Breeding competitive digital logistics platforms

Lee Kyung-bae
The author is an adjunct professor at Yonsei University Institute of Convergence Science.

The Iran-backed Houthis in Yemen has been ravaging shipping routes through the Red Sea by assailing commercial vessels in what the rebel group claims is retaliation against Israel’s war in Gaza. The waterway shipping disruptions and bottlenecks have started taking a toll on Korean exporters. Fares for ships bound for the European Union jumped 250 percent over the last four months, according to a report by the Korea International Trade Association (KITA), as cargo carriers must take longer routes to avoid the Red Sea.

The Red Sea perils have deterred ships from moving Asian cargo to Northern Europe and the Mediterranean, as well as tankers carrying oil from the Middle East through the Suez Canal, which is responsible for 30 percent of global seaborne transportation. They are forced to take a lengthier detour around southern Africa that adds 4,000 miles to each journey, or 10 days on average, translating to higher delivery costs. That shipping crisis can stoke an upset in raw material supplies to cause secondary damages from delays in production and sales to quality management and import routes to help spike another inflationary run.

European countries — major buyers of Vietnamese coffee — have turned to Brazilian imports due to the shipping delay to deal a critical blow to the Vietnamese economy. Since 80 percent of Korea’s trade volume comes from foreign shippers, the extra freight bill goes straight to exporters and importers.

It is important for a company to promptly secure raw materials and strive to reduce production costs through automation to sustain good business. Deliveries must stay on time to sustain production and sales. A bottleneck in shipping traffic could roil global supply chains and trigger a shipping crisis.

How much weight does shipping cost have? Let’s assume that raw materials take up 50 percent, manufacturing makes up 25 percent and marketing and sales constitute 25 percent of cost per unit. Shipping cost, under marketing and sales expenses, tends to account for about 2 to 10 percent of all the costs. Freight is also reflected in raw material and manufacturing expenses. Therefore, saving on logistics is essential to a profitable operation.

Marken’s Global Control Center (GCC) has a giant monitor, filling a full wall, with thousands of staffers keeping 24/7 watch on hundreds of logistics bases across the world and tracking a humongous fleet of vessels, aircraft and other vehicles. The movements at sea and in the air over the Pacific or crossing Asia and Europe evoke those of a giant flock of migrating birds.

When placing an order with a delivery app or e-commerce platform, the consumer wants to know when the delivery began and will arrive, where exactly it is on the route, and to whom it had been delivered. Cargo owners want to be informed in the same manner. In the past, they were simply told to wait while their freight was on its way. But thanks to digitization, owners can be informed of what container carries their cargo on what ship, and where it is its journey, in real-time.

For special care freights, sensors are attached to pallets, containers and vehicles to identify locations, temperature, humidity and external shocks and prevent damage. Satellites and other telecommunications infrastructure combine the data with product and shipping information on the display of the logistics control centers.

The facility also keeps careful watch on various hazards — such as military conflicts, earthquakes, climate disasters, strikes and border closures — all across the world. It leverages big data and artificial intelligence to locate the safest and economically optimal route.

Offshore logistics work as the same way as onshore ones do, and mismanagement means wasting money down the road. To manage effective logistics systems, shipping and loading efficiency must be maximized. Various factors must be taken into consideration — such as the locations of factories, warehouses and sales outlets as well as their numbers, transport routes, shared shipments and deliveries, minimum freight cost and outsourcing.

It is also important to simplify the work process, from the choice of shipping company to the handling of cost estimates, orders and settlements to raise credibility of financial transactions and ensure real-time oversight over cargo. It is imperative that Korea breed competitive digital logistics platforms.

Translation by the Korea JoongAng Daily staff.