How can ports prosper in the Age of Amazon?

Junction in Kowloon, Hong Kong, China

The supply chain is going through a transformation, driven by smart technology, digital innovation and an expanding e-commerce market – and arguably accelerated by the crisis caused by the COVID-19 pandemic.

This has had a substantial effect on the way goods are moved, and ports have had to handle year-on-year increases in volume in an efficient and sustainable way.

A particularly big phenomenon has been the so-called ‘Amazon Effect’, a name given to describe how e-commerce has changed logistics, customer expectations and the supply chain.

The Amazon Effect was already causing stakeholders in the industry, ports, carriers manufacturers and everyone in between, to entirely rethink their business practices before the COVID-19 pandemic.

Now, they must ask themselves what is the future for ports in a world of exponential growth in the e-commerce sector and how will the survive in a supply chain that may never look the same again.

What is the Amazon Effect and how does it affect ports?

One of the biggest features of the Amazon Effect is the need to ship goods end-to-end faster. This is naturally the result of a booming e-commerce industry, which has made buying goods easier than ever before, and which Amazon dominates.

To put it simply, the value of online sales could reach approximately $4.5 trillion by 2021, which would be double what it was in 2017. This in itself is an extraordinary figure and is perhaps the single biggest driver of port and vessel expansion.

Naturally, if mobile and digital technology makes it easier to buy then what is bought must already be shipped, stored and delivered. This means carriers need bigger ships and ports need deeper quays and more terminals to handle them.

It also pushed those same carriers to diversify their operations and invest heavily in the end-to-end supply chain to become integrated logistics providers.

The COVID-19 pandemic, while causing devastating uncertainty around the world, may well cause a boom in e-commerce and its subsequent consequences for shipping.

Another consequence of the Amazon Effect is that of increased customer delivery expectations, which has also meant a race to become the above mentioned provider of end-to-end supply chain solutions.

Previous shipping times of 3-5 days are no longer acceptable and customers expect to receive their products within 48 hours at the most.

This has meant businesses have to ship goods to conveniently located so that the last mile can be as quick and efficient as possible.

There are numerous consequences to this, such as carriers expanding their fleets with mega-ships capable of carrying up to 24,000 TEU, which in turn forces ports themselves to increase to handle greater volume.

Another is that containers can no longer stay in warehouses, in the yard or on the chassis for as long as they did in the past. Instead, containers have to leave the port and be on its last mile as soon as possible to meet demand.

As a result, manufacturers, freight forwarders and carriers now need ports and terminals to be more than thoroughfares of trade, but rather enablers hubs of digital and infrastructure collaboration.

The changing environment requires investment in said infrastructure across the supply chain, and that is something ports can and must play a critical role in.

It also raises challenges of storage and distribution at ports, with warehouses now being used increasingly as vital components, within a hub of automation and innovation, the hub being the port.

This is where the idea of port-centric logistics comes in.

What can ports do?

The central idea behind port-centric logistics is for ports to not simply be a convenient point for importing and exporting, but rather become a component of an integrated supply chain.

This is a view driven by some of the world’s biggest carriers and terminal operators, such as Maersk and DP World, who are longer confined to the sea or land, but who meet today’s demand by becoming indispensable enablers of free trade.

As the business operations of major supply chain stakeholders adapt and change, so must that of ports.

The rapid growth of advanced visibility technology, such as machine learning or predictive analysis, has allowed supply chain stakeholders to coordinate and plan their operations.

This will be vital as the supply chain continues to change and consumers demand more from retailers and manufacturers expect greater things from ports.

The causes of the revolution in the sector were set in motion some time ago, but 2020 may be the year ports take it on themselves to become hubs of digital innovation and collaboration.

Upcoming PTI event: Port-Centric Logistics webinar

PTI is now launching a webinar dedicated to the exploration of PCL. 

The webinar will focus on how ports are reducing supply chain links by bringing warehousing closer to the port land. 

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