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Navigating the Communications Challenges of the Global Ocean Shipping IndustryJames E. deMin, Gerard O’Neill

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ContentsIntroduction 3

Background on the Evolution of Containerization 5and the Global Ocean Shipping Industry

Container Ships 7

Container Ports and Terminals 8

Railways 10

Trucks 11

Barges 12

Regulatory Environment 14

Transporting and Tracking Cargo 16

The Role of Technology 18

Emerging Technology Trends in the Ocean Shipping Industry 19

Summary 21

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The ocean shipping industry has never been a good choice for CEOs seeking a normal night’s sleep. Even in the best of times, operating a global shipping business requires liner executives to roam the world, incurring far more than their fair share of jet lag and hotel nights.

Recent global events have proved detrimental to shipping activities. The aftermath of the Japanese tsunami, the lingering recession in the United States and Europe, the slow-down of Chinese manufacturing output, sky-rocketing energy prices and political tensions in the Middle East have all exacerbated the problems with the forthcoming delivery of super-sized container ships ordered during peak times.

During those lengthy international flights, ocean-shipping CEOs have plenty of time to ponder questions about their industry and companies, including:

Introduction

• How will the recent jump in crude oil prices impact rebounds of the US and European economies, global economic growth and the competitiveness of sourcing production in Asia?

• If there is a downturn in global trade, how are we going to fill the ever-larger container ships that are soon to join our fleet? Did we overestimate the advantages of scale and capacity?

• Longer term considerations include: where can we create competitive advantage and differentiation?

These are unsettling times for the global economy and by extension, for the ocean shipping industry, whose vessels serve as “floating conveyor belts”, moving the majority of international manufacturing output.

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The global ocean shipping industry is the backbone of intercontinental value chains, carrying some 98 percent of global containerized trade volume and approximately 60 percent of value (with the balance moving via air freight). Over the last five decades the ocean shipping industry has undergone a dramatic transition to integrated container operations. Virtually all ocean cargo, apart from bulk commodities such as oil, gas or grain has switched to this containerized mode of transport. The benefits of modularization of general cargo into separate containers include highly efficient handling and the extreme versatility of vessels.

World trade has grown at an astonishing rate in recent decades and is in large part dependent upon the ocean shipping industry. Radical changes in cargo handling combined with enriched and growing populations in emerging markets have led shipbuilders to expand their frontiers of deadweight tonnage and speed with entirely new vessel types. The result is an ocean transportation system that can carry enormous amounts of cargo swiftly and reliably.

However, this evolution has also created an increased dependency upon information technology and the underlying communications infrastructure, over which enormous amounts of information must be similarly transported. Accordingly, communications infrastructures, much like the newly developed vessels, container ports, trans-shipment terminals, drayage services etc. must be able to transport information with equal levels of efficiency, security and flexibility. This capability is referred to as ‘the intelligent network’. Ocean shipping is an industry based on numerous hand-offs of cargo (and information) amongst many diverse functions, geographies and system platforms. The efficiency and flexibility of the underlying communications infrastructure is of paramount importance.

Introduction

World trade has grown at an astonishing rate in recent decades and is in large part dependent upon the ocean shipping industry.

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To understand the global ocean container shipping industry, it is important to appreciate that it is a part of a highly-integrated system, involving numerous other critical industries and service providers.

The concept of intermodal transportation dates back to the 18th century and actually predates railways. Some of the earliest containers were those used for shipping coal on the Bridgewater canal in England in the 1780s. Coal containers (referred to as ‘loose boxes’ or ‘tubs’) were subsequently deployed on the early canals and railways for road and rail transfers – at the time road transport was carried out by horse-drawn vehicles. Wooden coal containers used on railways date back to the 1830s on the Liverpool and Manchester Railway, the world’s first inter-city passenger railway.

In the 1950s, a new standardized steel intermodal container, based upon specifications from the US Department of Defense (DOD), began to revolutionise freight transportation. The International Organization for Standardization (ISO) later issued standards in 1968.

By 2011, over 200 million container moves were taking place annually across world maritime ports, representing greater than 90 percent of all non-bulk cargo worldwide.

Container throughput is measured in 20-foot equivalent units (commonly referred to as TEUs), representing a steel box 20 × 8ft (6.10 × 2.44 m) (length × width), which can be secured during handling and in transit using ‘twist-lock’ points, located at each corner of the container. Few initially foresaw the extensive influence of containerization on the shipping industry.

In the 1950s, Harvard University economist, Dr. Benjamin Chinitz predicted that containerization would benefit the state of New York, by allowing it to ship its industrial goods to the southern US states more cheaply than to other regions. However he did not anticipate that containerization might also reduce the cost of importing goods from abroad. In fact, most economic studies of containerization at the time merely assumed shipping companies would begin replacing older forms of

The Evolution of Containerization and the Global Ocean Shipping Industry

transportation with containerization. They failed to predict that the process of containerization itself would have a profound influence on the choice and geographic placement of producers.

Not only have trade patterns and the types of cargo changed radically; the vessels that carry goods have almost changed beyond recognition. Similarly, today’s cargo-handling methods bear little resemblance to those that existed before.

