As shops go cashier-free, are retail jobs checking out?

For a long time it looked as if online shopping would gradually replace the high street. But the same digital development that was considered to be the end of physical shops may have brought a new beginning.

AmazonGoHow? Over the past two years a number of cashier-less stores have emerged in Europe and the United States, including the digital check-out test shop opened by Amazon in Seattle last year.

The innovative grocery store with no checkout line was called Amazon Go. But it wasn’t a new idea: some 15 years ago the German Metro Group, one of the world’s largest retailers, experimented with something called the Future Store, where radio frequencies and electromagnetic fields were applied to identify and track the tags attached to products. The concept was never commercialized.

Fast-forward to today, and Amazon Go uses sensor fusion, historic customer data and artificial intelligence; it connects to customer accounts via an app on their mobile phones.

Digital cashier-less stores promise certain advantages for business. For a start, the information they acquire and store can enrich existing data and help companies to analyse and plan. It also helps forecast consumer demand, predicting what buyers are going to buy before they know it themselves. The result is cost savings on shipping, inventory and delivery, and increased sales. It’s also good for consumers, in that it represent a significant shift towards seamless 24/7 retail and would open up new options for people in remote locations.

One thing that a digital store doesn’t do, however, is deliver products quickly. The solution here is in the scaling: delivery on the same day, or even within hours or minutes, becomes easier in a close network of stores and distribution centres. The denser the network, the shorter the distance to the customer, and the faster the goods arrive. This is where more stores and the use of drone delivery, reportedly just around the corner, could speed things up.

But this is only one side of the story. There’s another, darker question hanging over the whole enterprise, one perhaps reflected in the public’s mixed response in the chart below: the future of jobs in the retail sector, which after all is one of the largest employee groups.

No more shopkeepers?

In the digital store, the number of check-out staff is expected to decline dramatically. By contrast, jobs for business oversight and store security – as well as in technical positions – will persist. People will always be the best candidates for customer-service roles on the shop floor. It’s an important area of differentiation and it’s already happening. Following the centralization and automation of accounting and invoicing tasks, Walmart announced it was shifting 7,000 jobs to the sales floor. It seems clear that the responsibilities of employees are going to change.

Amazon, for example, has filed a patent for 3D printing within mobile manufacturing units. This concept of a moving factory or a moving manufacturing store would mean more flexibility, less stock and more tailored manufactured products for end consumers. In store, 3D printers can be used to produce made-to-order goods or offer 3D printing as a service. Customers pay with smartphones – no checkout line, of course. On the other side of the world, another tech revolution is taking place. In China, the commerce platform ULE is transforming stores into hundreds of thousands of hubs for e-commerce business.

In order to prepare for the future, both businesses and governments need to really understand the impact of automation on the supply and value chain. But information and opinions on this impact tend to vary. Bill Gates and Elon Musk, for instance, believe consequences will be severe. Roman Zitzelsberger, meanwhile, head of the German labour union IG Metall, considers robots less as a threat and more as an opportunity to move our professional lives towards higher-value tasks and more flexibility.

It seems that whatever happens, not only our professional lives but also our private lives – and many, if not all, businesses – will be affected significantly.

This blog was originally posted on the World Economic Forum Agenda.

 

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How blockchain can restore trust in trade

containerInternational trade is under pressure. Fears fuelled by the global refugee situation and terrorist threats have led to tighter border controls – and these come at a cost. Every inspection of goods, every stop along the supply chain, eats up time and drives up prices. It harms businesses and consumers alike. Those involved in international trade – whether manufacturers, trading houses, transportation companies or banks – are seeking ways to ease the situation and cut time and costs.

Blockchain technology can help. The cloud-based ledger ensures that records can’t be duplicated, manipulated or faked, and increased visibility in parts of the supply chain promotes an unprecedented level of trust. It means governments can better protect citizens, while business partners can be certain trading documents are real. Consumers can check the quality and provenance of products, and banks can reduce processing time. And it’s all paperless.

Thanks to blockchain, all kind of legal, financial and product-related information can be made available. This allows even the least trusting parties to comfortably conduct business. With further investment and experimentation, blockchain could potentially hide confidential information to protect the interests of trading parties – pricing information, for example.

