Digital reinvention and disruption will have a fundamental impact on the container shipping industry over the next 25 years, allowing scope for new entrants like Amazon and Alibaba.
That is among the five conclusions of a joint report published by leading international freight transport insurer TT Club and global management consulting firm McKinsey in early June to mark the 50th anniversary of the TT Club.
The 80-page study – Brave new world? Container transport in 2043– also concluded that automation would be broadly adopted across the value chain, especially on the land-side in ports, terminals, rail and trucking.
Other conclusions were that trade flows would become more balanced across trade lanes as incomes converge between East Asia and developed economies, and the emerging economies in South Asia and Africa catch-up economically.
The industry leaders in 2043 will look very different, with further consolidation and the emergence of “digital natives”, start-ups or e-commerce players optimising the container transport leg of their supply chain. It is, however, unlikely that there will be any change in the physical characteristics of the industry as boxes will continue to be transported on container ships.
The “digital natives”, companies that apply technology to solve previously unsolvable challenges, include Amazon, the New York Shipping Exchange (NYSHEX) – the online platform offering standard contracts to lock in shipping rates, and Clearmetal which provides analytics supply chain solutions using AI-based technology.
As the report notes, container shipping is well-established at the centre of international trade with over 90% of consumer goods and many raw materials being shipped in metal boxes.
“Yet despite the success of the container, the returns for the average container liner operator or freight forwarder have lagged behind the cost of capital over the last two decades. There have only been a few winners who have found a sustainable recipe for value creation,” the report pointed out.
The report is based on interviews with more than 30 industry executives and experts including Morten Engelstoft from A.P. MØller-Mærsk, Peter Levesque from Hong Kong’s Modern Terminals, Niels Smedegaard of DFDS, Chen Xiang from COSCO Shipping and Tsuyoshi Yamauchi from Kawasaki Kisen Kaisha (K Line).
Commenting on the results, Martin Joerss, McKinsey senior partner said, “More than 50 years after the introduction of the container, the container transport industry faces the transformative rise of digital, data, analytics, and automation. There is a range of futures where digital fundamentally changes the industry’s economics – for the benefit of both customers and industry participants – but getting there will require vision and relentless execution.”
The report follows a study McKinsey published last October – Container shipping: The next 50 years that looked at the long-term outlook for the industry.
That 50-year report predicted autonomous 50,000-TEU box ships ploughing the seas; the emergence of just three or four major container shipping companies; the virtual extinction of freight forwarding as a standalone business; and a fully autonomous transport chain from ship loading, stowage and sailing to unloading directly onto autonomous trains and trucks, with last mile deliveries by drones.
Steve Saxon, McKinsey expert partner, based in Shanghai, said the 50-year study concluded container volumes will still grow despite the shift to near-shoring and other technologies such as 3D printing.
“Looking forward, there will be no peak container, as people talk about peak oil. That’s because there will be significant latent demand in emerging markets like India and Africa,” Saxon said.
“3D printing will take a share, but only a very small fraction of the transportation total – raw materials to 3D print still have to be transported,” he added.
Not everyone is convinced about some of the conclusions. Andy Lane, partner in Singapore’s CTI Consultancy told Forward with Toll, “Change will accelerate for sure but, as a race, we are not so good at precisely predicting five years out let alone 50. Twenty-five years is slightly more sensible, but still too far out.”
“Advanced robotics and other manufacturing developments will likely result in more being produced closer to consumers, partly to solve the lead-time requirements. This will shift the demographics in terms of raw material transportation, but it will likely mean that large ships become obsolete,” Lane said.
“You will not see further consolidation between the six to seven largest deep-sea shipping operators, as this would fail most anti-competitive reviews from a market share perspective. Alliance memberships or partnerships of two to three operators is probably optimal now.
“I do not believe that trade (container) flows will necessarily balance. Yes, consumerism in the developing world will catch up with the developed world, but the imbalances will then be dictated by where the raw materials originate from,” Lane added.