The key to this change is three interlocked concepts that are much more than fashionable epithets: containerization, intermodalism and globalization. Before the advent of standard 20 and 40-foot containers, world trade was a piecemeal undertaking, with sea and land segments accomplished in isolation, and little coordination between the various independent operations. Shipowners accepted cargo when it arrived at the pier. Shipper and recipient alike did not envisage so-called JIT (just-in-time) services. That luxury was simply not available and the en-route delays, which were always part of the transport system, were an unavoidable reality of doing business internationally.

Today, all of this has changed. Sea-Land’s (the integrated end-to-end transportation chain, evolved through recent decades) initial voyages over 50 years ago proved the feasibility of container transport revolutionising the movement of goods by allowing the sea and land segments to function as one integrated system.

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Specialized container handling equipment

Over the past five decades, this technological and commercial breakthrough has resulted in the near-worldwide demise of the break-bulk ships (in which cargo is stowed virtually by hand), an approach that had existed almost without change for centuries.

Today’s container ships are the lynchpin of cargo transportation, but are only a part of the total integrated intermodal container transport system. Containers are commonly transported by a combination of container ships, semi-trailer trucks, freight trains and river barges as part of a single journey without unpacking, but with many handoffs and critical transfers of information and documents. They are transferred between these modes by container cranes, reachstackers and various other specialized handling equipment at container terminals.

Every container has a unique BIC (Bureau International des Containers et du Transport Intermodal) code painted on the outside for identification and tracking, and is

labelled with a series of identification codes that include the manufacturer code, the ownership code, usage classification code, UN placard for hazardous goods and reference codes for additional transport control and security.

Containers are capable of carrying up to 20-25 tonnes, but transport costs are typically calculated in TEUs versus weight. Automated information systems are in place to track every shipment throughout its journey and handle all of the related freight documentation handoffs. These and every other aspect of this industry are highly complex and designed to optimize an efficient end-to-end choreography of the flows of cargo and information. This complexity ultimately creates extensive collaboration requirements between numerous actors, sensory devices and systems for which the underlying communications infrastructure must be properly designed in terms of capacity, flexibility and security.

The Evolution of Containerization and the Global Ocean Shipping Industry

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Custom-built container ships are used to transport containers by sea and once on-board the ships are typically stacked up to seven units high.

A key consideration in the size of container ships is that larger ships can exceed the capacity of important sea routes such as the Panama and Suez canals. The largest size of container ship that is able to traverse the Panama canal is referred to as Panamax, which at this point in time is approximately 5,000 TEUs. A third set of locks is planned, as part of the Panama Canal expansion project, to accommodate container ships up to 12,000 TEUs in future, comparable to the present Suezmax.

As of December 2011, the top five ocean carriers in terms of the number of TEUs (20-foot equivalent units) deployed are as follows:

Top ocean container carriers

Economies-of-scale considerations have dictated an upward trend in the sizes of container ships in order to optimise capacity and cost variables. The availability of sufficiently large engines, sufficiently large ports and terminals capable of handling ultra-large container ships, as well as the permissible maximum ship dimensions of some of the world’s main waterways – such as the Suez canal and Singapore straits – have served to constrain this growth.

In 2011, Maersk announced a contract with South Korean-based Daewoo Shipbuilding & Marine Engineering Co. Ltd, to construct a new ‘Triple-E’ family of container ships with a capacity of 18,000 TEUs to put an emphasis on lower fuel consumption. By introducing the Triple-E vessels in 2013, Maersk Line will be able to meet the anticipated global sea transport demand, as well as maintain its market share. The first 10 vessels will be delivered in 2013 and 2014. The ships are called the ‘Triple-E’ class for the three main purposes behind their creation (economy of scale, energy efficiency and environmentally improved) and set a new industry benchmark for size, capacity and fuel efficiency.

Triple-E container ship

At 400 meters long, 59 meters wide and 73 meters high, the Triple-E will be the largest vessel of any type on the water today. Its 18,000 TEU capacity is 16 percent greater (2,500 containers) than today’s largest container vessel, the Emma Maersk. Also, the Triple-E will produce 20 percent less CO2 per container moved, compared to the Emma Maersk and 50 percent less than the industry average on the Asia-Europe trade lane. It will consume approximately 35 percent less fuel per container than the 13,100 TEU vessels being delivered to other container shipping lines in the next few years, also for the Asia-Europe service.

This massive scale was designed to provide an efficient, cost-optimized transport capability. As of June 2011, the cost to ship a container from China to the US is approximately $5,000, with oil at $100/bbl. Paradoxically, maritime transportation is the most energy efficient mode, but bunker fuel accounts for about 50 percent of total operating costs. As a result, any change in energy prices has a direct impact on operations, as there are limited options for passing along higher costs. Also, the industry is subject to constantly changing regulations. For example, local pressure to reduce environmental impact has forced several ports to restrict ship engine idling time and drayage.

Container Ships

Ranking Company TEU Capacity Number of Ships

1 A.P. Moller-Maersk Group

2,150,888 545

2 Mediterranean Shipping Company

1,638,962 414

3 CMA CGM 1,100,007 384

4 American President Lines

589,879 147

5 Evergreen Marine Corporation

554,725 152

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A container terminal is a facility where cargo containers are trans-shipped between different transport vessels and/or vehicles for onward transportation.