Does it work in the real world? Barclays reported the first blockchain-based trade-finance deal in September 2016. The transaction guaranteed the trade of almost $100,000 worth of cheese and butter between Irish agricultural food co-operative Ornua and the Seychelles Trading Company. The process – from issuing to approval of the letter of credit, which usually takes between seven and 10 days – could be reduced to less than four hours. Other banks are also exploring ways blockchain technology can improve processes along the supply chain. In August 2016, banking consortium R3CEV reported that 15 of its members had joined a trade finance trial to test its distributed ledger protocol, named Corda. Also in August, Bank of America, HSBC and the Infocomm Development Authority of Singapore (IDA) revealed that they had built a blockchain application to improve the letter of credit (LC) transaction process between banks, exporters and importers.

It’s not only banks: Maersk, the world’s largest container-shipping line, has been participating in a proof-of-concept initiative, using blockchain expertise from the IT University of Copenhagen to digitize the ships’ cargo inventories. These so-called “bills of lading” require an enormous amount of paper. A shipment of roses from Kenya to Rotterdam, for example, can result a pile of paper 25cm high. And the cost of handling it can be higher than the cost of transporting the containers. Maersk’s aim is to optimize the flow of information while raising visibility along the supply chain.

Often when making a purchase, buyers don’t know where the goods they ordered are coming from, or even whether they have been shipped at all. With blockchain, consumers can be informed of every step in the process. Combined with the internet of things, this could also extend to the care with which a product is transported. Swiss start-up Modum, for example, uses blockchain as a way of assuring recipients that pharmaceuticals have remained within an acceptable temperature range while in transit.

Trust and transparency

Citizens are worried that reduced barriers at the borders, as well as trade agreements, increase the risk of terrorism and illicit trade. Blockchain technology can in fact provide the backbone of a system of authorized trusted participants, bringing everything into the light, whether it’s a product, the party selling it or the path it takes to reach the buyer. Consumers and watchdogs, public and private, can trace every item moved through the authorized blockchain-backed channel and validate or reject both product and party. Customs clearance, too, can be optimized using blockchain. Parties that are part of the group can act quickly and efficiently, while others face scrutiny.

Immutable records on every aspect of a transaction – from the source of the raw material to where and how the products were manufactured, to their distribution, maintenance, repair, recall and recycling histories – are the new basis of trust. Information about ownership, provenance, authenticity and price are all held in the blockchain. Digital product memories connected to smart devices along the supply chain will provide secure proof of everything from manufacturing processes to quality controls. This will reduce the cost of compliance, i.e. the adherence with laws and regulations. Furthermore, this will open doors for replacing current product labelling practices to protect consumers and accelerate customs-clearance processes. Customers and consumer-protection organizations, as well as customs authorities, will have all the information they need to decide to buy or not to buy, to let goods through the border or to block them.


Blockchain has the potential to become the new gold standard of business and trade. But first, all nations need to accept the new technology. There are technical hurdles to overcome too. First, blockchain protocol(s) used to secure the ledger of global trade and manufacturers must be trusted by all of its users and be effectively un-hackable. Technical capabilities to handle very large transaction volumes will also need to be enhanced and the cost of maintaining the protocol may need to be lowered. Ordinary companies and individuals will need to be onboarded into the machine-to-machine (M2M) economy. The liability model of trade conducted on the blockchain will need to be reviewed as the appropriate treatment of liability may differ from current models.

Blockchain can help to reinforce trust in today’s complex and globalized world – giving citizens and governments fresh confidence in the global exchange of goods.

Image: Erwan Hesry

This blog was originally posted on the World Economic Forum Agenda.

The world is building fences. Here’s why we should worry

Long forgotten seem the walls, fences and barbed wires at all borders. Therefore, the understanding of the benefits of open borders might be fading. Of course, with terrorist attacks and waves of migrants concerns are rising. However, I wish that we are mindful and clear about the effectiveness, consequences and cost of the new global disintegration tendencies.

