The Coordination Problem in World Trade
Supply chain participants struggle to act on data, but this is changing fast
Daniel MacGregor – Co-Founder of pioneering digital supply chain enabler, Nexxiot
Why have supply chains historically struggled to act on data? Where is value created when they do, and how can stakeholders across the ecosystem respond as the conditions for coordination begin to change?
World trade functions as a network of independent participants including asset owners, carriers, operators, shippers, freight forwarders, insurers, regulators and financiers, each seeking to manage their own risks, incentives and constraints.
Over the past decade, progress has been made in digitalization. More assets are connected, more data is available and multiple platforms promise visibility and the chance to optimize.
Yet the underlying challenge remains: data alone does not result in coordinated action.
Insight 4
Unblock the Value: Alignment and Profit
In the previous insight, we highlighted the importance of trust in the data and the insights we can gain. Without trust, the assets will not be equipped at scale. It’s one thing to believe in the data, and it might be enough to initiate an action, but to unblock the value fully, participants must be structurally aligned and able to profit financially.
Once hardware-enabled assets produce consistent, trusted data and this is combined with other sources of valuable data (asset history, maintenance records and preferences, market conditions, weather data, etc.), new economic models are possible. This is where we enter the financial layer on this emerging ecosystem. Cargo clients, terminals, ports, customs authorities, BCOs (beneficial cargo owners) and finance or regulatory service partners can all benefit from the same information. These include dynamic pricing, automated claims processing, rerouting decisions based on commercial objectives, proactive risk management, SLA enforcement, asset and trade finance and more.
Data is no longer to be viewed as something to just monitor and control operations, but instead it becomes vital commercial infrastructure to guide and implement every decision, action and settlement. The automation of processes with high levels of confidence becomes the economic engine of adoption. The container or railcar is transformed from a dumb object to become a digital agent – proactive in optimizing its own outcomes.
If system-wide value exists, why does adoption stall? One reason is concentrated costs vs distributed benefits. As owners of the asset, the maritime carrier or rail freight wagon lessor must make that initial decision to drive digital enablement and deliver services. There is investment asymmetry at the outset, but by pushing ahead, asset owners create for themselves a unique advantage. They automatically have the option to become the leaders in process automation, business model innovation and service monetization throughout the value network. The asset is no longer just a metal box that moves, but the connection to the real world in real-time to capture new information and value. To stay relevant in a data-hungry world, asset owners must decide whether their strategy is to focus on short-term or long-term return horizons.
Who benefits? Operators gain efficiency and can create and sell new services. Shippers receive the transparency and the assurances they demand. Insurers and finance partners can manage risks more effectively, and regulators and state actors can manage compliance, reduce criminality and hold participants to a higher standard of safety and sustainability.
What does this do to the alignment models between supply chain participants? We start to see new innovative commercial agreements. We see an increase in outcome-based pricing, shared saving mechanisms, insurance-linked incentives, ‘coopetition models’, compliance-driven mandates and data / training set / algorithm sharing agreements. This leads us to the financialization of data including dynamic pricing, claim processing, trade finance integration and SLA control.
Conclusion:
Digital scaling conditions are clear. There must be some strong sense of motivation from clear profit alignment. Risk and investment burden must be redistributed and contracts and business models need to be evaluated and redesigned.
Without trust, action remains optional, uncertainty on status and outcomes remains. Optional network-wide systems do not transform industries. Once a higher standard of trust exists, new possibilities of working together are possible and so the next challenge becomes economic alignment. Find out more in the concluding insight in the series.
Find out more in the final piece of the Insight Series coming out next Wednesday.
