{"id":16548,"date":"2016-11-17T21:05:23","date_gmt":"2016-11-18T02:05:23","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/iot-in-shipping-getting-cargo-to-move-with-the-speed-of-information\/"},"modified":"2016-11-17T21:05:23","modified_gmt":"2016-11-18T02:05:23","slug":"iot-in-shipping-getting-cargo-to-move-with-the-speed-of-information","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/iot-in-shipping-getting-cargo-to-move-with-the-speed-of-information\/","title":{"rendered":"IoT in Shipping: Getting Cargo to Move with the Speed of Information"},"content":{"rendered":"

A Little Context<\/span><\/strong><\/em><\/p>\n

I recently bought a new t-shirt for $29.99.\u00a0 This price includes consideration for raw materials, labor, direct overhead, corporate SG&A, and transportation.\u00a0 This shirt in particular was made in El Salvador, which means it had to travel over 2,200 miles to get here.<\/p>\n

Like electricity, we oftentimes overlook our dependence on shipping despite its critical role in our everyday lives.\u00a0 Today maritime shipping represents 70% of global trade by value and 80% by volume[i]<\/a>.\u00a0 Despite having evolved drastically over the centuries, the COO of Maersk Line (the largest shipping line in the world owned by Danish A.P. Moeller-Maersk; Mkt Cap: ~$185Bn) has stated that shipping lags when it comes to digitization[ii]<\/a>.<\/p>\n

From a business model perspective, Maersk would be able to provide value through digitization by increasing communication throughout the supply chain.\u00a0 As seen with Barilla and the ITC eChoupals in the 1990s, increased communication has the ability to generate value for all parties involved.\u00a0 In the shipping industry, this allows for more efficient operations, such as allowing on-shore logistics providers to better manage the infrastructure needed to support container ships.\u00a0 IoT allows for optimal placement of containers on ships to reduce offloading times, which, coupled with the ability to track precisely when a ship will arrive in port, reduces the cost of wait time for trucks waiting to move the containers to their next leg.<\/p>\n

This reduction in wait time can be passed along to the ultimate product owners and reflected as a reduction in transportation costs, which can then be translated into lower retail costs.\u00a0 Essentially, increased communication in shipping means that the next t-shirt I buy might be cheaper.<\/p>\n

The question then becomes how to implement IoT into the operating model and create this value.\u00a0 In 2011 Maersk partnered with Ericsson to build a remote monitoring network that can track individual cargo loads and provide real-time information back to Maersk Line customers[iii]<\/a> to solve this issue.\u00a0 This IoT solution is meant to help with route optimization, asset tracking and equipment monitoring.<\/p>\n

Route Optimization<\/strong><\/em><\/p>\n

The introduction of radios in the maritime shipping industry around the turn of the 20th<\/sup> century (and further motivated by the sinking of the Titanic) was a major improvement to relying on visual cues for communication (think of semaphore)[iv]<\/a>.\u00a0 This new communication between ships helped determine more efficient routes and avoid collisions.\u00a0 However, errors and inefficiencies could be further reduced.\u00a0 With improvements in IoT, positions can be tracked live and location information can be sent to other ships on the same network, allowing captains and land-based offices to track and alter ships\u2019 movements easily to achieve objectives such as minimizing fuel consumption.\u00a0 The first results from IoT at Sea in Oslo, Norway suggested expected fuel savings up to 15% per year[v]<\/a>.<\/p>\n

Asset Tracking<\/strong><\/em><\/p>\n

The Emma Maersk, one of the largest container ships in the world, can carry up to 15,000 20\u2019 containers at any given time[vi]<\/a>.\u00a0 This includes containers with explosives and hazardous materials, refrigeration, electronics and other consumables all positioned in different areas throughout the ship.\u00a0 Keeping track of this number of containers is no easy task, but has come a long way since the manual management of break bulk cargo.\u00a0 Digitization allows companies to monitor the status and temperature of cargo in real time: this information can be transmitted immediately to buyers and suppliers to facilitate immediate action-taking and improved operations[vii]<\/a>.\u00a0 Imagine transporting bottles of wine: Maersk now provides the capability to track the temperature of the wine throughout its shipment, allowing manufacturers, wholesalers and retailers to know whether the temperature was inappropriate and has thus spoiled the juice.<\/p>\n

Equipment Monitoring<\/strong><\/em><\/p>\n

Traditionally, ship operators would have to wait for engines or other critical components to show signs of breakage before undertaking any sort of repair.\u00a0 A five-week overhaul can cost ~$3MM per ship[viii]<\/a>, and unpredictable outages that occur during peak demand periods could be devastating to operators.\u00a0 To solve this, Maersk is using IoT and predictive maintenance to cut its repair bills by having sensors report when equipment needs care[ix]<\/a>. \u00a0Specifically, Maersk has partnered with Ericsson\u2019s Maritime ICT Cloud business to connect embedded engine- and hull-monitoring systems with bridge communications to reduce inefficiencies, risks and overall cost[x]<\/a>.<\/p>\n

Conclusion<\/strong><\/em><\/p>\n

As observed by the Economist, what Maersk does in digitization is likely to be followed by the rest of the industry in fairly short order; even Maersk\u2019s rivals admit \u201cwe just watch what Maersk does and copy it.\u201d[xi]<\/a>\u00a0 While many shipping companies do not have the resources available to cut unit costs by building bigger ships, even the smallest firm can learn to apply big data to optimize its operations, increasing total value up and down the supply chain.<\/p>\n

(798 words)<\/p>\n

[i]<\/a> http:\/\/www.rcrwireless.com\/20160727\/internet-of-things\/maritime-industrial-internet-things-tag31-tag99<\/a><\/p>\n

[ii]<\/a> http:\/\/www.economist.com\/news\/business\/21706556-shipping-business-crisis-industry-leader-not-exempt-profits-overboard<\/a><\/p>\n

[iii]<\/a> http:\/\/readwrite.com\/2016\/07\/28\/ericsson-iot-maersk-line-tl4\/<\/a><\/p>\n

[iv]<\/a> http:\/\/www.gmdss.com.au\/history.html<\/a><\/p>\n

[v]<\/a> http:\/\/www.rcrwireless.com\/20160727\/internet-of-things\/maritime-industrial-internet-things-tag31-tag99<\/a><\/p>\n

[vi]<\/a> http:\/\/www.emma-maersk.com\/specification\/<\/a><\/p>\n

[vii]<\/a> http:\/\/newswire.telecomramblings.com\/2015\/09\/maersk-teams-with-att-to-track-and-monitor-cold-shipping-containers\/<\/a><\/p>\n

[viii]<\/a> http:\/\/www.rcrwireless.com\/20160727\/internet-of-things\/maritime-industrial-internet-things-tag31-tag99<\/a><\/p>\n

[ix]<\/a> http:\/\/www.economist.com\/news\/business\/21706556-shipping-business-crisis-industry-leader-not-exempt-profits-overboard<\/a><\/p>\n

[x]<\/a> http:\/\/www.rcrwireless.com\/20160727\/internet-of-things\/maritime-industrial-internet-things-tag31-tag99<\/a><\/p>\n

[xi]<\/a> http:\/\/www.economist.com\/news\/business\/21706556-shipping-business-crisis-industry-leader-not-exempt-profits-overboard<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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