Fences

In December 2015, the BBC wrote: “EU border security becomes new mantra“. Not only Europe but larger parts of the world are going through a phase of increasing disintegration: the Brexit referendum, discussions about the exclusion of Greece from the Eurozone and the beginning of the construction of fences along the green borders of barrier-free Schengen.

Near Schengen, on 14 June 1985, the picturesque town in Luxembourg, five European countries signed the agreement which led to the creation of Europe’s borderless Schengen area. In light of mass flows of migrants seeking asylum in Europe, Hungary blocked migrants from onward travel to the rest of Europe and constructed a four-metre-tall fence along sections of the border with Serbia – a country not part of the Schengen area.

Also, Austria has begun building an anti-migrant barrier across the Brenner Pass at the Italian border. Putting an end to hope on one side and reducing fears on the other. However, it’s not only in Europe that countries are raising the bar. US presidential hopeful Donald Trump wants to build a wall at the Mexican border. Increasing fear of terrorists in the US has led to the reintroduction of a visa for “certain Europeans“.

EconomistBorders

Image: The Economist

Click here to see other regions in the Economist’s interactive map

The hidden cost of disintegration

What would be the impact of reestablishing barriers? Citizens would face long-forgotten burdens: the northern Europeans, for example, would experience long traffic jams at the Brenner Pass on the way to the holiday destinations in the south. Labour markets would also be affected: 1.7 million people cross European borders every day to get to work. Consumer prices would rise due to the forced slowdown and necessary adjustments along the supply chain. Waiting and inspection times at the borders would need to be factored into the prices of goods, as well as the changes required to the highly cost-optimized just-in-time concepts – largely applied in global manufacturing in the automotive industry – and the efficient goods supply out of the distribution centres. Many of the products made available by bilateral and multilateral agreements would disappear from supermarket shelves.

Disintegration would affect the competitive position too. Europe, for example, might find itself in a very disadvantaged situation given that Asia is continuing to integrate. What if TTP arrives and Schengen leaves? There might also be explosive geopolitical risk involved, with Crimea, Ukraine and new Chinese islands in the South China Sea heating up the debate. As new fences go up across Europe, what tensions could result from countries such as Spain, Italy and Greece being left more or less alone with new waves of migrants?

How effective are visas and border controls?

Looking back: how safe has the world been with more barriers? Did borders protect Italy from the onslaught in the 1970s of the Red Brigades, Spain from the ETA, Germany from the Red Army, and France from GIA? Did borders protect the US from attack on 9/11? How effective have been the high metal fences and walls, barbed wire, alarms, anti-vehicle ditches, watchtowers, automatic booby traps and minefields along the inner German border from 1945 to 1990? The threat often lies within: “Not one Paris attacker has been identified as a Syrian refugee”, Mashable wrote.

Tightening up security

The world has experienced decades of advancing global integration. Increasingly open borders and many trade and investment partnerships have strongly contributed to the prosperity and wealth of people and nations. International organizations and agencies have not only supported global growth but also established institutions in charge of dealing with the risks of reducing national barriers. Organizations have developed international ties and many platforms of collaboration to fight crime and terror have emerged.

Interpol – the International Criminal Police Organization – has strong links with Europol, the organization coordinating the local police forces across Europe. Within countries, ministries and agencies are increasingly working together. Germany, for example, has established the GTAZ – the Joint Counter-Terrorism Centre – an autonomous authority and co-operation platform used by 40 internal security agencies.

The private sector has launched initiatives to protect staff and assets against terrorism and other threats across the globe. Since the attacks of 9/11, security measures have been tightened. Today, individuals and companies are checked against the sanction lists of the US and Europe. Employees appearing on the lists are no longer allowed to be paid a salary, and companies are excluded from doing business. Though, as the Panama papers show, we have not yet closed all the back doors.

Battle on the internet

Social media helps terrorists organize itself and recruit new fighters. On the other hand, the FBI uses internet surveillance software like Carnivore to identify and stop attacks. Organizations such as the Search for International Terrorist Entities are scanning propaganda material and training manuals, and sharing the insights with other organizations. Technology trumps. The internet has the potential to flatten borders while reducing risks. The more people are active on the net, the better economic value can be extracted and (potential) terrorist activities monitored. Which also does not come without concerns and complexities – as the discussion between Apple and the FBI shows.

