A.P. Moller – Maersk and the Future of Shipping in the Digital Age
How will a global shipping company simultaneously capitalize on the efficiency gains afforded by digitization while navigating the relevant safety, cybersecurity, and regulatory hurdles?
The digital revolution of the past several decades first affected consumer products such as software and electronics, then manufacturing, and is now poised to transform the logistics industry. One subset of this business is maritime shipping, which moves approximately 90% of all goods traded globally.[1] A.P. Moller – Maersk, a massive shipping company headquartered in Denmark, is one organization that is taking affirmative steps to cope with the coming revolution.[2]
The Future of Seaborne Trade
Providers of seaborne freight must take maximum advantage of the efficiency benefits of digitization in order to remain competitive. A study by McKinsey & Company suggests that “Supply Chain 4.0” technologies – including digitization – can reduce costs by up to 30%.[3] The economic benefits of such savings, especially in an industry estimated by some to approach $400 billion in value, would be massive.[4] Streamlining underway resupply operations and pioneering the use of unmanned ships are just some of the steps that Maersk is taking towards this end. Avoiding safety mishaps, dealing with the associated regulatory issues, and mollifying popular concerns will similarly require the company’s full attention over the coming decade.
How Maersk is Adapting to Digitization
In early 2016, Maersk used an unmanned aerial vehicle (UAV) to deliver a box of cookies to one of its underway ships. Although this was only a proof-of-concept experiment, Maersk eventually expects to use UAVs to deliver critical cargo such as spare parts or medicine to its vessels afloat. The company estimates that doing so will save $3,000 to $9,000 per vessel each year, obviating the need for manned boats to conduct similar supply runs.[5] Later in 2016, the transportation company Rolls-Royce unveiled detailed plans for a completely unmanned cargo ship.[6] A senior Rolls-Royce employee estimated that the shipping industry’s transition to remotely-piloted – and eventually autonomous – ships could cut transportation expenses by 22%, a result of lower staffing costs and fuel efficiencies gained by removing life support equipment from vessels.[7]
Senior Maersk leaders are cognizant of such potential gains, and the company is already using software analysis of its data stores to optimize the performance of its manned vessels, determining the best trade-offs between speed, course, and fuel efficiency.[8] To oversee the company’s transformation efforts, Maersk appointed a Chief Digital Officer in early 2017, and plans to add 100 data scientists, product developers, user experience specialists, and other similar employees by the end of the year.[9] In addition to these steps, the company should develop its own comprehensive plan for digitizing its business, with a specific focus on safety, cybersecurity, and regulatory concerns.
The Way Ahead
Faced with both the benefits of digitization and the concomitant risks that incorporating new technology poses, Maersk should undertake and publicly release a detailed study regarding the future of automation in maritime shipping. Following Rolls-Royce’s ambitious report, Maersk should identify key milestones and associated timelines for shifting to remotely-piloted and eventually autonomous platforms.[10]
This study should address how vessels with small or non-existent crews will deal with severe weather, mechanical breakdowns, and other unexpected situations. Furthermore, Maersk should develop a strategy to integrate cybersecurity into its digitization planning from the start. A remotely hijacked container ship could become an extremely powerful weapon, and the company should take affirmative steps to mitigate such threats. Finally, Maersk should examine how its plan will conform to the regulatory standards of various jurisdictions and how it anticipates complying with – or advocating for changes to – these rules.
Conclusion: Open Questions About Digitization on the High Seas
A paradigm shift in maritime shipping is on the horizon, and companies like Maersk are taking appropriate steps to prepare for it. The safety and regulatory concerns associated with this transformation will justifiably require most of the company’s attention. A final factor that the company should consider, however, is the potential for resistance from the general public. The world is already grappling with the consequences of workers being displaced from manufacturing because of automation, and the shipping industry could be the next frontier of this trend. Considering that there are approximately one million sailors employed in the commercial shipping industry, Maersk and other companies would be well advised to consider the human factors involved in their plans for digital transformation.[11]
Furthermore, with public and governmental attention already focused on the safety challenges presented by self-driving cars and UAVs, plans for remotely-piloted and autonomous ships will probably also draw intense scrutiny on similar grounds. Especially with the wave of cyberattacks that have afflicted the world recently, shipping companies, regulators, and citizens will rightly be concerned about the potential for malicious actors taking control of vessels carrying thousands of tons of cargoes (in some cases, dangerous ones). These risks are all the more reason for companies such as Maersk to establish a detailed roadmap for how they will incorporate digitization into their long-term business strategies. (800 words)
Walter Haydock is a Master of Business Administration degree candidate at Harvard Business School.
