The innovators dilemma

Difficult roads often lead to beautiful destinations. At least that is what people say. The truth is that a perfect storm is over the port and shipping industry. On the one side, the oil price collapse, a trade/GDP multiplier below one, the decrease of the emerging economies growth, supply overcapacity and some other external factors are putting pressure on shipping companies’ results. On the other side, advances in robotics and 3D printing could move part of the manufacturing process closer to the end consumer, reducing the need to ship goods around the world.

In our view, one of the main problems suffered by the port and shipping industry is the lack of innovation. In fact, in the last 20 years, there has been little innovation activity if we compare with other industries. Whereas the aerospace sector is using data properly, most ships do not even have basic sensors to ensure their hatches are closed before leaving port. However, during turbulent periods, companies are forced to rethink their business models, invest in innovation to open up their possibilities to new markets and identify new systems that offer the chance to reduce business costs.

Managing innovation is the action of creating and capturing value from new technologies, processes, methods and organisation models. There is no magic formula for the process of innovation management. Executives should invest more resources in external alliances with tech startups, empower and support intra/entrepreneurs and be involved in innovation projects as partners of research centres and universities.

Facing a dilemma

The innovator’s dilemma is known as one of the most important books chronicling how innovation takes place, and why market leaders and incumbents fail to seize the next wave of innovation in their respective industries.

In a recent interview published in the The Economist, the chief operating officer of Maersk Line said that the company is embracing digitalisation. One of the company´s projects is called Remote Container Management, which relates to the retrofitting of its ships to collect more data from several sensors installed on its containers, turning the refrigerated container into a digitally connected device which aims to eliminate waste and improve cargo care. Simultaneously, MSC has joined CMA CGM in the deployment of smart devices across the fleets of both carriers.

Even though this is very good news, the incumbent players are following previous developments carried out by innovative firms from other industries, adopting a reactive posture. The same thing applies for ports. Some port authorities do not even have a port management information system nor a basic port community system that facilitates and speeds its operations.

Studying the port and shipping industry leads to two key questions: which innovation management models are companies using, if they are really using one; and is the industry able to build a culture of innovation? From our perspective, there is still not enough attention on this topic.

Port authorities, especially those positioned as fourth-generation ports, should take the lead and boost the innovation process in their respective port clusters. But this is not a do-it-yourself process; instead, we believe that the key lies in building an innovation ecosystem that groups all the stakeholders, in and outside their value chain, in order to innovate more and create new ways to overcome the industry’s current and future challenges.

Keeping pace

The port and shipping industry are being forced to keep pace with a world where information technologies are essential tools for raising the competitiveness of companies in general.

Furthermore, the incumbent players should be ready to face the challenge of reinventing themselves with visions and ideas for radically innovating the business.

The risk of not taking innovation seriously is as bad as following other ports and shipping companies’ practices instead of dedicating time to analyse your own needs, challenges and business opportunities.

The recent case of Hanjin shows that it is not enough to transport boxes, build mega-vessels in search of scale economies, or being the one that offers the cheapest freight rate in the market.

Instead, if a company wants to survive in a mature and turbulent market, it is necessary to innovate and create real value, tangible and measurable results.

Jonas Mendes Constante and Alexandre Sánchez Pérez are R&D project managers at Valenciaport Foundation.