Governments have the obligation to protect citizens and the right to control borders. However, what are the effects of the potential disintegration on citizens, migrants and the economy? The Bertelsmann Foundation warns that reestablishing permanent border controls in Europe could produce losses of up to 1.4 trillion euros over 10 years.

We need to understand and be mindful of the impact of our decisions on the economy. All the same, should we apply economic reasoning to a decision on whether or not to offer a helping hand to people in severe need?

Image: REUTERS/Marko Djurica

This blog was originally posted on the World Economic Forum Agenda.

Supply chain safety or the genetic code of everything

In a recent Forbes article we could read that the CDC estimates that approximately one in six Americans get sick each year from foodborne diseases, leading to roughly 3,000 deaths. This is well in line with the horrifying stories of the milk powder scandals and 300,000 thousand affected babies. The news about shortcomings and effects of irresponsible behavior in respect to the supply chain is taking its toll. Apparently is our knowledge about the origin and the risks of materials, parts and products limited. What can be done to better protect our lives?

Field.jpg large

Authenticity is the first step. In order to ensure authenticity, safety, security and quality of the food we eat and the products we use, there is not only the one solution needed but a bundle of protective measures. In addition to the obvious standards and efficient certification processes, we are in need of pragmatic laws and regulation. We also require reliable product tracing technology allowing the seamless follow through and detailed information about the products – about the score against the standard – and insights in the organisations involved; these can be transportation companies, traders and manufacturers. The effective protection requires data sharing, and maybe the need to establish an independent and efficient data market.

The ultimate protection of our health requires the genetic code of everything!

What we need is the full set of information of each and every product – the unique product fingerprint which can be compared with the database of safe practices. We need the measurement of truth, the proof of compliance with standards, laws and regulations. Imagine that all products we consider buying carried the QR code providing pre-checked information, including the origin, the quality and the manufacturing process. Imagine that through the internet every smart phone user would be able to retrieve the specific information about the meat we eat, the soap we love, and the paint used in the offices, the apartments, and the public buildings we are living in or we are visiting.

Total Supply Chain Visibility: a vision in the making?

Governments and organisations like the Consumer Goods Forum are working to develop and share best practices. The United States passed the Consumer Product Safety Improvement Act (CPSIA) to establish safety standards and requirements for children’s products. The supplier certifications accepted by the Global Food Safety Initiative (GFSI) aim at delivering safe food to citizens worldwide. The private sector plays its role too. Large companies help small farmers to fulfill requirements. There are around 700 global certification programmes. Probably too many, creating complexities which might slow down processes and cause unnecessary costs.

Laws and regulations have been put in place elevating traceability beyond just a value-added to the supply chain. In the European Union traceability has been obligatory for all businesses in the food chain since January 2005. In the United States of America, the Bioterrorism Act came into effect for larger companies in 2005 and for smaller players in 2006, with similar requirements regarding records to identify previous sources. Traceability becomes the new standard in the modern supply chain.

Most companies are mapping the parts of the supply chain under their control. However, the exercise needs to go beyond the borders of direct responsibility and control. We need visibility of the whole flow. Starting upstream at the mines and fields, going further along the various steps of manufacturing and assembling of products or the processing of food down to the buyers and subsequent cycles of usage. Unfortunately, in the eye of catastrophes such as the salmonella outbreaks companies sometimes appear ill-equipped to respond quickly.

With the new age of digitisation, with the emergence of sensors in almost everything – from electronics and vehicles to cloth and wallpaper governments, organisations and companies can gather and compile enormous quantities of data. More importantly the information can be transmitted to the internet where various applications can enrich, analyse, organise, and store the records. Through product identification, unique tracking numbers and labeling, we are able to link materials, parts, products and food back to specific data relating to the production, and distribution. Through the new technologies we have access to the entire cycle history. Held available in internet platforms, users can swiftly and easily retrieve this information by smart devices like phones, watches and other wearables. The proof of traceability might soon be the minimum standard for doing business in the digital age.

