Transportation & Logistical Services: automation – and the risks – cannot be ignored
Automation is taking hold across the transportation and logistics sector. Technologies such as blockchain, robotics, artificial intelligence and cloud computing facilitate solutions ranging from automated warehousing and logistics to autonomous vehicles.
The sector is at a critical crossroads. It is juggling rising competition and mounting consumer expectations along with the need to rein in expenses and seek fresh efficiencies. The industry must adapt or be disrupted by more agile competitors.
For many transport and logistics enterprises adaptation comes through automation. Ports have deployed automated ship to shore cranes which have transformed traditional stevedoring. Transport businesses have deployed telematics in trucks to help optimise delivery routes and edge toward predictive vehicle maintenance. FedEx is the most recent to join Hyperledger, an open source community to help further blockchain technology for the industry.
Blockchain is exciting for the transport and logistics industry. It will transform the way we look at supply chains, with the benefit of reducing human error and demonstrating provenance at every step of the chain1.
In warehousing, huge economies of scale are being generated. Enterprises are consolidating smaller facilities to serve multiple industries across an entire state from a single automated warehouse. Toll Holdings’ new automated distribution centres are a great example of the evolving landscape and nature of risk in the industry. Risk advisers and insurers must keep pace and cater to the needs of our clients who continue to invest in technologies.
Experiments with autonomous vehicles are also taking place. While Australia may be lagging behind some international markets, this technology will eventually enter the mainstream and potentially revolutionise the sector.
Shipping and port automation
Automated shipping terminals allow ports to handle containers more efficiently by using operating systems to plan storage in accordance with collection and transshipment times. This reduces unnecessary box moves, shortens cycle times, and enables consistent and predictable throughput numbers.
Modern ships bear the risk of spreading viruses onto port systems simply via Wi-Fi or other data networks. Industrial control systems are not designed with cyber risks or active network monitoring in mind.
Ports and the shipping industry are integral parts of global and regional supply chains. The automation and technological modernisation increases vulnerability to cyber risks and highlights the importance of data and system integrity.
The reality of cyber threats to automated terminals was demonstrated in the ‘NotPetya’ cyber-attack in June 2017. The attack forced Maersk to interrupt operations at multiple terminals worldwide, causing logistical havoc for weeks after the attack. Overall, it cost Maersk roughly US$300 million, even though the attack was not specifically directed at the company2.
Preparation is paramount
The potential benefits for transport and logistics companies are clear. But enterprises need to keep a close eye on the impact of automation on risk. Traditional property, liability and marine risk considerations need to be expanded. What are the first and third party implications if there is a systems failure or cyber-attack? Is the enterprise properly prepared to deal with business interruption that might impact an entire supply chain, and the consequent exposures that might bring? What happens if an equipment malfunctions or an autonomous vehicle is hacked causing injury or death?
The transport and logistics sector generally operate with profit margins of sub 4 per cent. Meaning the impact of an automation failure could be catastrophic for a business which has not quantified and appropriately managed its risk exposure.
The industry cannot ignore automation and the efficiencies it promises. But it does need to be careful to properly understand the impact it has on their risk profile. By understanding and planning for emerging risk with the right risk solutions, transport and logistics companies can re-direct resources towards leveraging new technology to both protect and grow profit margins.