Podcast: The Digitisation of Trade with The Economist

How is digital technology transforming the global trade of goods and services?

How is digital technology impacting the way goods are shipped around the world? Shipamax CEO, Jenna Brown, joined Martin Holme from A.P. Moller - Maersk and Chris Clague from The Economist Intelligence Unit (The EIU) in a special podcast to discuss the digitisation of trade.

Link to podcast interview: https://films.economist.com/winningedge/the_digitisation_of_trade

PDF Transcript: https://films.economist.com/winningedge/docs/LON_-_PS_-_Transcript_Article_Episode_9_V1.pdf

Pete Swabey: “Hello, and welcome to the Economist Intelligence Unit’s Digital Economy podcast. I am your host, Pete Swabey. This podcast is sponsored by DXC, an independent IT services company that specialises in digital transformation. We thank them for their support.”

“Long before the internet, international trade routes were the primary channel for the global spread of information. They have long since been overtaken by international telecommunications networks that today allow packets of data to span the globe in seconds. This has helped open up global markets for goods and services, to the extent that individual consumers can now purchase goods from the other side of the planet at the click of a button.” 

“This episode of the podcast examines the impact of digitisation of trade. In particular, we explore how digital technology is affecting the way goods are shipped around the world, the physical process that underpins the global digital economy. We also examine the impact of e-commerce on global trade, and the role of digitisation in the growth of trade in services.”

“This month, I am joined by Martin Holme, global head of supply chain management and e-commerce logistics at shipping giant Maersk; by Jenna Brown, CEO and cofounder of supply chain data management start-up Shipamax; and by my EIU colleague Christopher Clague, managing editor and global editorial lead for trade and globalisation.”

"What is the current state of digitisation in the shipping industry?"

Martin Holme:  “Yeah, I think, it’s fair to say, Pete, that the state of digitalisation in the shipping industries is really still quite low. It’s not uncommon that the cost of processing the paperwork is higher than the cost of actually moving the goods across. The digitisation of trade waiting for each other discussing the standards, and we haven’t been moving ahead as fast as we probably could have or would’ve expected.”

Pete Swabey:  “Okay. So, Jenna, you have a slightly different vantage point. Is that as a startup helping shipping companies with their documents, how would you characterise the state of digitisation? Do you, would you reflect Martin’s comments or do you have a different view?” 

Jenna Brown: “Yeah, I think in part, I think you can break it down a bit more. So I guess, as we’re looking at the kind of communication aspect, I think there’s a lot of progress being made in, let’s say transactional elements of logistics. So, for example, if you want to book a container with a major shipping line, there are companies like Intra, or at the other end of the spectrum you’ve got end customers booking containers with forwarders, so Flexport, TVE Logistique, Kuehne + Nagel, DB Schenker all have invested a lot in platforms to make that smoother. But I do agree with Martin that the biggest part is kind of up for grabs right now, which arguably is the kind of highest volume is those operational communications.”

“So everything involved in getting something from A to B. And this is where anecdotally when we speak to customers, freight forwarders, most of them have tried something like using an old EDI technology, but it’s not worked very well because there are no data standards. So what tends to happen is it tends to end up being a very manual process with emails flying around with documents attached. the world. At least that’s the, that’s the situation in the container shipping space.”

“Just to give an example, in connection with us designing the trade lanes platform, a couple of years ago, we gathered all data such as documents, emails, phone calls, milestone data, etc., for a number of shipments. And one of these shipments was quite typical, a shipment, a container of avocados from Kenya to the Netherlands required more than 200 physical documents. So quite a lot of work on that site. Having said this, it’s also clear that the digitalisation is now picking up pace. 

“There’s a very high amount of venture capital coming in, similar as ahead of digitalisation of, for instance, the travel industry and other industries. And there’s also a lot of initiatives by the incumbents. Real time rates are now available, instant booking confirmations are thereby leading players and there’s a lot of work on optimisation of operations also using digital tools. So it’s moving ahead.”

Pete Swabey: “So if it’s not been as fast as you might’ve expected, why do you think that is?”