References
[1] International Chamber of Shipping, Key Facts, viewed November 11, 2017, http://www.ics-shipping.org/shipping-facts/shipping-and-world-trade.
[2] A.P. Moller – Maersk, Facts and Figures, viewed November 12, 2017, https://www.maersk.com/about/facts-and-figures.
[3] McKinsey & Company, Supply Chain 4.0 in consumer goods, viewed November 3, 2017, https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/supply-chain-4-0-in-consumer-goods.
[4] Isaac Arnsdorf, “Rolls-Royce Drone Ships Challenge $375 Billion Industry: Freight,” Bloomberg, February 25, 2014, https://www.bloomberg.com/news/articles/2014-02-25/rolls-royce-drone-ships-challenge-375-billion-industry-freight.
[5] Jonathan Vanian, “Maersk Just Used a Drone to Deliver Cookies to a Tanker,” Fortune, March 9, 2016, http://fortune.com/2016/03/09/maersk-drone-delivery-tanker/.
[6] Advanced Autonomous Waterborne Applications (partnered with Rolls-Royce, et. al.), Remote and Autonomous Ships: The Next Steps, June 21, 2016, http://www.rolls-royce.com/~/media/Files/R/Rolls-Royce/documents/customers/marine/ship-intel/aawa-whitepaper-210616.pdf.
[7] Matthew Reynolds, “Rolls-Royce unveils concept fleet of self-driving drone ships – and it could launch by 2020,” WIRED, June 27, 2016, http://www.wired.co.uk/article/rolls-royce-autonomous-cargo-ships. Robert Wall and Costas Paris, “Ship Operators Explore Autonomous Sailing; More automation will enable them to optimize use of cargo vessels, cut fuel consumption and labor costs,” The Wall Street Journal, August 31, 2016, https://www.wsj.com/articles/ship-operators-explore-autonomous-sailing-1472635800.
[8] Wall and Paris, “Ship Operators Explore Autonomous Sailing.” John Churchill, Welcome to the future Maersk app store, A.P. Moller – Maersk, February 8, 2016, https://www.maersk.com/en/stories/welcome-to-the-future-maersk-app-store.
[9] John Churchill and Flemming J. Mikkelsen, Everything will be digitised, A.P. Moller – Maersk, June 7, 2017, https://www.maersk.com/en/stories/everything-will-be-digitised.
[10] Advanced Autonomous Waterborne Applications, Remote and Autonomous Ships.
[11] International Chamber of Shipping, Key Facts, viewed November 11, 2017, http://www.ics-shipping.org/shipping-facts/shipping-and-world-trade.
Ship image from A.P. Moller – Maersk web site: https://www.maersk.com/explore/fleet.
Great overview of an interesting side-effect of the digital revolution. I agree that a significant obstacle is public opinion. Simply considering the jobs displaced as automated ships take sail across the world, there will certainly be resistance. Drawing on lessons from the past, one hopes that the erosion of sailing jobs will be part of a cycle of creative destruction, and not simply destruction. Thought difficult to predict, the rise in autonomous sea vehicles may give rise to many other jobs that simply did not exist before, both in an outside of the shipping industry. Simply lowering the costs of shipping goods can potentially increase economic activity by making transactions that were previously untenable profitable.
The consequences are unpredictable, but there is no question that change is coming. How the megatrend of technology and automation unfolds in the shipping industry and who is hurt the most by these changes are questions that can only be answered definitively with time.
Your point about developing a comprehensive plan related to cybersecurity can not be overemphasized. With all the recent cyberattacks in the news, it is evident that anything connected to a network is at risk. In particular, over 90% of the world’s trade is carried out by sea (https://business.un.org/en/entities/13), so the idea of exposing this much economic activity to cyberattacks, or some type of hack, is quite concerning and needs to be carried out with security as a top priority.
While there will always be concern over advances in technology displacing current workers, I don’t think one million people worldwide will cause as large of an impact as in some other industries. But, it is a good reminder that there are political and social consequences any time you bring technological innovation in to an industry.