The trans-shipment may occur between container ships and land transport vehicles, for example trains or trucks, in which case the terminal is described as a ‘maritime container terminal’. Alternatively, the trans-shipment may be between land vehicles, typically between trains and trucks, in which case the terminal is described as an ‘Inland container terminal.’ Trans-shipments may also occur between ships and barges.

Maritime container terminals tend to be part of larger ports and the largest maritime container terminals can be found situated around major harbors. Inland container terminals tend to be located in or near major cities, with well-established rail connections to maritime container terminals.

Every maritime container terminal performs four basic functions: receiving, storage, staging and loading for both import (entering the terminal by sea and leaving by land modes) and export (usually entering the terminal by land and leaving by sea modes) containers.

One of the most conspicuous aspects of container ports and terminals are the container-handling gantry cranes, used for unloading containers from ships. The gantry crane is driven by an operator, who sits in a cabin that is suspended from the trolley. The trolley runs along rails that are located on top or sides of the boom and girder. The operator runs the

trolley over the ship to lift the containers. Once the spreader locks onto the container, the container is lifted and moved over the dock and placed on a truck chassis (trailer). The crane will also lift containers from chassis on the dock to load them onto the ship.

Low-profile container handling gantry cranes

There are also numerous other specialised equipment and personnel involved with container port operations; including customs, yard management, security, etc. Also, as both maritime and inland container terminals usually provide storage facilities for both loaded and empty containers there are equipment and personnel to support these functions. Loaded containers are stored for relatively short periods, whilst waiting for onward transportation. Unloaded containers may be stored for longer periods awaiting their next use. Containers are normally stacked for storage, and the resulting stores are known as ‘container stacks.’

Keppel container terminal in Singapore

Container Ports and Terminals

• Receiving involves container arrival handling at the terminal, either as an import or export, recording its arrival, retrieving relevant logistics data and adding it to the current inventory.

• Storage is the function of placing the container in a known and recorded location so it may be retrieved when it is needed.

• Staging is the function of preparing a container to leave the terminal. In other words, the containers that are to be exported are identified and organized so as to optimize the loading process. Import containers follow similar processes, although staging is not always performed. An exception is a group of containers leaving the terminal via rail.

• Finally, the loading function involves placing the correct container on the ship, truck, or other mode of transportation. In this function the emphasis is upon the internal logistics chain of the container terminal (i.e. vessel-truck-yard and opposite direction respectively).

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Very large container ships also require specialized deep-water terminals and handling facilities. The container fleet available, route constraints and terminal capacity play a large role in shaping global container shipment logistics.

The world’s busiest container ports as of December 2011 are as follows:

Busiest container ship ports

The container ports serve as points of convergence between two domains of freight circulation; the maritime and land territories. The largest ports in the world are all gateways to enormous industrial regions representing complex and highly integrated elements of global commerce.

Port regionalisation – the improvement of inland transportation and an increasingly common phenomenon – is the result of the escalating level of integration between maritime and inland transport systems, particularly the use of rail and barges, which are less prone to congestion than road transport. An important function for container ports is handling ship-to-ship trans-shipments, which use an intermediate hub (or trans-shipment hub) for ship-to-ship operations. Such operations do not typically take place directly, thereby requiring the temporary storage of containers in the port’s yard.

The efficient trans-shipment of containers depends on the ability of container ports and terminals to orchestrate the management and scheduling of assets, vessel planning, rail planning, vehicle booking, personnel management, customs clearance and numerous other highly complex operations. Equally complex are the systems and software applications which require their own hosting and communications infrastructures and which must also be able to easily integrate with those of the vessel operators, regulatory authorities and numerous other parties.

Container Ports and Terminals

Ranking Port Country 2011 Container Traffic (in thousand TEUs)

1 Shanghai China 29,069

2 Singapore Singapore 28,431

3 Hong Kong China 23,699

4 Schenzhen China 22,510

5 Busan South Korea 14,194

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In many areas, containers are commonly transported by rail in ‘container well cars.’ Resembling flatcars, the newer models have a container-sized depression, or well, in the middle allowing for clearance.

Since the 1980s the use of double-stack rail transport has become increasingly common for the inland transport of containers, particularly in the US. Double-stack cars provide greater cargo security by cradling the lower containers so that their doors can be opened and also serve to significantly reduce the instance of damage in transit. In Europe, the more restricted loading gauge (the maximum height and width for railway vehicles and their loads to ensure safe passage through bridges, tunnels and other structures) has limited the adoption of double-stacked cars.

However, in 2007 the Betuweroute was completed, a railway from the port of Rotterdam into Germany, which accommodates double-stacked containers. Double stacking is also used in parts of Australia and the United Kingdom. Taller containers are often carried in ‘well cars’ (not stacked) on older European railway routes where the loading gauge is particularly small.

In Europe, rail freight market share has been decreasing since the 1970s because the increased importance of ‘just-in-time’ and door-to-door deliveries makes road transport a better alternative than rail. Early privatisation of the US railroad helped to develop a market-based focus on the mode as an attractive freight alternative, whereas most countries in Europe had nationalised railroads. As a result, the rail system in Europe was built up from the individual countries’ perspectives, focusing on domestic rather than international traffic.

