Blowing the infosaurus out of the water – the difference between occasionally right and darn near always right!March 13, 2014 No Comments
By Gert H.N. Laursen, Senior Business Advisor, SAS
This article investigates how the information age is transforming seaside logistics and the shipping industry. Why have certain industries been affected so heavily by the information age and how can shippers avoid being an infosaurus? It’s time to explore ways shippers can use data analytics to make consistently optimal decisions.
Megatrends of the information age
Let’s look at how other global industries are evolving in the information age. Every industry or type of company has key success factors; things they just have to master in order to survive as a company. And when intelligent use of the data helps a company perform better on a key success factor, other innovative companies will start storing data and using it to better compete.
§ Banking and insurance, where the focus is on managing risk and many small margins, have widely adopted analytics to overview and predict bad cases.
§ Inland logistics use analytics to minimize transportation costs. UPS alone has reduced its yearly driving distance 85 million miles per year using analytics.
§ Fast moving, innovative life sciences organizations with lots of data are heavy users of analytics for product development.
§ Telecommunications, fitness services and magazines that offer subscription-based products in markets with little customer loyalty have been early adopters of analytics to improve customer retention.
§ Travel and entertainment providers and online retailers with a large range of ever-changing products are using analytics to select and promote the most relevant offers to individual customers.
§ Retail and manufacturers with high inventory and production costs use analytics to reduce the capital bound in production processes and product inventory.
§ Agriculture, especially in areas with fully-automated farms using computers or robots, use analytics to optimize treatments for crops and livestock.
Megatrends of the shipping industry
The current megatrend influencing the shipping industry is globalization. One could even say that it is the other way around; it is the shipping industry that enables globalization. However, what I mean to say is that an ever-larger proportion of shipping users are doing business on a global scale, which in turn becomes a requirement for their subcontractors: the carriers and freight forwarders.
Many carriers are also working globally since it is relatively easy to redeploy ships into other places on the globe where freight rates are higher. On the other hand, some carriers only operate locally, forced into niches like the Amazon River instead of ocean freight, or specializing their fleets for certain cargo types. Likewise, the market leaders for freight forwarding are now global, and the local ones are looking for niches based on special cargo requirements, tricky local requirements and legal regulations.
Since the megatrend of the shipping industry is globalization and increased competition is fueled by the current economic climate, companies are developing strategies to survive and thrive:
§ New harbors were built in Malaysia to give cost-focused shippers an alternative to Singapore.
§ Container carriers are competing on a series of parameters, such as the ability to deliver on time, short sailing time, environmental impact, having local offices, and providing good customer service versus being low-priced. Shipping industry magazines regularly compare carrier performance.
§ Aggressive moves by freight forwarders, which compete on the ability to provide value-added services, include reducing the total inventory costs on behalf of their customers, doing business based on individual customers’ needs and requirements, and handling complex legal and financial transactions.
In brief, the shipping industry will increasingly behave like any other mature industry, and the days of exorbitant freight rates that could be split between carriers and freight forwarders are simply over.
Megatrends of the shipping industry – the information perspective
The fact that the shipping industry operates under the same universal business law as any other industry has been nothing less than astonishing to many of the shipping executives to whom I have taught strategy.
This probably has to do with the culture of the shipping industry. Most of the successful shipping and freight forwarder companies were founded by strongly opinionated and risk-tolerant entrepreneurs, who over the years have made a few good deals that were blessed by good market conditions.
So what do these trends have to do with the information age? Everything, since success in today’s competitive environment goes to those who can formulate the best strategy and deliver on it by making the best decisions. Andrew McAfee, author and Principal Research Scientist at MIT, explains it very well with his highest paid person’s opinions (HiPPO) theory. The theory is that the HiPPO will prevail. According to McAfee, the HiPPO will listen to others and consider the data, but in the end will make a subjective, belief-based decision. McAfee would claim that the shipping industry has a very high HiPPO density. Others just call it a relatively conservative industry with a centralized decision style.
The next question is: Which type of decision style is the best? Which decision style will typically yield the highest returns? McAfee also examined this question, looking at 136 published studies to determine whether subjective decisions made by human specialists/HiPPOs or objective algorithm-based decisions were best at predicting future events.
The outcome was that 6 percent of the subjective experts gave the best advice, whereas 46 percent of the objective algorithm-based answers were best. Objective analytics predicted significantly better than the subjective domain experts. In the remaining 48 percent of the cases, there was no clear winner. The final conclusion is that, based on the MIT research, you can choose between subject matter experts occasionally making the right decision (54 percent) and objective analytics being darn near always right (94 percent).
One can only speculate whether these figures would apply for the most critical decisions in the shipping industry, but this study certainly indicates promising potential for analytics. So let’s consider some of the most critical decisions that shippers and freight forwarders make. I believe that most people who have been working with shipping for some years will agree that if you get these decisions right, you are likely to make it big in shipping:
§ How much should we overbook ships with cargo and from which individual customers to make sure the ships are as full as possible and as little cargo as possible is left for next week’s ships on the quay?
§ When should we buy fuel and insure against currency loss on international deals?
§ Which customers should get additional focus on a daily basis, considering their customer experience and the risk of losing their business?
§ What more can we try to sell to our customers when we have them on the phone?
§ Which individual new customer prospects should we pursue to become profitable business partners with us?
§ Which overall markets or industries should we focus on determined by where future growth and profitability exist?
§ Should we sell, buy, rent or lease ships based on supply, demand and our portfolio?
§ How can we optimize route plans?
§ Where are we as a company, and how can we profitably increase customer loyalty?
§ How should I compete in my local area, what are the buying criteria and do all customers want the same from us?
These are complex decisions where analytics can help you get it right. Or, as Andrew McAfee’s studies show, analytics can move you from occasionally making the optimal decision to making the optimal decision nearly every time.
I’ve presented my case, which is that the shipping industry, like any other industry, has areas where analytics will help you make better decisions. These decisions can be daily and operational, or strategic. If you consistently make the best decisions, your business will benefit significantly.
Structured and unstructured data floods your organization on a daily basis – and if managed well, it can deliver powerful insights. I did not conclude that people doing the analytics should run your company. They can only provide you with the right answers. Seasoned decision makers always need to define what the right questions are and when those must be answered.
Gert H.N. Laursen
Senior Business Advisor, SAS
Follow @gerthnl today on
As Senior Business Advisor at SAS, Gert Laursen leads implementations of business intelligence and analytics strategies to ensure that SAS delivers solutions that meet real day-to-day needs of the marketplace. He leads an international team of analysts. Recent projects include development of Telenor Norway’s three-year BI and analytics strategy.
Before joining SAS, Laursen served as Head of Global Customer Intelligence at Maersk Line. He held prior positions at Platon, Orange and Telenor (Sonofin).
A SAS® user since 2002, Laursen has written four books: Business Intelligence (2008); Business Analytics for Managers (2010); Business Analytics for Sales and Marketing Managers (2011); and Predictive Analytics (2012). He has also spoken on BI topics at organizations including Dansk IT, Oracle and Miracle.
He holds a bachelor’s degree from Southern Danish business school and Sheffield Hallam University, a master’s degree from Aarhus business school, and an executive MBA from Henley management school. Follow @gerthnl today on Twitter.