AD Ports Group - Reimagining a Future-Proof Maritime Sector

Reimagining MaritimeFuture-ProofaSector The Risks and Opportunities for Port Authorities Today White Paper

Fixing the labour deficiency will secure the indus try’s future: Encouraging young talent to enter the industry and reskilling existing employees to prepare for the next generation of challenges will help drive a greener, safer, and more digitalised industry.

2 REIMAGINING A FUTURE-PROOF MARITIME SECTOR THE RISKS AND OPPORTUNITIES FOR PORT AUTHORITIES TODAY

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Technological solutions like robotics and the IoT are being deployed to increase productivity, enabling the creation of digitalised and connected supply chains. Digitalisation represents a threat as well as an opportunity: Digitalisation increases the number of vulnerabilities and potential points of entry for attackers. Cybersecurity needs to be an indus try-wide priority.

EXECUTIVE SUMMARY

Ports are facing significant challenges in managing the rising volumes of maritime trade as well as larger call sizes. To meet this demand, they need to increase capacity, either through greater e ciency or through expanded infrastructure, which requires significant capital investment. This investment is required during a period of prolonged disruption, which has seen conges tion on global supply chains, significant rises in freight rates, and changing trade patterns. In addition, ports are being called on to reduce their dependency on fossil fuels and to deploy new technologies to support global supply chains. Customers are naturally resistant to the costs of these new investments being passed onto them, so ports need to look for new revenue streams.

The fundamental issue is whether ports look to rethink their role and increase their value to the wider maritime ecosystem, or look to consolidate their position, boosting resilience to better manage the pressures.

Cross industry collaboration is key to managing disruption: Greater synergies are necessary to tackle capacity issues, in addition to delivering on the full potential of decarbonisation and digitalisation. Deploying digitalisation will drive new e ciencies:

Several key trends shaping the global port landscape o er both opportunities and challenges within that process. These include:

In June 2022, representatives from Abu Dhabi, Antwerp, Barcelona, Busan, Iraq, Kobe, Oman, Rotterdam, Kingdom of Saudi Arabia, Seattle, and Singapore met for the 7th edition of the Port Authorities Roundtable. They were joined virtually by colleagues from Guangzhou, Ningbo and Shanghai. The aim was to analyse the key issues facing the industry today and highlight shared successes and new approaches that ports have deployed in response. Examining four key strands – Disruption, Digitalisation, Decarbonisation, and Diversification – the closed sessions provided a vital opportunity to take stock and highlight potential areas for cross-industry collaboration and knowledge sharing.

The maritime sector continued to deliver for customers and communities throughout the significant stress test of the COVID-19 pandemic. In April 2020, at the height of the first phase of the pandemic, 58 port operators signed a first-of-its-kind Port Authorities Roundtable Declaration that they would maintain operations despite the significant pressures. Ports remained open and vital deliveries of food, goods and medicine were sustained in the face of worldwide disruption.

Diversification requires port authorities to consider core competencies and balance responsibilities: Diversification is key to opening new revenue streams, but ports need to consider their existing responsibilities to current customers when introduc ing new service lines.

The whole ecosystem needs to be considered in the decarbonisation push: Given the interconnected nature of the ports system, the move to a diverse portfolio of clean fuels needs to be harmonised to be fully e ective. Supply factors such as financing also need optimisation.

INTRODUCTION

This White Paper was drafted following the 7th edition of the Port Authorities Roundtable in June 2022. In-line with the closed nature of the sessions, individual speakers and specific organisations have not been identified. However, key contributions and recommendations have been recorded and organised thematically. Examples of initiatives at ports that have been reported in the public domain are also referred to. In addition, we cross-compared commentary at the event with current industry sources, with a particular focus on validating sources and numbers cited.

However, ongoing disruption of supply chains combined with the rising demands of the global economy have left little time for reflection or renewal as the crisis has eased. Ports face several long-term challenges to their infrastructure, sustainability and even to their core business models. These challenges necessitate an urgent reaction from the ports themselves, but they also require an industry-wide response.

Greater synergies that have the potential to tackle capacity issues included overflow hubs at other facilities along the route, for example. There was a proven need for neutral comparison of container routes, so that a ‘matchmaking’ approach could be taken to supply and demand. Regulatory alignment and shared data standards provided another route to greater agility and e ciency, along with progress made in aligning on clean fuels and decarbonisation.