Where are the hurdles? Traditionally, individuals and companies struggle to exchange information and data. Furthermore, there are standardisation gaps and security concerns. Privacy protection is a challenge too. One solution might be a data market. Similar to the stock exchange this place of clear rules and supervision would allow to safely and swiftly exchange and monetise the data gathered or produced by the different parties. The data market would be an incentive to generate and share even more data.

There is much to gain!

Beyond our own individual safety, many opportunities lure in the world of the retrievable genetic code of everything. Players along the value chain, like raw material providers, suppliers, manufacturers and food processors can differentiate themselves from competition through visibility and an enlarged safety offer. Logistics and transportation companies can enhance their vertical knowledge and build new services around data management and the orchestration of the relationships along the supply and value chain. New services and players will emerge. TrueTag and CLEARthru are examples of this development.

Despite all technology and process innovation, we still need to act upon the new wealth of information and knowledge to protect ourselves. The responsibility for the health and wellbeing of the planet and society will stay with us and the many other consumers and buyers everywhere on the globe. It is up to us all to accept or reject. Finally: as most tracing technology has been available for so long, we might wish to consider to push a bit harder on the implementation and utilisation.

4 things to know about the new era of global trade

As Otaviano Canuto, the executive director of the IMF, wrote in the Huffington Post, “world trade suffered another disappointing year in 2015, experiencing a contraction in merchandise trade during the first half and only low growth during the second half”. After the boom of previous years and since 2008, world trade has been rising slower than GDP. In light of the lingering effects of the global financial crises, China rebalancing towards domestic consumption and the lack of new BRIC-like global growth engines, companies and governments need to adjust their strategies.
4ThingsNewTrade

The main characteristics of the new era of global trade are relatively mature value and supply chains, increasing regionalization and localization of production, the rise of non-tariff barriers after a period of significant tariff reductions, and an e-commerce boom, which often struggles to overcome the hurdles in international business. Digitization appears to be the key enabler of modern times, and an important lever to capture value in the new era of global trade. It is digitization that opens up new horizons for product design and management, manufacturing, retail, and the repurposing of goods. However, we need open and courageous leaders in government and business to make the change happen and capture the opportunity in the following main areas of development.

1. The new customer experience: “fast products”

Today’s customers demand fast products, such as fast fashion with quickly changing models. In fact, this works well for brands wanting to avoid the high inventory and high risks they encounter when they have to make big bets on the right designs for an entire fashion season, for example. Fast products require short supply chains. Consequently, production needs to move closer to the markets and shops to meet the shorter lead times from sketch to shelf. Zara, for example, “adapts couture designs, manufactures, distributes and retails clothes within two weeks of the original design first appearing on catwalks”. In creating the new customer experience, the management of the supply chain becomes a critical source of competitive edge.

Companies that wish to play in the “fast economy” will require new factories close to the markets and new distribution platforms. Those countries that provide the most fluid import and export ecosystem will be high on investors’ lists. In particular, countries in regions close to large markets, such as Central America, South-East Asia and North Africa might wish to review their strategies to capture the value of this trend.

2. Multilayer global manufacturing and supply platforms

Digitization helps the fast economy. In the past, brands tended to centralize manufacturing for better manageability and quality control. The power of information technology, the internet of things, big data and the cloud provides a new level of collaboration and empowerment throughout the value and supply chain. One example is the Flex Pulse Centre. The enhanced visibility allows companies to move factories closer to the customer without risking sudden surprises. In the continuous process, the global supply chain is converting towards a more and more dense and integrated platform of short, medium and long distance cargo moves – with regional and local distribution centres along the way. With the fast economy some intercontinental flows of goods will become regional and local traffic. However, the new factories will continue to require global supply, as not all materials and resources will come from sources nearby.

These multilayer global manufacturing and supply platforms still have many black holes. Some blackouts of visibility are caused by governmental security concerns, for example in freezones, others by the lack of digital infrastructure. There are opportunities for business and government through public-private partnerships to establish not only the digital architecture but also the trust to fully leverage the available technology. It goes without saying that the smooth and seamless movements of goods in and out of countries through the reduction or elimination of tariff and non-tariff border barriers is essential for establishing denser platforms and making countries and locations more attractive.

