By Jonas Mendes Constante and Alexandre Sánchez Pérez
Difficult roads often lead to beautiful destinations. At least that is what people say. The truth is that a perfect storm is stepping over the port and shipping industry. On the one side, oil price collapse, trade/GDP multiplier below one, decrease of the emerging economies growth, supply overcapacity and some other external factors are putting pressure on the shipping companies’ results. On the other side, the advances in robotics and 3D printing could move part of the manufacturing process closer to the end consumer, reducing the need to ship goods around the world.
In our view, one of the main problems suffered by the port and shipping industry is the lack of innovation. In fact, in the last 20 years, there has been little innovation activity if we compare with other industries. Whereas the aerospace sector is using data properly, most ships do not even have basic sensors to ensure their hatches are closed before leaving port. However, during turbulent periods, companies are forced to rethink their business models, invest in innovation to open up their possibilities to new markets and identify new systems that offer the chance to reduce business costs.
Managing innovation is the action of creating and capturing value from new technologies, processes, methods and organization models. There is no magic formula for the process of innovation management. Executives should invest more resources in external alliances with tech startups, empowering and supporting intra/entrepreneurs and be involved in innovation projects as partners of research centers and universities.
“The innovator’s dilemma” is known as one of the most important books chronicling how innovation takes place, and why it is common that market leaders and incumbents fail to seize the next wave of innovation in their respective industries.
In a recent interview published in the The Economist, the Chief Operating Officer of Maersk Line said that the company is embracing digitalization. One of the company´s projects is called Remote Container Management (RCM), which relates to the retrofitting of its ships to collect more data from several sensors installed on its containers, turning the refrigerated container into a digitally connected device which aims to eliminate waste and improve cargo care. Simultaneously, MSC has joined CMA CGM for the deployment of smart devices across the fleets of both carriers.
Even though this is very good news, the incumbent players are following previous developments carried out by innovative firms from other industries, adopting a reactive posture. The same thing applies for ports. Some port authorities do not even have a port management information system (PMIS) nor a basic port community system (PCS) that facilitates and speeds its operations.
When approaching the port and shipping industry some questions arise. Which are the innovation management models that companies are using, if they are really using one? Is the industry able to build a culture of innovation? From our perspective, there is still not enough attention being payed to this topic as should be.
Port authorities, especially those positioned as fourth-generation ports, should take the lead and boost the innovation process in their respective port clusters. But this is not a do-it-yourself process, instead, we believe that the key lies in building an innovation ecosystem that groups all the stakeholders, in and outside their value chain, in order to innovate more and create new ways to overcome the industry’s current and future challenges. The port and shipping industry are forced to keep pace in a world where information technologies are essential tools for raising the competitiveness of companies in general. Furthermore, the incumbent players should be ready to face the challenge of reinventing themselves with visions and ideas for radically innovating the business.
The risk of not taking innovation seriously is as bad as following other ports and shipping companies’ practices instead of dedicating time to analyse your own needs, challenges and business opportunities. The recent case of Hanjin shows that it is not enough to transport boxes, nor building mega-vessels in search of scale economies, neither being the one that offers the cheapest freight rate in the market. Instead, if a company wants to survive in a mature and turbulent market, it is necessary to innovate and create real value, tangible and measurable results.
First published in PortStrategy.