On an individual basis, most of the ports present at the Roundtable were taking steps in both these areas.

Several initiatives detailed during the sessions focused on measures taken to optimise infrastructure and build resilience, such as enhanced fleet transport and routing through machine learning and predictive analytics; better GPS positioning platforms for tracking of containers’ locations; and numerical modelling to better understand mooring and o shoring conditions. Other ports focused on the human side, re-examining recruitment, and reskilling employees to create a workforce better equipped to manage the pace of change. The establishment of centres of excellence provided one clear model in this area, along with a more integrated approach to liaising with educational Inestablishments.termsofbusiness models, some participating ports had invested in the development of complementary business lines to drive revenue and provide a better customer experience including the development of dedicated ports and customs clearance services facilitated by port authorities.

Ultimately, ports cannot continue ‘business as usual’ in the face of unprecedented pressure on global supply chains, spikes in freight rates, and shifts in trade patterns due to trade tensions.

cited the increasingly interconnected nature of the maritime sector as a source of instability – the ‘ripple e ect’ where issues at one port filter out and cause congestion or shortages at others further along the supply chain. The diverse range of stakeholders involved in the sea cargo supply chain – shipping lines, traders, warehouse operators, truckers, feeders, and government authorities – add to this complexity, with every action potentially impacting partners and customers. While an individual port can follow crisis procedures to the letter and deploy the full capacity of its infrastructure, it can still be caught up in turbulence due to factors outside of its sphere of influence. These issues are intensified by increasing call sizes, with larger ships looking to unload ever-higher numbers of Thecontainers.riseof‘integrators’ within the sector – large conglomerates that seek to own the full suite of components for shipping, tracking, and delivery – poses another challenge for ports and shipping companies. Given that these companies operate as a ‘black box’ with limited transparency for external partners, ports risk being relegated to an execution-only role, with the value-added work of logistics and landside transportation all being managed by these third parties.

Beyond these issues, port executives recognise there are long-term structural issues that require coordinated responses. Because of globalisation, ports are under pressure to increase capacity to manage rising volumes of maritime trade. These increases can only be achieved by becoming more e cient – doing more with the space and facilities they have – or by expanding port infrastructure. However, either of these options are capital intensive, and ports are limited in the extent to which they can pass these costs onto existing customers without creating an inflationary spiral that will cause price rises for importers and consumers down the line.

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Therefore, the choice for port authorities is to consciously set out to disrupt – to become more agile and adopt non-conventional business models to better manage the pressures – or accept that their business will continue to be disrupted by external factors, and boost resilience accordingly.

The Disruption Challenge Delegates to the Port Authorities Roundtable concurred that we are in an era of significant disruption. In part, this is a product of the number and velocity of real-world events that have created extensive issues for global maritime trade in recent times. In addition to COVID-19, delegates referred to the 2021 Suez Canal obstruction, ongoing geopolitical risks, rising volume of cyber-attacks and rapid changes in consumer spending patterns as examples of events that disrupted maritime Delegatestrade.

However, given the interconnected nature of the sector, there was a clear consensus that cross-industry approaches held the key to better managing disruption.

Over the past two years, the pandemic accentuated the issue of global supply chain resilience, and port authorities around the world saw digitalisation as a crucial development in this area. As a result, ports around the world have evolved from primary ship-land interface providers to digitally enabled and multi-service, connected smart ports.

Thestandards.International Maritime Organisation (IMO) is promoting the development of Maritime Single Windows (MSW) across international jurisdictions, as a method of increasing e ciency, cutting down on repeated data entries and digitalising port clearance

Again,measures.strong partnerships and a harmonised industry-wide approach to security, such as e orts like the Port Authorities Chief Information O cer (CIO) Cybersecurity Network (PACC-Net), Maritime Cybersecurity Roundtable and chainPORT Cybersecurity Resilience Group, suggest a way forward.

Accurate information and data exchange make it far easier for operators, shipping lines, and shippers to obtain actionable insights and make informed decisions under challenging circumstances.

These individual projects have delivered significant benefits in their respective territories but are still limited in their wider impact because of the pressing need for cross-regional collaboration. Ultimately, supply chain resilience will be developed through end-to-end integration, enabling stakeholders to track goods from the factory, via the port, across the supply chain and ultimately to the consumer. This requires collaboration to digitalise the supply chain, through approaches such as digital bunkering, as well as common data and API

An important technology that is helping address port congestion and container shortages is Digital Twins. By using real-time data, simulation, and machine learning, a Digital Twin connects the real and virtual worlds, producing forecasts and analysing big data to enabling faster operations – paving the way for port e ciencies in an unprecedented way.