Over the past decade, European countries have made strides to deregulate and privatize the rail industry, which increased competition and lowered costs, but obstacles still remain. Europe’s railroad system has principally evolved to transport people, not cargo, which creates problems for freight because it is always moved on a ‘rail space available’ basis, which means that unlike in the US, rail freight doesn’t take priority over passengers. Also, the European rail system is largely electrical, and, until recently, the dead-weight pulling capacities of these types of engines have been considerably less than the diesel locomotives used in the US.

Moreover, because European rail operators have traditionally been government-owned or regulated, operational inconsistencies between countries such as signalling, communication, and rail gauge conformity impede connectivity and flow.

Railways

Railway Intermodal Transport through Cambridgeshire, England

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Trucks are frequently used to connect the ‘line haul’ ocean and rail segments of a global intermodal freight movement. The specialised trucking that runs between ocean ports, rail terminals and inland shipping docks, is often termed ‘drayage’, and is typically provided by

dedicated drayage companies or by the railroads. As described in Figure #1 there can be significant efficiency advantages to employing an integrated intermodal freight system combining the use of both rail and trucks, as opposed to relying solely on long hauling by trucks.

Road transport provides a door-to-door service that cannot yet be surpassed by rail or sea, and not every plant or warehouse has the luxury of a railway line or port nearby. Even using the integrated intermodal freight system, the transfer of cargo from train or barge to truck for the final leg of the journey often adds to transit times, but can offer potential efficiencies in terms of costs and CO2 emissions. These efficiencies are made all the more attractive as fuel costs rise.

An emerging technique, directed at more efficient road transport involves a cloud-based approach to enhancing direct empty container interchanges between importers (consignees) and the next exporter (shipper), to avoid empty trips to or from the marine terminal. One of the most efficient ways to minimize unproductive empty trips is to facilitate the direct interchange of empty containers, commonly referred to as ‘street-turns’.

A street-turn will involve a trucker delivering an import load at a particular facility, and then utilising an empty container from a nearby facility with either the same trucker or another truck operator, thus eliminating the need for two empty truck trips. This technique demands real time tracking of the containers and the ability to make the information available to the different parties (Ocean carrier, Trucking company, Consignee and Shipper) involved in multimodal land transportation. Based on the available information, a shipper can select an empty container from the nearby consignee location and assign the move to a nearby available truck. However, this demands visibility of locally available containers as well as the ability to broker the collaboration necessary to complete the transfer.

Trucks

Origin Destination

Figure #1 Comparison of Truck Only versus Integrated Intermodal Freight Systems

DestinationOrigin

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Barges, employing specialised container stacking equipment and techniques, are commonly used for transporting freight on large inland waterways such as the Rhine/Danube in Europe and the Mississippi River in the US.

Port feeder barge at Binnenschiff Malchow

The first batch of container gantries was installed on the River Rhine in 1968, only two years after the first fully container-configured ship arrived in Europe. Within the following decade, Container-on- Barge (COB) transport

expanded into France, Switzerland and other European countries. In Europe, the main COB consideration is the vertical clearance under bridges. Accordingly, most European designs use ‘hopper barges’, in which the containers are lowered much in the same way as in a ship. As all European countries have load limitations for trucks to protect road, pavement and the environment (maximum weight of tractor-trailers is 40 gross tonnes), COB can represent an attractive alternative to road transport in those regions with navigable river-ways.

As has been described, container transport is an integrated system of container ships, ocean ports, inland terminals, rail, road and river-ways. For this integrated system to operate effectively, there must also be an underlying communications infrastructure over which information can move unimpeded to the various touch-points of the transport system. From the port users’ perspective, the container vessel represents the most time-sensitive, high-value cargo and demands expedited cargo handling, which in turn, requires coordinated actions by ship operators, port authorities, landside transport organisations, regulatory and support agencies. These activities are scheduled, initiated, managed and controlled by the near real-time exchange of information over global Wide Area Networks (WANs), mobile communications, extranets and many other modes of communications. Any inefficiencies or interruptions to the movement of this information are immediately felt throughout the transportation system, with delays and costs for idle time, demurrage, penalties and fines quickly adding up.

Barges

Figure #2 Manifest information/Data Flow Diagram

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Figure #3 Overview of data exchange to generate shipping instructions

To illustrate the complexity of data exchange, consider the process of preparing even a simple vessel manifest, which requires network interfaces between multiple systems and among numerous parties.

As illustrated by Figure #2, while fairly straightforward, this process is heavily dependent upon the efficient information exchange between systems, parties and geographies, and is therefore entirely dependent upon the network infrastructure. The network must deliver end-to-end performance, security and non-repudiation, among other requirements.

Furthermore, each of the documents referenced in Figure #2 must contain valid and accurate Harmonized Tariff Schedule (HTS) numbers, which must go through a verification procedure. The shipping instructions must contain accurate weights and measurements, which are specific to each HTS number. Also, the information presented on the vessel manifest, packing lists or other shipping documents must contain detailed product descriptions.

Thus the information exchanges necessary to complete merely the shipping instructions are fairly complex and require communications between multiple actors, systems and geographies, as illustrated in Figure #3.

Barges

1. The shipper prepares the product for shipment and generates a packing list, commercial invoice and shipping instructions.