3. Scaling up market participation: International e-commerce

The era of “platformization” allows for a more inclusive economy. Global e-commerce platforms such as eBay or Alibaba can connect millions of manufacturers and billions of consumers, making the global market accessible to even the smallest manufacturer and providing the broadest choice to all consumers. In addition to much broader and better match-making, middlemen are cut out which allows for higher margins on the sales and lower prices on the purchasing side. It also reduces the risk of corruption. However, the concept only works if the underlying logistics and transportation platforms support the digital transactions.

Unlocking the potential of international ecommerce requires efficient and cost-effective logistics and smooth customs processes through the paperless digital export and import processing. On the import side there is a need for effective tools to be able to process and analyse information about shippers and products moved. These tools reduce clearing times, even enable pre-clearance, and help to manage the risks that come along with lower value goods, which fall often below the threshold of more diligent customs clearance processes. In addition, governments need to ensure healthy competition and avoid the formation of digital monopolies. Platforms can also be used to foster the job-creating small and midsized business landscape.

4. Repurposing of goods

Although there is a need to analyse the entire value chain, as sometimes even long-distance transport might be less carbon intense than local production, tightening the supply chain in many cases saves energy and emissions. Hence, the trend towards localization and regionalization helps with resources and the environment. However, new technology and digitization can go well beyond the simple shortening of the supply chain.

The new visibility in the supply chain not only helps identify leakages and misuse but enables new operating and business models, ranging from optimizing delivery routes to tapping into unused capacity enabled by the many platforms of the sharing economy. Additional potential lies in the resources locked in the products which are thrown away every day: electronics, paper and plastics. Asset tracking could help unlock a potential value of about $52 billion annually for consumer electronics and household appliances alone. Repurposing products will be a major challenge and opportunity for governments and companies in the years ahead.

In the modern interconnected and interdependent world, we need seamless global visibility and fluidity of the flow of goods. Businesses seek and will find new sources of value in tracking products throughout the first lifecycle and the recovery for the repurposing. By creating a repurposing capability, the public and private sectors have a unique opportunity to position themselves as modern and responsible players.

In the past, developed and developing countries have benefitted from globalization, with China as the most recent role model of trade-driven growth. Some low-cost labour countries might still be able to repeat China’s success, others need to look for new models. While globalization has driven the rise of emerging markets and global players, it has also paved the way for today’s dense multilayer value and supply platforms, which are the basis of our modern life.

Companies and governments need to update knowledge and adjust strategies. We must keep in mind that despite all the technological possibilities, it is our skills, wisdom and courage that will help develop new business models and drive the necessary policy reforms. As Sachin Maini once said: “While technology makes it possible to do much more than we could without it, it can’t help us decide what to do.”

This blog was originally posted on the World Economic Forum Agenda.

How safe are global supply chains from terrorist attack?

The recent Paris attack reminded the world that terrorism can hit at any time, any place. The response of governments has been to increase security in public spaces – and rightfully so. But what if these same terrorists would attack supply chains instead? Hitting just a few strategic targets in the energy trade, for example, could bring the entire global economy to a halt. To avoid such disaster, companies and governments should be more aware of this perceived “low probability threat”, and develop the tools to protect their economic interests and those of the world.

The attacks in Paris, the bombing of a Russian plane in Sharm El Sheikh, and most recently, a disability center in San Bernardino, shook the world. With hundreds of innocent civilians dead, governments all over the world responded by increasing security measures in public spaces. It is a much needed response, as our safety is of utmost importance.

But while focusing on public spaces, we should not leave another important flank SCSucurityBlogunprotected: our infrastructure and supply chains. Ports, waterways, roads: they all play a vital role in supplying our needs. When left neglected, the consequences on the economy and our society could be disastrous. Two risks are of particular importance: an overshoot of public safety measures affecting supply chains, and a negligence of securing supply chains, leaving them vulnerable to attack.