Today, smart ports are equipped with a multitude of next-gen technologies, including 5G, big data, artificial intelligence, cyber security, advanced robotics, industrial IoT, wearables and virtualisation. Digitalisation is not only helping optimise port operations, safety, and performance but also e ectively supports in reducing carbon emissions and encouraging decarbonisation of the shipping industry.

Roundtable argued that supply chain resilience can be further strengthened by accelerating leveraging data and analytics.

Creating an analogue simulation system using Digital Twin technologies is helping ports achieve smart port operation and navigation management. The port management authority only needs to input the attribute and location data according to the demand to generate the appropriate container that meets the specified attribute and location in the dynamic rendering scene of a Digital DelegatesTwin.atthe

MAXIMISING THE BENEFITS AND MINIMISING THE RISKS OF DIGITALISATION 4 REIMAGINING A FUTURE-PROOF MARITIME SECTOR THE RISKS AND OPPORTUNITIES FOR PORT AUTHORITIES TODAY

Theseprocesses.would create significant opportunities to improve the e ciency and resilience of supply chains, as well as help to lower carbon emission through reducing vessel turnaround time.

Data security remains a key challenge for the industry. Digitalisation increases the number of vulnerabilities and potential points of entry for attackers. Risks include use of unauthorised software, failure to install patches, lack of security monitoring, and weak protection

Delegates noted the degree to which digitalisation is transforming the industry, comparing it to the introduction of the container in the 1960s in terms of overall impact on supply chains and port organisation.

Underscoring the entirety of the Port Authorities Roundtable event, the acquisition of new talent was also raised under the topic of decarbonisation. Here, port authorities are working closer with universities not only to fund research on the adaptation of hydrogen vehicles for di erent regional climates or on methods to reduce the cost for clean fuels, but also to accelerate the onboarding of a younger generation to fill new roles brought on by the energy transition.

Ultimately, while a collective curiosity around new green approaches underlined many of the discussions in the decarbonisation session at the 2022 Port Authorities Roundtable, commitment to global collaboration is regarded as the only way to fully explore and leverage the portfolio of solutions to that may await, o ering a cornerstone to drive funding, best practice, and research in the industry.

ADOPTING A DIVERSE ENERGY APPROACH TO DECARBONISATION

Several of the ports in attendance outlined their work in developing the infrastructure required to switch from fuel oil, an intensive transition that will see the shift toward a multi-fuel landscape featuring options such as low and high sulphur, LNG, biofuels, methanol, methane, ethanol, ammonia, and green hydrogen. Given the uncertainty around the long-term prospects for these di erent fuels, delegates stressed the importance of developing a multi-fuel portfolio.

Accordingecosystem.totheIMO, shipping currently accounts for around 3 percent of global carbon dioxide emissions, with more than half of maritime emissions originating from ships berthed in ports. In addition to diversifying their own energy sources, ports will also need to be prepared to provide refuelling facilities for the green ships of the future, an essential long-term capital Presentationsinvestment.

The ports sector has a crucial role to play in contributing toward the global decarbonisation agenda, with many favouring projects that tackle sustainability, zero-carbon, and ESG initiatives within the maritime trade

Representatives emphasised that, considering the value of investment needed for clean energy projects, private companies need to be actively engaged in a project to instil the right degree of confidence in the public party.

Away from forming a collective for funding individual projects, industry collaboration is expanding on a global level as port authorities tally the millions of dollars being spent developing and implementing similar solutions across the world’s ports. As a result, the tendency to protect independent knowledge and experience is slipping away with collaborative development of best practices and research coming to the fore.

REIMAGINING A FUTURE-PROOF MARITIME SECTOR THE RISKS AND OPPORTUNITIES FOR PORT AUTHORITIES TODAY

at the Roundtable illustrated the progress that has been made in this area, from the expansion of multi-fuel port ecosystems and exploration of green hydrogen, to the establishment of green corridors and introduction of sustainable building practices across infrastructure.