2. The carrier receives, weighs and measures the consignment.

3. The carrier prepares bills of loading from the shipping instructions.

4. The carrier electronically transmits the vessel manifest to Customs via the Automated Manifest System (AMS). Companies that have elected to establish a direct interface with US Customs must have developed all of the necessary record formats as well. AMS recognizes transmission of data in either the American National Standards Institute (ANSI) X12 (version 4010) format or the Customs Automated Manifest Interface Requirements (CAMIR) format.

5. US Customs advises the carrier of any holds.

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Ocean shippers thought they had seen as much change as any industry could endure when the Ocean Shipping Reform Act went into effect in 1999. However, during the following decade another wave of changes has swept across the industry, representing major challenges to IT organisations and the design of underlying communications infrastructures.

Historically, cargo entering the US from any foreign territory had been subject to physical examination by the US Government, to verify that it complied with US laws and regulations. However, after September 11, 2001, a new combined organisation of Border Patrol, Immigration and Naturalization Service, Agriculture Inspection and the US Customs Service known as the Customs and Border Protection (CBP) came into being within the Department of Homeland Security. Today, the CBP assumes a leading position in the defence of Homeland Security to protect the US against terrorists and weapons of mass destruction.

Under the Trade Act of 2002, CBP issued regulations providing for advanced electronic submission of cargo information for security purposes. Within the US, CBP is working with the thousands of companies who are members of the Customs Trade Partnership Against Terrorism (C-TPAT) to emphasise the level of security in the supply chain, so that CBP cargo examinations can be performed even more selectively. Security concerns recently prompted the most visible change in ocean shipping in the form of the ‘24-hour Advanced Vessel Manifest Rule’ for advanced shipper notification. The 24-hour rule became effective on December 2, 2002 requiring an advance cargo declaration from ocean carriers, port authorities and Non-Vessel Operating Common Carriers (NVOCCs). CBP uses the cargo information to identify and eliminate potential terrorist threats before a vessel sails from a foreign port to US seaports, rather than after its arrival in the US. Furthermore, the CBP issues ‘Do Not Load’ messages for clear violations of the consignee name and address requirement.

Costly monetary penalties are now imposed for Foreign Remaining on Board (FROB) cargo that have invalid cargo descriptions, and have been loaded onboard the vessel outside the CBP-mandated 24 hour window. For example, carriers may be assessed a $5,000 penalty for first violation and $10,000 for any subsequent violation attributable to the master or vessel captain. NVOCCs may be assessed liquidated damages in the amount of $5,000.

On December 31, 2010, the EU initiated a very similar Advanced Manifest submission regulation, ensuring a level of protection through customs control for all goods brought into the EU territory. All ocean carriers are required to submit an Entry Summary Declaration (ENS) electronically to the customs office of the first European Territory destination 24 hours prior to cargo loading at the non-EU port. Ocean carriers are required to provide complete shipping instructions including: Automated Export System (AES), number of items, consignor, consignee, seal and container number. The ENS can be lodged by a third party, but that does not relieve the carrier of responsibility. The carrier must ensure the ENS is lodged therefore by a person only with the ocean carriers’ knowledge and approval.

This regulation is required for all international ocean freight being shipped from a non-EU port that is bound for the EU. The security risk assessment is transmitted from the first entry customs clearance office to the final destination port.

The customs office of entry will always be held responsible for risk analysis of cargo even after the cargo has left the first port of entry in the EU. To avoid delays at the EU port of arrival, it is important that customers provide complete and accurate shipping instructions so that the ENS is accurate.

Regulatory Environment

For example, a ‘Do Not Load’ message will be issued for any of the following violations:

• if the consignee fields are left blank

• use of ‘To Order’ and ‘To Order of Shipper,’ without corresponding information in the consignee and notify party fields

• consignee name with no address, incomplete address or invalid address

• messages for containerized cargo that have invalid or incomplete cargo descriptions, with the use of vague cargo descriptions such as ‘Freight-All-Kinds,’ ‘Said-To-Contain,’ or ‘General Merchandise’.

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Another security program, the Container Security Initiative (CSI) went into effect in 2003, extending the initiative beyond the first 20 international ports initially targeted in stage I. CSI is a US Customs Service initiative to prevent containerized shipping (which is the primary system of global trade) from being exploited by terrorists. With CSI, the US Customs Service has entered into partnerships with other governments to identify high-risk cargo containers and pre-screen them for terrorist weapons at the port of departure instead of the port of arrival. Under the CSI program, a team of officers from the CBP is deployed in foreign ports to work with host nation counterparts to target and screen high-risk US-bound cargo containers before they leave foreign ports. Other initiatives currently in effect include the Customs-Trade Partnership Against Terrorism (C-TPAT), which is a voluntary initiative between the US Customs Service, importers, exporters and carriers to tighten security in the supply chain. Ten countries, accounting for 17 of the top 20 ports that ship cargo containers to the US, have agreed to and are in the process of implementing the CSI program. Countries participating in CSI with the US include Spain, the Netherlands, France, Belgium, Germany, Italy, United Kingdom, Singapore, Japan, China, and the special administrative region of Hong Kong. It is important to note that Hong Kong and Singapore are the two largest volume container carrier ports in the world.