The first risk is for supply chains of goods to be disrupted because of public safety measures. We have seen this before. “After the September 11, 2001 terrorist attacks, the U.S. government closed the country’s borders and shut down all incoming and outgoing flights. The impact on many supply lines was immediate,” wrote Yossi Sheffi and James B. Rice Jr. in a MIT Sloan article. “Ford Motor Co. had to idle several assembly lines intermittently as trucks loaded with components were delayed coming in from Canada and Mexico. Ford’s fourth-quarter output in 2001 was down 13% compared with its production plan.” Although not directly hit, the disrupted flow of goods caused significant damage to business and delayed supply.

But there is a potentially much graver danger from neglecting supply chain safety: terrorist attacks aimed at precisely those lifelines of our economies. For now, such attacks have been limited: according to Daniel Ekwall’s review of the official terrorist statistics from MIPT Terrorism Knowledge Base transport activities represent only 4% of the targets in 2006 and 5% in 2007 – as low a number as one can find. But the number of supply chain related attacks has increased steadily over the past decade, reaching 3299 attacks in 2010, a recent PwC report found.

And when terrorists do attack supply chains, the consequences could be disastrous. Seventy to 80% of the world’s oil flows through only three major check points: the Suez Canal, the Strait of Hormuz, and the Straits of Malacca (see the chart below). The closing of one or more of these passages would significantly disrupt the global energy supply chain. The Strait of Hormuz is a particular cause for concern: situated between the Arabian Peninsula and Iran, almost 20% of global oil trade passes through there.

Oil transit chokepoints

Oil transit chokepoints

Major freight hubs might be targets for terrorist attacks, as well. 14.8% of containerised and air freight traffic moves through the Hong Kong – Shenzhen freight cluster. The Port of Shenzhen is one of the most important ports for China’s international trade and therefore key to the supply of many factories and customers in the world.

Highway computer networks and traffic management systems are also vulnerable to terrorist attack, and could be hacked and disrupted to create chaos. This could make the transport on national road systems and in cities impossible. Planes could collide. Each time they enter an airport aircrafts are at risk because of the sharing of information across a number of electronic systems. Tracks in rail traffic could also be re-set to cause trains to crash.

What matters then, is to recognize supply chains as a target, and take adequate measures to protect them. Some governments have understood that message. In 2009, president Obama declared digital infrastructure a strategic national asset. Another example is the Government of Canada, which has formulated a counter-terrorism strategy stressing the need for an integrated approach by all levels of government, law enforcement agencies, the private sector and citizens, in collaboration with international partners and key allies, such as the United States of America. It is to be expected that after the Paris attacks, governments will tighten these measures, with possibly significant negative consequences for the global supply chain.

The private sector should follow suit, and the first necessary step is to accept the likelihood of such attacks. That is not often enough the case. A report prepared by the Supply Chain Management Faculty at the University of Tennessee found that while two thirds of supply chain companies employed risk managers, but virtually all of those internal functions ignored supply chain risk. In light of the current global developments that is a risky position to take.

Terrorist threats, sadly, have become a part of our life. We should do all we can to avoid another Paris or San Bernardino attack. But while public safety is paramount, we should not lose sight of our supply chain safety either. Being aware of the risk and potential impact is a first step. Taking action within our own countries and companies to prevent such attacks is the next.

This blog was originally posted on the World Economic Forum Agenda.

Image: Workers watches sacks of imported Vietnam rice as it is lifted by a crane from a ship docked at a port area in Manila June 8, 2015. REUTERS/Romeo Ranoco

Working smarter – innovative port solutions

The world’s most innovative ports are using ‘smart’ solutions to improve revenue sustainability, explains CVA’s Wolfgang Lehmacher

Every professionally run company aspires for value creation through revenue increase, new growth engines, cost reduction, heightened efficiency and sustainability.

In the constant search to boost profits they continuously seek a competitive advantage through product and behaviour differentiation, an aim increasingly compatible with carbon footprint reduction and other green initiatives.

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In terms of their general aims and ambitions ports are not at all different to any other business.

Managers seek to maximise strengths and minimise weaknesses. But the unique position of ports as facilitators of global and regional trade and often also as integral parts of cityscapes, makes the simultaneous improvement of efficiency, revenues and environmental performance even more desirable.

Meeting these varied goals, opening new markets and securing the long-term viability of ports and the employees, traders, cities and areas that rely on them in a rapidly evolving global economy can be driven via the application of smart thinking and processes. In this sense, smart stands for different and responsible behaviour enabled by new, at best holistic, concepts and modern technology.

