Accenture and SIPG

blueprint the future

Connected Ports that

could create over 30

billion yuan per annum

for the Yangtze Hinterland

Existing business model: not

sustainable for industry growth

With container port traffic worldwide

exhibiting slower growth, competition

among port operators intensified.

Conventionally, ports took

advantage of their geographical

proximity to hinterland for achieving

volume (and revenue) growth – a

strategy which is no longer

sustainable.

While it is imperative for the sector

itself to transform for improved

positioning, port operators also need

to develop new value propositions

and competitive advantages for

differentiated growth, especially

given the formation of “mega” liner

alliances from the pressure of

shrinking volume growth,

overcapacity and unstable cash flow.

Major liner alliances account for

more than 80 percent of the global

transport capacity today, having

reached 20 million Twenty-foot

Equivalent Units (TEUs), with 3.5

million TEUs for vessels of 12,000

TEUs above and some even

surpassing 18,000 TEUs.

Major ports are expected to invest in

upgrading and building new facilities

to cope with the requirements from

these mega vessels, serving the

alliances. Operationally however, the

sector is not sufficiently developed to

create a mature operating model for

these carriers, alliances and ports

collectively to achieve the desired

efficiency of mega vessels.

In reality, most ports are struggling

with challenges such as productivity

and utilization constraints, further

complicated by operational

complexities from compressed

planning timeframes, change-

handling flexibilities, and additional

quayside (plus yard) activities for

the mega vessels. Given ports’

incremental investments and

expenses needed to serve mega

vessels, they are struggling to

maintain profitability and ROCE

(return on capital employed)

performances.

This prompts a lack of appetite for

further investment and restrains

industry growth.

Will digital unlock the

industry's potentials for new

waves of growth?

Vision of trade corridors

According to the joint-study by

Accenture and Shanghai

International Port (Group) Co., Ltd.,

the answer lies in digital. The “port

+ digital” strategy aims to unlock the

efficiency bottlenecks by connecting

all stakeholders in the port and trade

ecosystem, regardless of size and

geography. Port of future should

look to leverage digital opportunities

and operate as Connected Ports,

linking nodes of the supply chain

and act as the digital trade corridors

globally.

Connected Ports defined

A Connected Port is defined as one

where the direct and indirect port

users and stakeholders in the

hinterland, otherwise known as the

trade communities, can be

connected. A Connected Port

connecting to their counterparts in

the global landscape will become

the global Connected Ports network.

The advent of Connected Ports

represents a transformation of

business model and operating

model. Operationally, it can

improve the productivity of container

terminals, logistics efficiency of the

port community and hinterland, and

the provision of an ecosystem

platform where new businesses can

be innovated and operated. In

addition to operational benefits,

enormous business opportunities

will be opened up and evolved with

direct customer engagement,

logistics services and assets

exchange, supply chain resilience,

supply chain finance, digital trade

finance and other data monetization

opportunities.

Differentiated growth

Ports are hotspots for new business

opportunities, if they can monetize

data, that is.

Unlike business-to-consumer

industries (such as consumer

electronics, retailers, and airlines),

ports play the role of an

infrastructure provider in the

business-to-business space. They

have distinct geographical

characteristics, and performance is

measured (and rewarded) for their

efficiency in lifting and moving

containers and cargo. However,

even before lifting and transferring

them, port operators already (yet

indirectly) coordinated with shippers,

transportation services and asset

providers, and traders etc.

Accenture and Shanghai International Port (Group) Co., Ltd. (SIPG)

collectively published the “Connected Ports: the Driving Force for Future

Trade” whitepaper in June 2016.

Ports are the node of local and

global supply chain with massive

throughput. Today, over 30 percent

of the world's ocean-going cargo

goes through the top 10 ports; while

regionally, over 20 percent of

China’s ocean-going cargo passes

through Shanghai.

Should the port industry and its

leaders step up and logically extend

the value chain, enormous business

opportunities can be realized. The

inclusion of end-customer

engagement, service model

innovation, resources optimization

and trade financing transformation

are some examples.

Evolution of these new services can

ultimately lower the barrier of trade

for small and medium-sized

enterprises (SMEs), while creating a

wealth of opportunities for the larger

community in both developed and

emerging markets.

Implications of Connected

Ports to Shanghai Port’s

catchment area

Connected Ports will bring massive

economic and social benefits. Our

Accenture and SIPG research team

indicates that Connected Ports

could reduce logistics costs by 3.6

percent, implying annual value

creation of 33.8 billion Yuan (5.14

billion USD ) from the logistics and

trade facilitation of Shanghai

catchment areas alone.