Martin Holme: “I think it’s a learning curve and this industry has a lot of, sort of heavy investments traditionally in ships and containers and ports and trucks and so on. And the whole digital side has just not been coming along fast enough. As an example, only this year an association was established for actually agreeing on data standards in the industry. And it’s also stuff like that that has been missing, that even if you invest, you don’t know what the standards are going to be. And I think that’s where it feels still a little bit stuck in the past.”

Pete Swabey: “Jenna, your company, in fact Shipamax does, helps companies with extracting data from the shipping documents. So what was the opportunity that you saw? What was it told you that a new way was possible and how open and receptive have you found organisations to turn to an alternative approach?”

Jenna Brown: “We actually started out in the bulk shipping sector and we had developed a technology that extracts data and structured as it from, from email communications there. And we had kind of turned to the freight forwarding industry as an additional market. And, yeah, I think we found it’s been incredibly receptive, because again, most of the problems people have is due to that kind of lack of data standards and there is not one way of transmitting information from player 1 to player 25. So if you can build a technology on top of the infrastructure that already exists, and just kind of plug and play it and feed it back into that internal systems, it works very well.”

Pete Swabey: “And why do you think, because you both mentioned this kind of issue with standards. Why do you think that there haven’t been standards in so many other domains? Obviously this is a challenge for all industries to find ways to share information in standard ways, but progress is being made, so is there a reason you think that this sector has been so far failed to establish standards? Is it for a lack of effort or too many efforts?”

Jenna Brown: “Honestly, I don’t think it’s possible because, I think if you look at any industry where there are really strong data standards it is a more transactional, well transaction. When you’re looking at operational logistics, it’s a messy process and you’ve got an industry that is wildly fragmented. So you want to take an extremely messy process of wildly fragmented industry, weaved together by humans and put that into one standard. It's a very daunting task.”

Pete Swabey: “So Martin, Maersk is possibly the best known shipping company in the world. What impact has digitisation had on the company and how have you adapted as a result?” 

"What impact has digitisation had on the company and how have you adapted as a result?"

Martin Holme: “Yeah, I think at Maersk, our purposes, we see our purpose as facilitating global trade, believing that trading with this other really generates additional value and prosperity and opportunity for all. So of course, seeing that, actually processing all the documents and the paperwork is more expensive now than shipping the cargo around the world is something that we feel we should do something about, and we actually feel that there’s a huge opportunity for us as a company.” 

“So over the last few years we’ve really been ramping up to take a leading role in this, and also to try and get as many of the other players in the industry to come along exactly with the data standards. And maybe just back to that point, I think one of the reasons is that this is a truly global industry and every transaction has lots of parties across multiple sectors and multiple countries, and that’s where it gets really messy and difficult to agree on the standards. But as I said, I think it’s a huge opportunity, I think you can look at it maybe in two tracks.”

“There’s one which is the product innovation and customer experience side, a couple of the things we’ve done there is the trade lanes platform that really uses blockchain to significantly improve the information flow and reduce the cost among the many players, and of course increase the validity of the documents and the information that is shared.”

“Another example is Captain Peter an app we have launched to our customer shipping refrigerated cargo, where actually they can sit at home and follow the data, the temperature, the humidity, and so on of air flow inside the container. And then they can change the settings, they can change the temperature or they can change the air flow, more nitrogen or you know, whatever they would like to see inside the container, they can change that on the app. And actually a moments later, through, IoT, that’s, those settings are changed from the container, even the middle of the ocean. So those are a couple of user stories.”

“Of course, the other track is then the operational efficiency that we also talked about before, and maybe a couple of examples there. We’re using weather data now to optimise the ruling of all our ships. We are operating more than 700 ships and we always have ships that are a little bit ahead of each other or behind each other, and we’re using weather data from our own ships and also buying weather data from others to then optimise the routing of the ships that are following, and therefore of course reducing the fuel that we use and increase the likelihood that we arrive on time at the next port.”

“A more simple example is a smaller app that we call Pit Stop, which is really to coordinate the port stays and all the activities that need to happen within that port stay. So these are some of the examples that are already in motion, but there’s a huge opportunity. We are not very far in this journey, and there’s lots and lots of additional opportunities both on the product innovation and customer experience side and also on the operational efficiency side.”