Ports must be efficient enough to fit into the modern world, and into modern global and just-in-time supply chains. This can mean customers need multi-modal interconnectivity with a port’s hinterland, or with a certain geographic region or even an entire economy.

 

Trend setter

The smart concept can be rolled out so ports can become the pivotal point of a region. This can be as the core part of a bonded logistics park as we have seen in Yantian, China, for example.

More efficient container yards, better rail access and taking steps to ensure full integration with regional and national transportation plans are just some of the smart moves port businesses and local governments can examine to ensure they are offering the services and facilities their customers – businesses and people – need. And that they are offering them where they are needed.

Many port customers also have increasingly sophisticated niche requirements. A smart solution could mean the port supplying special temperature-controlled storage, handling and personnel for cold chain products such as pharmaceuticals and food stuffs. Or it could mean facilitating sea-air onward shipments options for cargoes that need to be shipped at least part of their journey as air freight, a solution that involves close cooperation by port managers with customs, quarantine, airports, forwarders and airlines.

Customer shareholders and the port’s own management – particularly for ports near cities – may need increasingly to prove show their sustainability, which can mean implementing green port solutions to meet stringent noise, water and air quality standards. Shippers and other port users and stakeholders need not only to be reassured, but need jointly to reassure civil society that adequate risk mitigation and security procedures are in place to ensure business continuity and safety for humans and the environment.

Indeed, there is no reason why ports cannot manage the total water cycle not only in relation to ships docked in port, but also in relation to the surrounding community through better ballast water treatment, desalination of sea water, water purification for potable water etc.

 

Healing hands

Ports could also act as facilitators of medical services. At present most commercial and passenger vessels have their own medical services, often entirely disconnected from global medical ecosystems. If someone gets sick or ill on board, instantaneous connection with medical doctors located off-site via a ‘virtual clinic or hospital’ could speed diagnosis and better enable preparation of the correct medical treatment before the vessel arrives at port and the patient is whisked to a local hospital.

For a port manager, all of these customer and stakeholder demands can easily be viewed as a regulatory burden, or an unnecessary drain on finite resources. Smart managers should instead view them as opportunities, opportunities that can sustain a port business over the long-term. Professional port managers should determine the smartest ways of meeting these changing requirements to maximise returns within budget restrictions. The world’s leading port managers are already grasping this truth.

In the port of Sydney in Australia, for example, various actions have been taken to illustrate just how important the port takes its green credentials. This has seen the installation of leakage proof technology, improved supervision of dangerous goods, waste reduction initiatives and a collection system for flushed water.

On the US West Coast, the ports of Los Angeles and Long Beach have been leading the way in reducing emissions by both trucks and vessels, while in Germany the port of Hamburg has introduced railcars with noise-reducing ‘whispering brakes’. These efforts benefit both the local community and customers keen to demonstrate their embrace of carbon footprint reduction initiatives while also differentiating each port’s product.

The port of Antwerp has embraced many of these smart ambitions to establish its position as one of the world’s leading ports. Rail, waterway, pipeline and road connections guarantee hinterland transport options, while the port’s future-oriented energy policy includes a biomass power station and wind turbine.

In Sweden, the city port of Stockholm has taken the green and sustainable end goal a step further and is differentiating itself in a highly competitive market by pledging to become fossil-fuel free by 2030. The Royal Seaport project will see systems installed that carefully manage and preserve energy across the port using an automated grid to improve asset utilisation and a cold ironing solution that will enable vessels to plug into the local grid while at dock.

As well as appealing to port users, city planners and regulators, many of these measures can help grow revenues and reduce costs in the long-term by minimising at the same time the environmental burden, for example in the area of energy consumption and safety at work.

The lesson from the world’s leading ports is simple: Smart strategic actions can help port managers thrive in an ever changing world.

Wolfgang Lehmacher is partner and managing director (Greater China & India) at CVA, a global strategy business.

Image: Pavel Kavalenkau, Bildagentur: 123RF

This article was originally published on 12 February 2013 in Port Strategy.