. It is to be envisaged that VR will have a wide field of applications ranging from operational support of how to execute specific processes to active safety or security interventions. VR allows to filter complex visual environments and highlights important elements such as an individual vehicle or container.

3. Port Community Systems and Blockchains

Automation relies on complex information systems supporting transactions and operations related to ports and maritime shipping. This strategy is often referred to as digitalization, for which port community systems and blockchains are salient examples.

Port Community Systems (PCS) are an information entity that makes available logistical information among the actors involved in port-related freight distribution, including freight forwarders that act as intermediaries for importers (consignees) or exporters (consignors), terminal operators that are the interface between the port foreland and hinterland, customs, ocean carriers, inland carriers and the port authority itself.

Blockchains are distributed electronic ledgers shared across a network of servers that records transactions in cryptographic units that are called blocks in a permanent and verifiable manner. They are often referred to as digital ledger technologies (DLT).

The digital transformation of terminals is integrated into emerging blockchains and other information systems that effectively link together a wide variety of port and intermodal stakeholders such as customs, freight forwarders, and carriers. The purpose of digitalization is not necessarily to create new information systems to manage freight activities but to effectively link existing databases and management systems through a portal, particularly through the conversion of different formats and the adoption of standards.

While blockchains focus on transactions and asset tracking, PCS focus on stakeholder interactions. Portals are particularly suitable as an interface as web access is close to ubiquitous and supported by portable devices such as smartphones. The outcome is an improvement in the transactional efficiency along the logistical chain and, correspondingly, the efficiency of the regional freight distribution system. Thus, there are opportunities to improve performance (costs and reliability) that the users can use as marketing strategies. It is important to underline that digitalization can take different forms for each port region due to various physical, modal, jurisdictional, and operational characteristics. Conventionally, the transactional relations between these actors were very complex, with some being unilateral and proprietary.

Digitalization is a process that takes place sequentially. Depending on the current level of information technology usage, some steps may not be required, with the setting becoming a matter of portal development and data interoperability. Therefore, freight digitalization can be developed over three major phases:

  • Development of key channels. The first fundamental step in digitalization concerns the setting of channels with key port users exchanging digital information they need for their operations. This included cargo manifest, customs declaration, vessel call requests, and the reporting of dangerous goods. Carriers are the main drivers in implementing blockchains because they are commonly the key support of the intermodal transport chain, which becomes a channel that can be integrated. Maersk, the world’s largest shipping line, has developed a blockchain platform called TradeLens in collaboration with IBM. Its ongoing adoption as an industry standard allows actors along transport chains to track and trade shipments, handle documentation such as bills of lading, and eventually settle transactions such as letters of credit.
  • Regional digital freight platforms. Once key channels have been created, then the setting of an operational port community system becomes possible, particularly by focusing on maritime shipping and inland freight distribution information channels within an area where a port authority acts as a key driver. Additional actors are brought in, notably freight forwarders and inland transport firms, which creates a freight market. The purpose is to build a continuous information chain within the port region that includes the majority of the steps from the ship access to the port facility to the delivery of a container at an inland freight distribution center. Among the world’s major ports, different port community systems have been designed.
  • Global digital freight systems. Once digitalization has been established and has effectively been adopted by ports and cargo users, the next step tries to establish additional multiplying effects and quality improvements. This implies the further promotion of automation, such as RFID usage, to favor the seamless movement of cargo and a complete digitalization of documents so that all transactions take place in a paperless environment. This also implies the diffusion of best practices with other ports (and inland ports) with their eventual integration in a wider system. This could eventually lead to a comprehensive integration of information flows along supply chains through widely available blockchains, from the factory door to the distribution center of an overseas consignee.

One of the key challenges in digitalization concerns creating a consensus among port users that are traditionally disconnected and often competing for a market share. Since many ports already have various IT strategies, digitalization does not imply the same template, with substantial efforts being made to adapt to the cultural and operational reality of the locale. The development of web-based applications and wireless networks has made digitalization such as PCS an operational reality. The issue is to assess the extent to which digital transformations generate added value to the port community through improvements in supply chain productivity, efficiency, and reliability. As an asset-based industry, ports remain cautious about adopting technologies, including digital means. On the positive side, once a technology has shown clear outcomes, the potential for its adoption, diffusion, and scalability is high.

4. Digitalization in Cruise Ports

Digitalization is a process transforming cruise ports as well. While digitalization in the maritime freight sector focuses on operations and integration between stakeholders, digitalization in the cruise industry focuses on improving customer satisfaction. The evolution of the check-in processes is an illustrative example. Guests complete their online check-in at home, which is verified by the cruise line. Passengers can then print their tickets or save them to their smartphones. The identification and ticket authentication occur at the port through check-in agents with scanning devices or self-service check-in kiosks. Cruisers receive their room key and RFID wristband and proceed to the cruise ship. The industry is considering online visa processing, but differing national regulations impede its development.

Digitalization conveys multiple impacts on cruise terminal operations. Ports and cruise terminal operators, or any other responsible stakeholders, might redesign the terminal as the process provides them more flexibility due to a reduced number of check-in desks. A further redesign relates to security arrangements, with potentially more X-ray machines and security lanes required to avoid guest congestion. The technology used at the cruise terminal is also upgraded with the need to use high-speed broadband wi-fi the support a large number of mobile devices.

A further implication is less in-port shopping due to less pre-cruise shopping due to expedited ship access. Combined with the increased amenities and shopping facilities that cruise ships offer onboard, the presence of shipping malls as a cruise port selection criteria declines. Ground handlers providing services at the cruise terminal are assigned with reduced documentation checks, and pier staff with a greater focus on customer service, guest flow planning, and transfer through manual check-in is required for guests that have forgotten documentation. As a mitigation strategy for digital services, a backup plan is required if the system goes down. For example, deployable check-in desks and staff on standby are essential to address any unexpected event.

Cruise lines can derive efficient port operations, safeguarding real-time digital updates for the boarding process, and increase comfort for guests during check-in with less paperwork and reduced shoreside staffing. The cruise passenger derives a seamless and simpler process, involving fewer documents, fewer queues, or even no queues, and a quicker journey to the cruise ship.

Digitalization leads to a number of additional innovations, such as the presence of holograms throughout the port directing guests to the terminal and the ship. Cruise line apps provide guests with information such as boarding procedures, onboard entertainment, luggage tracking, tour transfers, and last-minute shore excursion offers. Ground Handling Operation support Systems are also upgraded due to digitalization. For instance, smart staffing systems facilitate scheduling, training needs, invoicing, and related operations. Another example is the operation report applications, which provide reports generated after an operation and are then shared with all stakeholders with the aim been to further improve future services to cruise passengers and shipping.


Related Topics

References

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  • Lind, M., M. Michaelides, R. Ward, and R.Th. Watson (eds) (2020) Maritime Informatics, Cham, Switzerland: Springer International Publishing.
  • Port Technology International (2018) Navis Survey: Terminal Automation ‘Critical’ to Survival.