Pete Swabey: “And in order to introduce these kinds of digital innovations, what organisational changes have you had to undergo? Did Maersk, let’s say 5-10 years ago, have the digital capabilities to develop these and it was just a matter of getting through the work, or have you had to change the, at least to some degree the nature of the company and who you hire and how you operate?”

Martin Holme: “Yeah, we’ve definitely had to make changes, Pete. So one of the examples was that we had to start hiring data scientists and digital capabilities that we simply didn’t have then. And truth be told, in the beginning it was difficult to attract people with these skill sets into a relatively, seen as a conservative and rusty industry. And now that we have attracted a number of them into Maersk, they actually find this incredibly exciting. The whole opportunity of digitalising trade, and really helping to grow the global economy and so on is very exciting, and actually the digital challenges and opportunities are also very big, huge data sets, lots of opportunity.”

“We have as latest, in our latest quarterly announcement to the stock market again reiterated that we are still hiring additional IT people and specifically data scientists and people with digital capabilities. And in total we’re looking for several thousand additional IT people to really help us on this journey going forward.” 

Pete Swabey: “Obviously Maersk is a global company, where do you situate your digital capabilities? Is it everywhere or do you, have you found areas of specialisation where you can find a degree of digital expertise but also perhaps some knowledge of the sector?” 

Martin Holme: “Yeah, we have tried to sort of find a few focus areas to also create a certain scale. Currently the three places that we have, the majority of our technology people, is in Denmark where our headquarter is, it’s in India specifically in Bangalore. And then it’s in the UK where we also have a cluster of technology people.” 

Pete Swabey: “Jenna, Martin was talking about how, perhaps traditionally, shipping wouldn’t be an area where people with digital skills and digital ambitions in their careers would really think about as an opportunity for them. Is that changing, and how do you see the kind of ecosystem of digital capabilities and innovation around shipping evolving?”

"How do you see the kind of ecosystem of digital capabilities and innovation around shipping evolving?”

Jenna Brown: “Yeah, I mean, I think we’ve found it not too difficult to attract talent, and I think the reason being is that when someone comes to work, kind of I’ll outcome here any company in shipping is, they are dealing with a very kind of complex and interesting problem and very interesting data and solving something which exists in real life. They’re not going and building an app to add a filter on your photos. So I think for most very well kind of educated data sciences, engineers, that’s actually incredibly exciting. So yeah, I think it is actually quite an interesting space for people.” 

Pete Swabey: “Great. Now Martin, you briefly mentioned the use of blockchain. I’d like to bring in Chris now, obviously I think this is one of the most discussed areas of technology relating to shipping and logistics, is the application of blockchain. The idea in my understanding being that it can provide a distributed record of transactions so that it doesn’t rely on a single authority to authenticate. Chris, what impact have you seen blockchain having on trade so far and what impact do you think it may have in future? “

"What impact have you seen blockchain having on trade so far and what impact do you think it may have in future? “

Chris Clague: “Well, as of now, I don’t think it’s had much of an impact. I wrote a piece for the Asia Trade Summit back in February on blockchain and trade finance. And there are high hopes for blockchain in its ability to reduce some of the, reduce costs around some of the things that had already been discussed earlier in this conversation, you know, the paperwork and the regulations and there’s a hope that it can standardise those, but standards are a big problem.”

“If those roadblocks could be overcome, then yes, blockchain presents, you know, a lot of great opportunities for the trade industry, but, those roadblocks are fairly high. Interoperability is a big issue. What has the potential, or what is potentially the outcome of this is you have a lot of different blockchains that are siloed and not talking to each other, so if that can be resolved and that’s a big if then blockchain presents a lot of opportunities. But if it can’t, then what you’re just doing is replicating, to a certain extent you’re replicating the paper-based problems that the industry is facing now.”

Pete Swabey:”Jenna, what are your views on blockchain as a system for the exchange of information between the parties in a transaction?” 

Jenna Brown: “I think, I mean, blockchain has come in for two reasons. I think one to kind of standardise and streamline data and to add more integrity into the system. I do think both those things could be solved by alternative technologies and we have to see which one wins.”