Later, the US and the EU signed a customs cooperation accord; among other measures, it called for extending the US Container Security Initiative (CSI) throughout the EU. CSI stations US customs officers in foreign ports to help pre-screen US-bound maritime cargo containers to ensure that they do not contain dangerous substances such as explosives or other weapons of mass destruction. Ten EU member states currently have ports that participate in CSI. Both the US and the EU have also instituted programs with leading importers to pre-screen cargo shipments.

These and other security regulations necessitate the near real-time global exchange of large amounts of very detailed and highly confidential information. And this brings with it increased dependency upon email, Internet access, managed security services, video conferencing, Unified Communications & Collaboration (UCC) and many other components of a globally integrated communications infrastructure.

Regulatory Environment

Under the CSI program, a team of officers from the CBP is deployed in foreign ports to work with host nation counterparts to target and screen high-risk US-bound cargo containers before they leave foreign ports. Other initiatives currently in effect include the Customs-Trade Partnership Against Terrorism (C-TPAT), which is a voluntary initiative between the US Customs Service, importers, exporters and carriers to tighten security in the supply chain.

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The ocean shipping industry spends in excess of $100 billion annually operating its container assets. Industry analysts estimate that approximately $20 billion of that can be directly attributed to repositioning empty equipment to the point of its next cargo load.

Sea-land value chain hand-offs (cargo and information)

Due to information gaps or ‘blind spots’ along the transport chain, equipment is only visible to carriers between 60 and 80 percent of the time. These blind spots constrain container operators from realising all the equipment management options currently available to them, such as interchange or ‘triangulation’, a method of moving containers from a surplus location to a demand location by using an intermediate transport leg that can be revenue or non-revenue producing (i.e. loaded or empty).

The greatest opportunity to reduce costs by increasing equipment visibility is during blind spots on the landside, when assets leave the ocean carrier’s network (in this case, the term ‘network’ means the network of organisational locations, or depots of the enterprise). A typical, large global carrier maintains a ‘network’ of approximately 3,000 customers and 4,000 suppliers, who have possession of carrier assets as much as 20 to 40 percent of the time. Communications between carriers, shippers and vendors are often hampered by the diverse information technology systems used in the shipping and logistics industry supply chain ‘network’.

Despite heavy investments in equipment tracking on the part of ocean carriers, blind spots in the sea-land communications value chain almost always exist. While containers are in transit on vessels and stationed in marine terminals, carriers know the location and status of each unit. However, visibility often deteriorates for containers moving via rail or truck while in inland terminals or at shipper/consignee premises. Reduced visibility at these key points hampers equipment-tracking efforts and complicates the detention and demurrage processes. For this reason, the shipping and logistics industry is concentrating its investments in this area of information technology.

Transporting and Tracking Cargo

‘A typical, large global carrier maintains a ‘network’ of approximately 3,000 customers and 4,000 suppliers, who have possession of carrier assets as much as 20 to 40 percent of the time’

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Transporting and Tracking Cargo The ocean shipping industry currently spends greater than $100 billion annually operating its container assets, and industry analysts estimate that approximately $20 billion of that amount can be directly attributed to repositioning empty equipment to the point of its next cargo load. Due to information “gaps” or “blind spots” along the transport chain, equipment is only visible to carriers between 60 and 80 percent of the time. These blind spots constrain container operators from realizing all of the equipment management operations currently available to them, such as interchange or “triangulation”, a method of moving containers from a surplus location to a demand location by using an intermediate transport leg that can be revenue or non-revenue producing (i.e. loaded or empty).

Figure #12 - Sea-Land Value Chain Hand-offs (Cargo and Information)

The greatest opportunity to reduce costs by increasing equipment visibility is during blind spots on the landside, when assets leave the ocean carrier’s network (in this case, the term “network” means the network of organizational locations, or depots of the enterprise). A typical, large global carrier maintains a “network” of approximately 3,000 customers and 4,000 suppliers, who have possession of

Origin Container Port

Rail Drayage Terminal

Storage

Road Drayage Terminal

Container Port

Container Ship

Destination

Customs

Loading

Operator

Storage

Customs

Loading Tendering Receiving

Loading Driver Ship

Master

Harbor Pilot

Operator Engineer Warehousing

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Example of Terminal Information Control System information flows

Transporting and Tracking Cargo

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The role of Technology

Technology plays a major role in many of the changes the ocean shipping industry is experiencing. New regulatory and security requirements are compelling ports, shippers and carriers to take a serious look at emerging technologies that can streamline their operating processes.

One example is X-ray based inspection systems. With this technology, a complete container can be x-rayed in its entirety by a next generation mobile x-ray machine.

X-ray based inspection systems are the most common form of non-invasive inspection technology in use today and detect differences in material densities to produce an

image of the container’s contents. The system operator performs contraband detection visually, sometimes with the help of sophisticated software, inspecting the X-ray images for anomalies. However, when cargo and contraband are of similar densities, contraband detection is made more difficult.

For example, cocaine and bananas have similar densities and when cocaine is molded and painted to look like bananas it is very difficult to tell the difference on an X-Ray. Contraband can also be hidden in the shadow of cargo with a higher density. X-ray systems generally take a few minutes to scan a standard 40-foot container.

Gamma-ray systems offer a faster alternative and use pulsed fast neutrons to generate images of the container’s contents, 3-D mapping of content location and other important information. Some systems can identify the presence of carbon, nitrogen, oxygen, silicon, chlorine, aluminium and iron-based materials inside the container.