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Underpinning the potential of clean energy are the financial hurdles that many are facing with costs remaining high for the time being. According to research from the Global Maritime Forum, the scale of cumulative investment needed between 2030 and 2050 to achieve the IMO target of reducing carbon emissions from shipping by at least 50% by 2050, is approximately USD 1-1.4 trillion, or on average between USD 50- 70 billion annually for 20 years.

While solutions such as green bonds and bulk agreements with energy providers as seen in the aviation industry were discussed, there was significant emphasis on the importance of developing blended financing options. A combination of private and public funding, blended finance leverages government investment in the expertise of private companies to support regional decarbonisation goals.

Other ports looked to diversify the range of assets deployed within port boundaries. Small ports with limited space for expansion looked to maximise their return on the space available. These ports, particularly those near major urban areas, launched hospitality and leisure o erings, up to and including five-star hotels adjacent to the port along with marina facilities. Regulatory and demand issues however limit the extent to which this approach could be applied across all ports.

Oneauthorities.keyissue identified by delegates was how to assess when the port should step into new markets, and when it would benefit the wider ecosystem to step back.

Organisations attending the Port Authorities Roundtable approached diversification from a variety of angles. For some, diversification represented the launch of complementary business clusters, such as dedicated logistics, maritime and digital services. AD Ports Group’s move into feeder and transhipment services, with the acquisition of the largest bulk commercial vessel registered under the UAE flag, was cited as one example of a port company expanding its o ering to fill service gaps as smaller ships left the market.

The third strand of diversification was overseas expansion, with several port authorities looking to open new outposts outside their home nation. This included management agreements to help develop port facilities in other markets, as well as overseas warehousing to broaden role of the port authority and expand globally.

RETHINKING THE ROLE OF PORTS How Diversification O ers Challenges and Opportunities 6 REIMAGINING A FUTURE-PROOF MARITIME SECTOR THE RISKS AND OPPORTUNITIES FOR PORT AUTHORITIES TODAY

Prioritisation remains the key for successful diversification. Choosing the areas where port authorities could make the greatest impact – and which will deliver the most sustainable returns – is a key priority. The move to management models, for example, brings solid returns but there are only limited opportunities for growth.

The COVID-19 crisis pushed many port authorities to diversify, both to create new revenue streams and to ensure customers received continuity of service as other providers dropped from the market. However, while stakeholders still expect operators to find new synergies (and deliver higher profits), the current period o ers the opportunity to review these business expansions and to de-risk from areas where the ports may not be best placed to deliver.

Some of the other themes highlighted during the roundtable, such as energy transition or the implementation of new digital services, o er the most likely routes to diversify revenue models in the future. Talent development in these areas, therefore, remains a key priority.

Some delegates suggested that the value-add for customers comes from playing an active role in the development of new services, but when markets mature and new service providers begin operations, it is the right time to consider reducing direct investment.

With each of these new expansions, the port authority was forced to consider its core competencies and look to balance its responsibilities. The traditional role of port operator aligns with that of a landlord, providing space and facilities for tenants in return for rental income. The new roles tend to align more with that of an operator, delivering direct services to customers; investor, supporting the launch of new business lines through direct investment; or regulator, working as a supervisor across the sector. Balancing these roles – attracting new operators to rent berths and facilities without appearing as a competitor or compromising the role as a regulator – is a growing challenge for ports

In all, delegates at the 7th edition of the Port Authorities Roundtable suggested the future for ports was challenging, but bright. Although demand will continue to scale and disruption will remain, opportunities exist for ambitious ports to play a wider role in driving economic dynamism and innovation across communities.

Although the challenges highlighted during the Roundtable are significant, the process of transition to new energy sources and a digitalised maritime ecosystem o ers a huge opportunity to reinterpret ports as innovation centres capable of testing new practices and technologies.

CONCLUSIONS 7 REIMAGINING A FUTURE-PROOF MARITIME SECTOR THE RISKS AND OPPORTUNITIES FOR PORT AUTHORITIES TODAY

Positive examples of this trend towards vertical collaboration include the rise in the number of Port Community Systems. The opportunity exists to create parallel collaborative processes to maximise the e ciency of decarbonisation e orts, by harmonising funding, sharing best practice, and encouraging further research for the industry.

To achieve this transition, there needs to be a significant shift towards greater regional and international cooperation. In terms of decarbonisation, digitalisation and diversification, the full potential of the new generation of solutions is only accessible with some degree of data sharing and process coordination. Obviously, this will require a balance between international and localised solutions, as well as free market competition and regulatory oversight.

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