The Internet of Things and Maersk’s Gains from Digitization

Maersk is a behemoth in the shipping world and provides supply chain services through delivery of fresh produce and other products to 343 ports in 121 different countries. Maersk has embraced IoT in its shipping and logistic business in order to improve shipping efficiency with real-time shipment tracking and reduce product wastage with “smart” refrigerated containers.

A.P. Moller–Maersk Group, commonly referred to as Maersk, is a Danish business conglomerate that works in the energy, transport and logistic sectors.4 Maersk is a behemoth in the shipping world and provides supply chain services through delivery of fresh produce and other products to 343 ports in 121 different countries. Maersk has embraced IoT in its shipping and logistic business in order to improve efficiency with real-time shipment tracking and reduce product wastage with “smart” refrigerated containers.

The “internet of things” (IoT1) is a digital ecosystem of connected devices that arose in response to the wide availability of high speed broad band internet, the minimization of devices, and increasing pervasiveness of smart phones. The terminology holistically reflects the increasing number of internet-connected products that generate real time, usable data streams and can be monitored and controlled from remote locations5. IoT’s impact is so vast that some estimate IoT generated value creation will add 10-15 Trillion US dollars to the global GDP in the next 20 years2.

Even more simply, IoT devices are “Smart” products which can collect and transmit data via the internet. IoT spans cell phones, washing machines, automobiles, wearables, smart watches, home security systems, kitchen appliances and beyond3. By 2008, there were more physical devices connected to the internet than the number of people on the planet2. Adoption of IoT is a necessity to remain competitive in today’s business landscape and Maersk has embraced the challenge with flying colors.

Back in 2012, in response to the increasingly competitive shipping industry, Maersk partnered with Ericsson (a multinational network and telecoms firm6) to develop a real-time diagnostics system across Maersk’s entire fleet of shipping Vessels7. Leveraging Ericsson’s satellite and mobile communication technology to ensure accurate tracking of shipments, Maersk was able to embrace a more efficient shipment container process flow7. Process Flow improvement is cited as one of McKinsey’s six levers of value that can be realized thanks to IoT in the supply chain8. This led to cost savings through better turn times from loading to unloading and more accurate ship tracking in case of emergency9.

Today, Maersk’s has 300,000 “smart” containers that transmit relevant vital signs (location, power supply, internal temperature) to Maersk’s cloud where it can be analyzed in real time at the company’s headquarters7. Maersk has continued to embrace IoT through developing cargo care software that monitors and adjusts the internal climate of refrigerated cargo containers in real time7. Maersk refers to this technology as the “remote container management” (RCM) system. This system has three core components, a 3G Sim which can operate at high temperatures, an antenna to transmit data to the cloud, and a GPS unit to ensure accurate and real-time location tracking9.

The RMC containers require less thorough and frequent manual inspection and would only warrant more extensive evaluation if a container’s sensors go off9. The result is reduced CO2 emissions, and better labor utilization amongst the port staff tasked with inspections9.

IoT value creation has positively flowed to Maersk’s bottom line in other ways. Maersk’s refrigerated containers actively reduce wastage thanks to real time and automated monitoring of temperature. This has led to a reduction in fresh product wastage and expired medical supplies, and the economic benefits have been enjoyed by Maersk and its clients alike.

In the medium term, Maersk will likely continue to embrace IoT in order to optimize product storage and process flow of containers being packed and unpacked during the 46,000 port calls Maersk’s ships make annually9.

Looking to the future, Maersk might consider developing IoT solutions to track the flow of individual goods housed within its containers in order to provide its clients with greater transparency of individual product flow. If the software is competitive enough, they can sell it as an additional service to its clients. In theory, a solution of this nature will help Maersk’s partner’s track the shelf life of perishable goods and add value through reducing client’s and end user’s wastage even further. This sort of value add activity will enable Maersk to remain competitive and have a robust revenue stream even if shipping container rates fluctuate or fall in the future.

