Accenture and SIPG blueprint the future Connected Ports that could create over 30 billion yuan per annum for the Yangtze Hinterland

Transcription

1 Accenture and SIPG blueprint the future Connected Ports that could create over 30 billion yuan per annum for the Yangtze Hinterland

2 Accenture and Shanghai International Port (Group) Co., Ltd. (SIPG) collectively published the Connected Ports: the Driving Force for Future Trade whitepaper in June Existing business model: not sustainable for industry growth With container port traffic worldwide exhibiting slower growth, competition among port operators intensified. Conventionally, ports took advantage of their geographical proximity to hinterland for achieving volume (and revenue) growth a strategy which is no longer sustainable. While it is imperative for the sector itself to transform for improved positioning, port operators also need to develop new value propositions and competitive advantages for differentiated growth, especially given the formation of mega liner alliances from the pressure of shrinking volume growth, overcapacity and unstable cash flow. Major liner alliances account for more than 80 percent of the global transport capacity today, having reached 20 million Twenty-foot Equivalent Units (TEUs), with 3.5 million TEUs for vessels of 12,000 TEUs above and some even surpassing 18,000 TEUs. Major ports are expected to invest in upgrading and building new facilities to cope with the requirements from these mega vessels, serving the alliances. Operationally however, the sector is not sufficiently developed to create a mature operating model for these carriers, alliances and ports collectively to achieve the desired efficiency of mega vessels. In reality, most ports are struggling with challenges such as productivity and utilization constraints, further complicated by operational complexities from compressed planning timeframes, changehandling flexibilities, and additional quayside (plus yard) activities for the mega vessels. Given ports incremental investments and expenses needed to serve mega vessels, they are struggling to maintain profitability and ROCE (return on capital employed) performances. This prompts a lack of appetite for further investment and restrains industry growth. Will digital unlock the industry's potentials for new waves of growth? Vision of trade corridors According to the joint-study by Accenture and Shanghai International Port (Group) Co., Ltd., the answer lies in digital. The port + digital strategy aims to unlock the efficiency bottlenecks by connecting all stakeholders in the port and trade ecosystem, regardless of size and geography. Port of future should look to leverage digital opportunities and operate as Connected Ports, linking nodes of the supply chain and act as the digital trade corridors globally. Connected Ports defined A Connected Port is defined as one where the direct and indirect port users and stakeholders in the hinterland, otherwise known as the trade communities, can be connected. A Connected Port connecting to their counterparts in the global landscape will become the global Connected Ports network. The advent of Connected Ports represents a transformation of business model and operating model. Operationally, it can improve the productivity of container terminals, logistics efficiency of the port community and hinterland, and the provision of an ecosystem platform where new businesses can be innovated and operated. In addition to operational benefits, enormous business opportunities will be opened up and evolved with direct customer engagement, logistics services and assets exchange, supply chain resilience, supply chain finance, digital trade finance and other data monetization opportunities. Differentiated growth Ports are hotspots for new business opportunities, if they can monetize data, that is. Unlike business-to-consumer industries (such as consumer electronics, retailers, and airlines), ports play the role of an infrastructure provider in the business-to-business space. They have distinct geographical characteristics, and performance is measured (and rewarded) for their efficiency in lifting and moving containers and cargo. However, even before lifting and transferring them, port operators already (yet indirectly) coordinated with shippers, transportation services and asset providers, and traders etc.