In 2015 alone, ocean-going

international trade through Shanghai

port already amounted to nearly 8.1

trillion Yuan ( 1.23 trillion USD).

From a logistical efficiency

standpoint, terminal automation and

the digital port platform could imply

an annual additional value of 22.7

billion Yuan (3.45 billion USD) for

Shanghai Port and its supply chains

within the catchment.

Likewise from a cash flow

perspective, the efficiency gain

could unlock 2.2 billion Yuan (334

million USD) of capital cost for

supply chain players. Data

monetization from supply chain

financing and trade financing can be

a further 8.85 billion Yuan (1.34

billion USD) business annually.

The convergence of operational

activities in hubs will be a key

aspect that mega-ports like

Shanghai need to address. With

automated and intelligent operations

serving as the source of required

raw data, supply chain security can

be enhanced with necessary

resilience to withstand threats.

Environmentally speaking,

automation and resource

optimization could mean an annual

reduction in sulfur dioxide and

nitrogen dioxide discharge by

61,300 tons and 70,400 tons

respectively.

Figure: Value Creation totaling 33.8 billion Yuan (5.14 billion USD)

annually for logistics from the Shanghai catchment areas

How can we capitalize on these

trends?

The key to success for Connected

Ports involves the realization of the

"3Es" concepts, namely:

1. Excel for terminal operations

2. Extend for ecosystem facilitation

3. Explore for the new

• Excel for terminal operations:

Terminal productivity and

operating model enhancements

will help ports to leapfrog from the

existing commoditized market,

and gain access to seasoned

terminal managers, software and

equipment providers.

Improved terminal operations with

automation in quay, yard, and

gatehouse will boost productivity

and reliability. Apart from the

benefits from individual terminals,

equipment and yards from

multiple locations could also be

controlled and monitored

remotely and concurrently. This

capability will decouple skill

limitations, while creating a more

scalable model for operations

across geographies and time

zones.

• Extend for ecosystem

facilitation: Port operators should

logically extend their operations

and scope of services from

terminal to the hinterland. By

redefining their customers and

value propositions, ports will

connect participants of logistics

and trade deep in the hinterland,

helping them to convert these

potential customers into actual

business partners with revenue.

The logical extension provides an

opportunity for the port operators

to implement strategies that

creates value, either directly or

indirectly, for their potential

customers through value-added

solutions. Logistics services

synchronization, exchange and

trade facilitation are some

examples. However, to develop

such a platform for the port and

trade ecosystem, commercial

incentives and business models

should be completely elevated

from the conventional

infrastructure provider mindset,

adapting towards the platform

economy of the future.

• Explore for the new: Port

operators should also identify

new material opportunities from

the massive convergence of data

through port eco-system

operations. With digital

transformation, innovation within

a business can be realized in

different aspects, including

insurance, supply chain

financing, trade financing,

settlement, foreign exchange and

cross-border e-commerce with

data monetization.

Explore for the new Excel for terminal operation

Figure: “3E” strategic themes for ports

Extend for ecosystem facilitation

Copyright © 2016 Accenture

All rights reserved.

Accenture, its logo, and

High Performance Delivered

are trademarks of Accenture.

Connected Ports should be a priority

for the leadership of port operators. It

will give the industry a significant

impetus for a transformation if the

leaders reassess positioning, focus

on creating an innovation model, and

consider the implications for the

existing businesses.

Repositioning: Frontier port

operators need to rethink its

positioning and step upwards to

enter new spaces that go beyond its

infrastructure provider status to

realize and capitalize from their

broadened scope as trade corridors.

Other port operators can upgrade

from an infrastructure provider role

to a business enabler role by

connecting the hinterland

communities and improve overall

port efficiency to reinforce their core

port business.

Open innovation: Port operators

should create an open innovation

framework to deliver results relevant

for business and operating model

transformations. Additionally, they

should establish proper governance,

incentives and operating model for

innovation to incentivize

practitioners, regulators, and

disrupters. Connected Ports can

operate as a business successfully

only if the leadership leverages the

core business without sabotaging

the immune system of the existing

business.

Futuristic: Business

transformations require a vision for

the future, articulation of the to-be,

perseverance and the discipline of

execution. While transitioning to the

new, disruptions to the existing

operating model and the way to

engage and serve existing

customers will be inevitable.

Businesses will need to

acknowledge and accept the trade-

offs of short-term results against the

benefits of a long-term sustainable

business.

The report is composed jointly by

Accenture and Shanghai

International Port (Group) Co., Ltd.

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