“But as an example, I think there’s a lot of ideas thrown around about trust and about how if we put things on one single network, which can’t be sabotaged that you will have more trust than a transaction, but if the data going into that system is incorrect in some way, then it’s still bad data. So I look at other industries for ideas on how this might be solved, and one of those, I think, is the payments industry.”

“So if you look at the hundreds of millions of payment transactions going around the world, the way these payment networks are monitored are by looking at behaviour across the system, which behaviours look strange in a transaction. And my personal belief is, if we can take those paper documents, digitise them and monitor the behaviour behind the meaning of these transactions, you probably will get to a better end outcome in identifying fraudulent or strange transactions.”

Chris Clague: “If I could just add one comment to that, is a sort of separate but related issue is that, whether it’s at the multilateral level, the regional of the bilateral level in terms of state to state negotiations and trade, you know, countries struggle with, I mean, “old” economy issues when it comes to trade and something like blockchain is not an area where there’s a great amount of understanding in terms of its benefits and how to regulate it.”

“And I think that presents another difficulty in terms of wide scale adoption, is that the governments when they’re negotiating trade agreements don’t know how to deal with it. So that, that might be another, like another area that’s holding back wide scale adoption of blockchain. Or will hold it back.”

Martin Holme “Maybe also important to add here that, of course blockchain is a very promising technology, I agree with Jenna that is not the only one that can solve this issue. I think the other thing is that this is clearly not the only issue, I’d rather say the only opportunity that is there, there are a number of other technologies that offer equally large opportunities for shipping and logistics. I mean, just to mention a few Internet of Things, clearly still early in the adoption, lots of opportunities to take more advantage of that technology, artificial intelligence and machine learning. Lots and lots of opportunities there are to be explored. Robotics, still both mechanical robotics in warehousing, but also robotic process automation is another technology that clearly has not yet been explored. So lots of things are coming up.”

Pete Swabey: “Has Maersk dipped its toe in the artificial intelligence waters yet? Are there tangible projects that you’re pursuing?”

Martin Holme: “Yeah, absolutely. We have a couple of things going on there, I mean, I guess one of the very common things is chatbots to take care of the more simple inquiries from our customers around the clock during the weekends and anytime of the day. Another thing we are working on is to improve our prediction of the estimated time of arrival of a shipment, also using AI for that estimation.” 

Pete Swabey: “Great. So digitisation of the processes of actually shipping goods is of course not the only way that digital technology and trade interact, possibly even more important is the way that goods are bought and sold.”

“Chris, to what extent has e-commerce changed the shape of international trade? What have we seen in the last 20 years or so of the increased volume and the increased ability to find suppliers and customers internationally over the Internet. What impact has that had?”

Chris Clague: I mean it’s had a massive impact. There have been, if you look at it, there are couple of ways of looking at it, but you know, the big MNCs, the multinational companies, have been able to structure their supply chains somewhat separate from E-commerce, but you’ve also had a lot of SMEs, small and medium sized enterprises, that have been able to create international supply chains through platforms like Alibaba, Amazon and others for the shipping industry and I’ll allow Jen and Martin to speak about this. I’m not sure that it’s had, e-commerce has had as huge an impact as it had as an on air freight and small packages.”

“I was in Azerbaijan earlier this year at the World Customs Organisation annual summit and the e-commerce is a massive issue for customs authorities because of the large volume of small packages. You know, over the last 30, 40, 50 years, you’ve had containerisation and that has enabled trade throughout the world, but you’ve got now packages coming in higher volume and smaller sizes and that tends to overwhelm customs authorities, so it’s created a real problem for them. So it’s had its benefits, but it’s also not without its costs.”

Pete Swabey: “So shipping like any industry at the moment is under increasing pressure to govern and manage its environmental impact and obviously a large degree of the carbon emissions comes from the transport sector more generally. Martin, to what extent does the decarbonisation of shipping, etc., overlap with the agenda to digitise? What for example is Maersk doing in this area?”