3 Ports are the node of local and global supply chain with massive throughput. Today, over 30 percent of the world's ocean-going cargo goes through the top 10 ports; while regionally, over 20 percent of China s ocean-going cargo passes through Shanghai. Should the port industry and its leaders step up and logically extend the value chain, enormous business opportunities can be realized. The inclusion of end-customer engagement, service model innovation, resources optimization and trade financing transformation are some examples. Evolution of these new services can ultimately lower the barrier of trade for small and medium-sized enterprises (SMEs), while creating a wealth of opportunities for the larger community in both developed and emerging markets. Implications of Connected Ports to Shanghai Port s catchment area Connected Ports will bring massive economic and social benefits. Our Accenture and SIPG research team indicates that Connected Ports could reduce logistics costs by 3.6 percent, implying annual value creation of 33.8 billion Yuan (5.14 billion USD ) from the logistics and trade facilitation of Shanghai catchment areas alone. In 2015 alone, ocean-going international trade through Shanghai port already amounted to nearly 8.1 trillion Yuan ( 1.23 trillion USD). From a logistical efficiency standpoint, terminal automation and the digital port platform could imply an annual additional value of 22.7 billion Yuan (3.45 billion USD) for Shanghai Port and its supply chains within the catchment. Likewise from a cash flow perspective, the efficiency gain could unlock 2.2 billion Yuan (334 million USD) of capital cost for supply chain players. Data monetization from supply chain financing and trade financing can be a further 8.85 billion Yuan (1.34 billion USD) business annually. The convergence of operational activities in hubs will be a key aspect that mega-ports like Shanghai need to address. With automated and intelligent operations serving as the source of required raw data, supply chain security can be enhanced with necessary resilience to withstand threats. Environmentally speaking, automation and resource optimization could mean an annual reduction in sulfur dioxide and nitrogen dioxide discharge by 61,300 tons and 70,400 tons respectively. Figure: Value Creation totaling 33.8 billion Yuan (5.14 billion USD) annually for logistics from the Shanghai catchment areas

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5 How can we capitalize on these trends? The key to success for Connected Ports involves the realization of the "3Es" concepts, namely: 1. Excel for terminal operations 2. Extend for ecosystem facilitation 3. Explore for the new Excel for terminal operations: Terminal productivity and operating model enhancements will help ports to leapfrog from the existing commoditized market, and gain access to seasoned terminal managers, software and equipment providers. customers through value-added solutions. Logistics services synchronization, exchange and trade facilitation are some examples. However, to develop such a platform for the port and trade ecosystem, commercial incentives and business models should be completely elevated from the conventional infrastructure provider mindset, adapting towards the platform economy of the future. Figure: 3E strategic themes for ports Explore for the new: Port operators should also identify new material opportunities from the massive convergence of data through port eco-system operations. With digital transformation, innovation within a business can be realized in different aspects, including insurance, supply chain financing, trade financing, settlement, foreign exchange and cross-border e-commerce with data monetization. Improved terminal operations with automation in quay, yard, and gatehouse will boost productivity and reliability. Apart from the benefits from individual terminals, equipment and yards from multiple locations could also be controlled and monitored remotely and concurrently. This capability will decouple skill limitations, while creating a more scalable model for operations across geographies and time zones. Extend for ecosystem facilitation: Port operators should logically extend their operations and scope of services from terminal to the hinterland. By redefining their customers and value propositions, ports will connect participants of logistics and trade deep in the hinterland, helping them to convert these potential customers into actual business partners with revenue. The logical extension provides an opportunity for the port operators to implement strategies that creates value, either directly or indirectly, for their potential Explore for the new Extend for ecosystem facilitation Excel for terminal operation

6 Figure: Interactions between creative services transformations. Additionally, they should establish proper governance, incentives and operating model for innovation to incentivize practitioners, regulators, and disrupters. Connected Ports can operate as a business successfully only if the leadership leverages the core business without sabotaging the immune system of the existing business. Futuristic: Business transformations require a vision for the future, articulation of the to-be, perseverance and the discipline of execution. While transitioning to the new, disruptions to the existing operating model and the way to engage and serve existing customers will be inevitable. Businesses will need to acknowledge and accept the tradeoffs of short-term results against the benefits of a long-term sustainable business. The report is composed jointly by Accenture and Shanghai International Port (Group) Co., Ltd. Connected Ports should be a priority for the leadership of port operators. It will give the industry a significant impetus for a transformation if the leaders reassess positioning, focus on creating an innovation model, and consider the implications for the existing businesses. Repositioning: Frontier port operators need to rethink its positioning and step upwards to enter new spaces that go beyond its infrastructure provider status to realize and capitalize from their broadened scope as trade corridors. Other port operators can upgrade from an infrastructure provider role to a business enabler role by connecting the hinterland communities and improve overall port efficiency to reinforce their core port business. Open innovation: Port operators should create an open innovation framework to deliver results relevant for business and operating model Copyright 2016 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.