Another technology commonly used by the ocean shipping industry is Radio Frequency Identification (RFID). Containers with pallets stacked full of RFID-labelled items can be easily read and re-read as they pass from location to location, both within the manufacturer’s factory or by logistics partners throughout the distribution process. Multiple read points will feed item and location data to various Enterprise Resource Planning (ERP) and Supply Chain Management (SCM) systems, providing a real-time picture of a product’s location. Product descriptions and other data can be received in seconds, with exceptions noticed before the container is opened. This information can include routeing instructions, even for loads that contain mixed goods, and the technology can be seamlessly implemented and routinely checked to verify accuracy throughout the supply chain.

These technologies require however a network infrastructure that can move large volumes of data, reliably and on a real-time basis, across a globally distributed supply chain while meeting demanding expectations for performance and scalability. The increasing use of imagery and EDI and other large transaction formats also creates the need for ever-increasing amounts of bandwidth.

X-ray image of a truck containing persons attempting to Illegally enter the US.

Figure #4 X-raying a cargo container

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These trends include the following:

• Business Transformation Initiatives – The rapidly growing pace and complexity of this industry continues to drive business process transformation programs. The use of methods such as Lean Six Sigma provides the core capabilities to define performance metrics and drive measurable process improvements. The resulting re-engineered processes in turn drive requirements that must ultimately be implemented within systems and software applications. The major ocean shipping enterprises seem to have accepted that standard/off-the-shelf Transportation Management System (TMS) software packages do not provide sufficient functionality and flexibility to support core business processes such as pricing, asset operations, tactical planning and routeing.

To satisfy these core functions best-of-breed solutions are typically favoured. Conversely, for administrative and corporate processes such as HR, Finance and Procurement, these same enterprises show a distinct preference for packaged applications suites. While providing more tailored functional support, this blended application approach also leads to numerous application interfaces and infrastructure complexity.

• Real-time Optimisation Tools for Routes, Network and Management of Assets – The need for predictability in a transportation network driven by short-term forecasting and constrained by reliability and capacity issues is a key concern for ocean logistics service providers. Thus empty asset optimization and simulation, network optimization and simulation, predictive analytics based on booking demand, the use of sensor-based networks to enable real-time re-routeing and other initiatives are increasingly common in the sector.These initiatives in turn drive the need for real-time collaboration between systems, personnel and value chain partners, thereby placing increased demands upon the underlying communications infrastructure for the intelligence and flexibility necessary to integrate the numerous variables.

• Increased focus on Workflow-driven Collaborative Business Process Management – The sheer number of actors – shippers, consignees, carriers, customs agents, regulatory authorities, warehouse operators and many more – required to enable even a straightforward shipment move create the need to

provide visibility of the shipment as it makes its way through the supply chain and to manage the highly collaborative workflows involved.

Single Business Process Management (BPM) platform allowing multiple stakeholders to collaborate efficiently and manage the process hand-offs seamlessly, thereby ensuring improved process integration across the end-to-end value chain. Such a platform is also a key enabler to the series of process off-shoring initiatives that are being embarked upon by 4PL and freight forwarding companies. Key components of this platform are: a BPM engine driven by cloud-based Business Activity Monitoring (BAM) tools, Business Intelligence (BI) and performance dashboards, portals and tools to easily collaborate across various mobile device types.

• Cloud Computing Architectures – In an industry whose basic value chain is so highly dependent upon collaboration as that of ocean shipping, cloud computing is understandably drawing a great deal of attention. Cloud-based architectures offer numerous advantages, which include:

− Reduced total cost of ownership (TCO)

− Storage and capacity on demand

− Business continuity and recovery

− Reduced maintenance (maintenance is performed by provider)

− Increased speed to implement and flexibility

− Greater mobility to access from anywhere, anytime, anyway.

Logistics is more than moving cargo from A to B. It involves numerous intermediate handoffs and collaborations, characteristics that match well to the capabilities of cloud-based computing architectures. Nonetheless, these architectures bring about new considerations and challenges such as public versus private cloud infrastructures that need to be understood before deciding to move in this direction.

Today’s online world is filled with public clouds, which enable customers to subscribe to and buy data storage space.

While public clouds may be cost-effective, businesses should be aware that public storage providers are unlikely to be employing the same systematic approach to firewalls, data encryption and other security protocols that exist within their own organisations. Accordingly, it is important to work with providers who have experience in the technologies and challenges of deploying this architecture.

Ocean shipping companies have borne much of the brunt of the global economic recession. As the world slowly emerges from the recession, there is an increased focus on investing in technology to improve operational efficiency and increase competitive advantage.

Emerging Technology Trends in the Ocean Shipping Industry

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Figure #16 - Integrated Ocean Shipping Collaboration Architecture As the ocean shipping industry continues to transform its complex business processes, its reliance upon improving the integration of the supporting systems architecture becomes more critical. This integration is largely based upon the supporting communications infrastructure, which must be able to securely (and intelligently) bridge three fundamental barriers; geographic, enterprise and applications.

Geographic - The fundamental business model of the ocean shipping industry necessitates the ability to operate internationally, which in turn is based upon the ability to securely collaborate across numerous geographies. This capability is entirely a function of the underlying communications infrastructure.