As digitization pushes forward it is important to consider how IoT solutions might ultimately be more profitable and resistant to downturn than Maersk’s core shipping services. What are the implications of embracing IoT solutions and selling them as a separate value-add service in addition to the physical transportation of goods? If the IoT solutions developed are valuable enough, would it make sense for Maersk to license this technology to competitors in order to ensure revenue streams regardless of macroeconomic trends that will inevitably impact the shipping industry? (Word count 789)

 

Footnotes / Source List

1 We will refer to the internet of things when writing IoT from here onwards.

2 Marr, Bernard. “17 ‘Internet Of Things’ Facts Everyone Should Read.” Forbes, Forbes Magazine, 9 Mar. 2016, www.forbes.com/sites/bernardmarr/2015/10/27/17-mind-blowing-internet-of-things-facts-everyone-should-read/#42a51d603505.

3 Morgan, Jacob. “A Simple Explanation Of ‘The Internet Of Things’.” Forbes, Forbes Magazine, 20 Apr. 2017, www.forbes.com/sites/jacobmorgan/2014/05/13/simple-explanation-internet-things-that-anyone-can-understand/#4de30dad1d09.

4 www.valtech.com, Valtech -. “An integrated transport & logistics company.” Maersk, www.maersk.com/about.

5 Porter, M. and J. Heppelmann, “How smart, connected products are transforming competition,” Harvard Business Review (Nov. 2014)

6 “About Ericsson – Corporate Information.” Ericsson.com, 15 Mar. 2016, www.ericsson.com/en/about-us.

7 Roberts, Freddie. “Delivering the goods: 8 examples of IoT transforming supply chain.” Internet of Business, Vinelake Limited, 14 Nov. 2016, internetofbusiness.com/8-real-life-examples-iot-supply-chain/.

8 Alicke, K., D. Rexhausen, and A. Seyfert, “Supply Chain 4.0 in consumer goods,” McKinsey & Company

9 Murison, Malek. “Maersk and Ericsson collaborate for IoT success story.” Internetofbusiness, Vinelake Limited, 3 Nov. 2016, internetofbusiness.com/maersk-ericsson-iot-success/. Accessed 13 Nov. 2017.

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3 thoughts on “The Internet of Things and Maersk’s Gains from Digitization

  1. Fantastic article!

    It sounds like Maersk has discovered an extremely valuable use of IoT in its smart containers.

    Enabling Maersk to track the relevant vitals that you mentioned–internal temperatures, location tracking, and power supply–seems like a huge value add for the shipping conglomerate in terms of improved operations and reduced waste.

    Enabling Maersk’s clients to also have a view into these same vitals seems turns the smart containers into not only a operational advantage but also a great revenue opportunity.

    As Maersk, I would certainly offer this service for an additional fee to my clients. No doubt the clients would be willing to pay for increased transparency into the shelf life and locations of their goods. And Maersk could use this as a chance to show customers how they are helping reduce waste and increase cost savings. As for your question whether Maersk should license the technology to competitors, I wouldn’t. Maersk should keep this technology as a point of difference and a reason to come to Maersk and not some other competitor. In what I imagine is a fiercely competitive market with a few big players, Maersk would not want to help out its competitors in any way and would benefit more from keeping the cost savings and revenue gains to itself and its customers. I would also guess that once the competitors saw Maersk’s shiny new technology, they started working on smart containers themselves if they hadn’t started already.

  2. It’s so exciting to see a massive, mature player embracing agility in an industry that you might otherwise assume would be ‘behind the times’. I appreciate the optimism of your outlook that diversifying into these technologies could shelter Maersk from the risk of potentially decreasing shipping rates. With that said, I do wonder: is this just too much of a jump away from their core competency? The path you outline shows them transitioning to be part transportation company, part software company. My initial reaction is that those are entirely different businesses, and they might actually be better off finding a strategic partner that’s more advanced / experienced in the latter, rather than trying to win at a new game.

  3. Implementing digital tracking and management at the container-level has clearly had significant impact on Maersk’s operations, through improved process flow, turn times, labor utilization and waste management. These improvements have generated bottom-line financial results through cost reductions and compelling environmental benefits that can be used to justify further investment in this technology to shareholders. In the context of a prevailing macro-trend towards customers demanding increased transparency of information, especially potent in the food and perishable goods space, expanding tracking capabilities to the item-level is an imperative next step. This capability will offer Maersk a competitive advantage today, while also ensuring that it is positioned for long-term success. Monetizing these type of technologies as a secondary revenue stream is not likely to be a profitable future opportunity for Maersk. Technology companies, like Ericsson, are better positioned to deliver the hardware and software components based on their existing competencies. Maersk’s current model working with partners is an efficient way to leverage the improvements while staying focused on its core shipping business.

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