Martin Holme: “There’s definitely overlaps, Pete, so as you say, transportation is responsible for a part of the global emissions, and although shipping is already many times less polluting than air freight or road or rail, then it’s still a significant part, and we take our responsibility quite seriously to tackle this. So at most, we’ve publicly announced early this year that we have an ambition to be carbon neutral in 2050. And while that sounds far away, then the reality is that with the length of the life cycle of assets in the shipping industry, it really means that we need to have carbon neutral ships on the water in 2030, so just about 10 years away.”

“We don’t have all the technology that is required to achieve that ambition yet, so we have made a call out to all our partners and to other people in the industry to really double down on research and development in this area, and we of course are doing our fair share of that. And digitalisation will help that, it’ll be part of the innovation I mentioned before using weather data to optimise the routes. But of course, if we are still sailing on heavy fuel oil then that’s not going to take away the emissions. But as an example, we right now have a first ship as a pilot sailing around the oceans on used cooking oil, and that’s actually, that’s working, the engine can take that and can use that for propulsion and the vessel is right now, sailing back and forth between Europe and Asia, using used cooking oil as the fuel.”

Pete Swabey: “So whenever we talk about trade people immediately think about goods and obviously we have two of you representing the sort of the shipping industry. But, in fact, international trade in services is growing rather faster than trading goods. Chris, why is that and what role has digital technology played in that story so far?” 

Chris Clague: “Well, I think there’s two elements to that. One is that there are services that are embedded in trading goods, right? So as goods cross borders, there are all of the various services that we’ve discussed in the course of this conversation. You know, accounting, legal, financial, those are services that go into making sure that goods cross border, enabling goods to cross borders.”

“But then there are also services in and of themselves and those services, the growth in those services over the last 10 years has, as you said, outpaced growth in trading goods, and mostly that’s been supported by, underpinned by the ability of data to flow across borders, which is coming under increasing threat. Now as countries seek to create national clouds and to prevent citizens’ data from leaving their own country, there are, you know, the growth in services, trade and services has been great and has, as I’ve said, outpaced trading goods, but that could slow down significantly unless there are agreements that are reached between countries about protecting data and enabling data to cross borders.” 

Pete Swabey: “Okay. So to close, I’d like to ask you Jenna and Martin, where is this taking us? Where is the digitisation of shipping and more broadly trade taking the world? In 10 years’ time, how will things look different and what needs to happen for us to get there? And I’ll like to start with you, Jenna.” 

"Where is the digitisation of shipping and more broadly trade taking the world?"

Jenna Brown: “So maybe I’ll give you a kind of a framework rather than a kind of absolute prediction. I think we can look at the past to see how tech will be adopted in this space.”

“So for example, if you look out at the telephone, which took maybe 50 years or so to adopt, and then mobile phones, which were more incremental, which took probably less than 10. I think if you look at why this is fundamentally getting people to change their behavior is extremely difficult, and logistics is extremely fragmented and is weaved together by humans and a lot of people kind of forget that.”

“So I think the technology that is likely to win here is those that require a kind of tweak rather than a radical change in human behaviour. And so if you have that and you have something that kind of really provides meaningful value to organisations, then you have the recipe for something that could start to change the future for digital trade. I guess we still have to figure out what, what that will be.”

Pete Swabey: “Great. And same question to you Martin. Where is this taking us? 

Martin Holme: “Well I certainly hope and also believe that this is taking us to a world where the customer experience is significantly improved in this industry over the next 10 years. I also think it will take us to significantly lower cost of producing these services and trading, and hopefully a combination that will then lead to additional trade which will positively contribute to growth and prosperity and without harming the planet.”

“Obviously digitalisation is not the only force in this whole game, so other things could be impacting this as well, but at least this is what I’m hoping and also what I’m expecting to see to be honest over the next decade. But I agree with Jenna that there is a behavioural element here and it will take time for people to adopt. It’s generally not the invention of new technology that is lacking behind it is the implementation, and people changing their behaviours. But I’m optimistic.”

Pete Swabey: “Martin, Jenna and Chris, thank you for joining us. 

Jenna Brown: “Thank you.” 

Martin Holme: “Thank you for having us.” 

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