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) jointly released a new industry report titled Connected Port as a Driving Force for Future Trade in June, Existing business model: Not sustainable for industry growth Global container port traffic has been witnessing slow growth, causing competition among port operators. In the past, ports took advantage of their geographical locations to increase revenue and achieve volume growth. The strategy is no longer sustainable. While it is imperative for the port industry to transform and upgrade its positioning, the port operators also need to develop new value propositions and competitive advantages for differentiated growth. One such solution comes in the form of mega alliances. Facing the pressure of shrinking volume growth, overcapacity and unstable cash flow, ocean carriers are forming such alliances. Major liner alliances account for more than 80 percent of the global transport capacity today. Furthermore, the global container shipping capacity has 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. Going forward, major ports will need to invest in upgrading and building new facilities to cope with the demand that mega vessels fulfill and also to serve mega shipping alliances. Operationally, however, the industry is not developed enough to create a mature operating model for carriers, alliances and ports to collectively achieve the desired efficiency of mega vessels. Most ports are struggling with challenges such as lower productivity, utilization performances, operations complexities of compressed time for planning, flexibility to handle changes, additional landside activities, and yard activities to treat mega vessels. Given the incurred investment for ports and on-going operational costs to serve mega vessels, the ports are struggling to maintain profitability and return on capital employed (ROCE) performances. This contextual environment creates a lack of appetite for further investment and prohibits 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 can help unlock the efficiency bottlenecks by connecting all stakeholders in the port and trade ecosystem, big and small, locally and internationally. Future ports should look to leverage digital opportunities and operate as Connected Ports, connecting the nodes of supply chain and providing digital trade corridors for world trade. Connected Ports Defined We define a Connected Port as a port where the direct and indirect port users and stakeholders, or known as the trade communities, in the hinterland can be connected. A Connected Port connecting to their counterparts in the global landscape will become a 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 their performance is measured and rewarded for their efficiency in lifting and moving boxes. However, even before lifting and transferring of boxes, port operators indirectly coordinated with all cargo owners, transportation services, asset providers, and traders.

3 They are the nodes of local and global supply chain, and massive shipments pass through them. Today, over 30 percent of the world's ocean-going cargo is concentrated in the top 10 ports. Locally, over 20 percent of China s ocean-going cargo passes through Shanghai. Should the ports industry and its leaders step up and move the value chain upward, enormous business opportunities can be realized in avenues. These include endcustomer engagement, service model innovation, resources optimization and trade financing transformation. Evolution of these new services can ultimately lower the barrier to trade for smaller companies, while creating a wealth of opportunities for the bigger community in both developed and emerging markets. Implications of Connected Ports to Shanghai Port s catchment area Connected Ports can result in massive economic and social benefits. As per Accenture and SIPG research team, Connected Ports can reduce logistics costs by 3.6 percent while creating value totaling 33.8 billion yuan annually for logistics from the Shanghai catchment areas. In 2015, the ocean-transported international trade through Shanghai port amounted to approximately 8.1 trillion yuan. From a logistical efficiency perspective, terminal automation and the digital port platform could improve Shanghai port's efficiency and supply chain in its catchment areas by nearly 22.7 billion yuan annually. Likewise, from a cash flow perspective, the efficiency gain could unlock capital cost for supply chain players by almost 2.2 billion yuan. Data monetization from supply chain and trade finance could further become an 8.85 billion yuan per annum business. The convergence of commerce in mega hubs will be a key aspect that mega ports like Shanghai need to address. Automated and intelligent operations could provide the foundation for the required data to enhance supply chain security with the resilience to withstand this threat. Environmentally, automation and better use of resources could mean an annual reduction in the discharges of sulfur dioxide and nitrogen dioxide by 61,300 tons and 70,400 tons respectively. Value Creation totaling 33.8 billion yuan annually for logistics from the Shanghai catchment areas

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5 How to stride the upwind? Incorporating the "3Es" can make Connected Ports a reality. The three E s are: 1. Excel for Terminal Operations 2. Extend for Ecosystem Facilitation 3. Explore for the New Excel for Terminal Operations: Enhancing terminal productivity and the operating model will help ports to leapfrog from the existing commoditization-prone market and gain access to seasoned terminal managers, software and equipment providers. An enhanced terminal operation orchestrates automation in quay, yard, and gatehouse will boost productivity and reliability. Beyond single-terminal advancement, equipment and container yards from multiple locations could also be controlled and monitored remotely and concurrently. This capability decouples skills constraints and makes the model more scalable for bigger opportunities across operations at different geographies and time zones. Reaching out gives the port operators an opportunity to exert strategies that create value, directly or indirectly, for their potential customers through value-added solutions, such as, logistics services synchronization, exchange and trade facilitation. However, to nurture such a port and trade eco-system platform, commercial incentives and business models should be completely refined from the traditional infrastructureprovider model and be more applicable for the platform economy. Explore for the New: Identify new, impactful businesses riding on the massive convergence of data through port and ecosystem operations. With digital transformation, innovation within a business can be realized in all aspects, including insurance, supply chain financing, trade financing, settlement, FX and cross-border e-commerce and data monetization. Extend for Ecosystem Facilitation: Port operators should extend their operations and scope of services beyond the terminal to reach the hinterland. They should redefine their customers and reinvent the value propositions. Monitoring logistics and trade participants in the hinterland can help them connect with their potential clients and position themselves as direct income source and/or business partners Explore for the New Excel for Terminal Operation Extend for Ecosystem

6 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.