Enterprise - As has been described, container transport is an integrated

system of container ships, ocean ports, inland terminals, rail, road and river vessels. As such, all actors in this complex network must have the ability to operate collaboratively, which again is entirely a function of the underlying communications infrastructure.

Administrative Business Intelligence

Operational Systems

Scheduling

SCM

CRM

ERP

Productivity KPIs

Customer Reports

Subcontractor Review

Incentive Systems

EAM Financial Reporting

Transactional Systems

Control Monitoring and Sense-and-Respond

Modeling and Decision Support

Asset Management

Trace and Tracking

Asset Optimization

Drayage Scheduling

Stowage Management

Stowage Optimization

Crane Scheduling

Yard Asset Scheduling

Asset Schedule

Asset Location Tracking Transshipment Warehousing

and Picking

Customs Clearance

Inter-Terminal Transactions

Gate Transactions Security

Global Access and Connectivity (WAN/LAN/WLAN/Mobile)

Global Management of Infrastructure Hardware

Global Management of Security and Access Controls

Centralized Management of Devices and Workstations

Unified Communications and Collaboration

IT Infrastructure

Integrated Ocean Shipping Collaboration Architecture

Inefficiencies in the ocean shipping value chain represent obvious opportunities for improving business processes while simultaneously addressing regulatory compliance, customer service and other concerns. Compared to other industries ocean shipping has historically lagged behind the technology curve, hobbled by fragmented, complex and paper-intensive processes. Globalization, eCommerce, customer responsiveness initiatives and the ability to comply with security regulations have become key agenda items for the industry.

Responsible for approximately 200 million container moves annually it is estimated that the industry loses billions of dollars annually to inefficiencies. For many shipping companies however the telephone, fax and email remain among the primary means of conducting business, with data re-keyed numerous times into non-integrated systems, which introduce inaccuracies and make traceability through a documented audit trail next to impossible. While many of these enterprises have implemented ERP, SCM, CRM and EAM (Enterprise Asset Management) systems the industry has been slow to integrate logistics execution with these systems.

Today, the industry is moving towards more fully integrated and industrialised applications and infrastructure architectures, which are increasingly based on cloud-computing, mobility and ease of integration.

Emerging Technology Trends in the Ocean Shipping Industry

This architecture is focused upon maximizing:

• Asset utilization and scheduling

• Visibility to information at every point of shipment life cycle from order taking to post delivery analytics

• Business process automation, including real-time collaboration and rule enforcements to prevent revenue leakages, reduce costs/ claims and enhance customer service

• Business Intelligence/Analytics tools that help maximize asset utilization through forecasting and systematic planning tied to real-time sense-and-respond capabilities.

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As the ocean shipping industry continues to transform its complex business processes, its reliance upon improving the integration of the supporting systems architecture becomes more critical. This integration is largely based upon the supporting communications infrastructure, which must be able to securely (and intelligently) bridge; geographic, enterprise and systems barriers.

In accomplishing this transformation ocean shipping companies stand to benefit from the collaborative capabilities brought about by ‘the intelligent communications network’. Just as the logistics industry has evolved its capabilities from merely moving cargo from point A to B, the communications industry has evolved a set of capabilities to enable seamless collaboration across geographic, enterprise and system boundaries. The communications infrastructure has become a key delivery mechanism for the information that is the lifeblood

of the ocean shipping industry. It alone embodies the intelligence to administer security, authenticate users and enable them to access information not just via laptops and workstations but via smartphones, tablets and numerous other mobile devices. And as the level of instrumentation in the supply chain increases these users are less and less likely to be human and increasingly likely instead to be readers, scanners and other network-connected sensors.

This intelligent network itself becomes an asset, having the capability to address mixed end-user and customer requirements and manage traffic across a heterogeneous set of access points and underlying transport bearers.This network goes far beyond simple connectivity. It is developed and optimized for today’s requirements, but is also architected to accommodate future technology innovations and provide the flexibility and scalability necessary to accommodate the dynamics of the industry. In other words, the intelligent network is one that can support mobility, cloud computing and accommodate the changing threat landscape. It also transforms the network into a service-delivery mechanism that enables strategic business efforts.

Emerging Technology Trends in the Ocean Shipping Industry

• Geographic – shipping cargo across oceans necessitates the ability to operate internationally, which in turn requires the ability to collaborate across geographic borders. This is entirely a function of the underlying communications infrastructure.

• Enterprise – container transport requires an integrated system of container ships, ocean ports, inland terminals, rail, road and river vessels. The efficiency with which containers are handed off from actor to actor is a function of the efficiency with which they collaborate and this is heavily dependent on the underlying communications infrastructure.

• Systems – Each enterprise operates its own set of highly-integrated applications including SCM, CRM, ERP, EAM and many others. Some of these applications are hosted regionally and others centrally. The numerous cargo handoffs inherent to the sea-land business model of this industry requires extensive application integration, both intra and inter-enterprise. Again, this integration is largely a function of the underlying communications infrastructure.

SummaryThe ocean shipping industry is, by its very nature, highly globalized and dependent upon the efficient, uninterrupted exchange of information. The combination of a volatile, dynamic value chain and heavily information-oriented regulations, necessitates an intelligent communications infrastructure capable of satisfying the specialized requirements for performance, scalability, availability, reliability and security.

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May 2012