Approximately 90% of the world’s trade travels by sea and one would expect the industry’s supply chain to be the height of modernity by adopting disruptive technology and strategies. However, this could not be further from the truth. While online trading platforms are under development, the traditionalism of the industry prevails with various parties involved in each voyage, typically communicating via trade managers.

In this archaic set-up, someone with enough muscle and innovative ideas could be like a tsunami, rolling through and disrupting the traditional container shipping movement.

Enter Amazon. This biggest online retailer in the world is no longer just that. Amazon obtained the title of a non-vessel operating common carrier in early 2016 for cargo shipments between China and the US. This cemented their role as a complete logistics company and freight forwarder as they already are in aviation, trucking and manufacturing — the complete supply chain.

Amazon. com

Manufacturing is new step for Amazon and they won a patent earlier this year to develop a system to rapidly create clothing and other products after a customer order is placed. This forms a cheap and simple method for Chinese exporters as Amazon have effectively wiped out the middle man, acting as a shipbroker for itself and on behalf of smaller companies.

These developments would allow Amazon to have complete control over certain areas of their own supply chain. With Amazon taking away a chunk of the market on which container companies thrived, shipping companies should be wary of Amazon’s continued expansion across the supply chain.

Of course,  the container industry has its own major players, who may not stand idly by while Amazon rips up the rule book.

Container giant AP Moller Maersk is leading the way for other container players on how to stay afloat in the storms buffeting the logistics chain.

Marstal Maersk - Built 2014 Triple E Type 18340 TEU
Marstal Maersk – Built 2014 Triple E Type 18340 TEU

The container market has been hit hard by financial woes over the last decade and is crying out for cost-cutting schemes. In response, Maersk is in the process of developing a blockchain initiative (see Blockchain article 2017-08-11) in partnership with IBM. This will be the equivalent of unclogging a smoker’s arteries as information will flow smoothly, unhampered by the convoluted paper trail previously involved in a single voyage.

In 2014 IBM and Maersk’s joint research demonstrated that a simple voyage of avocados and roses from Kenya to the Netherlands involved an extensive chain of almost 30 personnel and companies, and not least more than 200 interactions between these parties. The sheer volume of transactions for every cargo exposes the supply chain to security risks. Blockchain’s Hyperledger used by Maersk and IBM is a solution to that. It is a database across numerous computers and it guarantees transactions’ validity, ensuring they cannot be faked in the future. This way Hyperledger adds privacy to transactions whilst maintaining the immutability.

The Maersk conglomerate consists of liners, terminals, tugs and inland freight forwarding companies such Damco; the king of container logistics. However Maersk are thinking further outside the box and has already teamed up with Alibaba, itself royalty in its own field, to tie together logistics and e-commerce.

China - USA Trade
China – USA Trade

The OneTouch tool offered by e-commerce giant Alibaba has bypassed the need for the middle men, freight forwarders, by creating a platform for suppliers to book a space directly on a container vessel at a fixed price on a specific route by providing a deposit. Other key container players are part of the platform including CMA CGM and Zim allowing the already huge companies a share of Alibaba’s profits. The OneTouch tool minimizes additional expenses and improves time management by dealing with customs clearance and documentation directly.

Thus Maersk is at the forefront of technology for the shipping industry, partnering with technological giants to combine their knowledge across borders. However the same cannot be said for other large container companies let alone the smaller players, who may struggle to catch up.

While the battle for supremacy rages on, the ramifications may be felt across the entire logistics chain.

Freight forwarders may find it hard to compete with companies as powerful as Amazon and Maersk, who can afford to develop disruptive technology and prioritize increasing market share over higher profits.

Small independent ship owners will be left behind unless they adapt their business model to seek different shipping routes, for example choosing container lanes that do not feed into deep sea ports where the ultra large container vessels operated by Maersk can only dock.

Additionally, companies in both Maersk and Amazon’s shadow should hunt for alternative goods not sold or shipped by them to maintain their position in the container sector where Amazon can now solely control how the customer’s purchase gets from China to Chicago, with Maersk not far behind.

“Realistically the first port of call for other container players to keep up with the disrupters should be the formation of an alliance to purchase blockchain technology, sharing expenses across the board.

This way, the smaller players could not only avoid being squeezed between rival empires, but combine forces and eventually try to claim the throne for themselves,” concludes Eleni Pittalis Commodity Associate Program at Platts.