Maritime Trends: Why Is AI-Based Predictive Analytics the Next Key Change Driver in the Shipping Industry?

Maritime Trends: Why Is AI-Based Predictive Analytics the Next Key Change Driver in the Shipping Industry?

Dorota Owczarek - June 2, 2022

The maritime industry is currently going through a period of significant change. With new technologies emerging and the container shipping crisis, predictive analytics is becoming an increasingly important part of the shipping process. In this article, we will explore the impact of predictive analytics in the maritime industry and discuss why it is such an important tool for shipping companies.

Container Shipping Industry Shape

Even though today we hardly can imagine a global economy without them, container ships are with us for a relatively short time. The idea of a standardized ship container first emerged and was implemented only in the fifties. It quickly spread outside of America, becoming a foundation of the global maritime supply chain. With their rising popularity, the ships also have been growing in size, enabling increasingly effective global transport.

Today, the largest can fit tens of thousands of containers. However, in recent years, the success story of the maritime industry has taken an unexpected turn. What’s behind the crisis that is already affecting the economy worldwide? We’ll try to break it down, analyzing the most possible scenarios and most promising solutions to that issue.

Container Shipping Crisis and Its Impact on Global Supply Chain

The maritime industry is currently facing a container crisis. The global shipping sector is struggling to keep up with the surge in demand for containerized cargo, and it seems that the only solution is to increase capacity. However, this would require significant investment in new ships and port infrastructure, which may not be feasible in the current market conditions.

At first, the remedy seems almost intuitive. Why don’t the carriers invest in even larger ships? This solution, however, causes new issues to emerge. Once the ship gets too big, it becomes difficult to control it. When the vessel comes across some natural barrier or turbulent weather, a part of the cargo may fall into the water, causing losses counted in millions of dollars.

Our sea routes aren’t prepared for the ships’ further growth in size, either. Meanwhile, the implications of the blockage of the major sea route can seriously put the balance of the global trade in danger. We have seen it happening in March 2021, during the Suez Canal obstruction. Even though this crucial maritime trading route has been blocked for less than a week, it has resulted in record increases in the price of oil and disruption of the supply chains that took months to fix.

The expenses for transporting containers have increased substantially during the previous two years as consumers altered their buying habits to prefer tangible products. Consumers are now spending more of their disposable income on services rather than household items, and interest rates are increasing.

The reduction in usage of shipping containers, owing to global events including Russia’s invasion of Ukraine and China’s lockdowns, has freed up supply. As a consequence, the containers are currently at their lowest rates since June 2021, according to the Freightos worldwide container freight index.

All in all, the price drop has been hampered by bottlenecks and delays on land transport networks. Despite this, costs remain above pre-epidemic levels.

The mixture of high volume, China covid lockdowns, and the war in Ukraine continues to point to challenging global supply chain performance in 2022.

On the other hand, in terms of environmental protection, packing up as much cargo as possible on one cruise seems the best solution. Increasing the number of routes equals more pollution and more carbon dioxide released into the atmosphere, even if the route itself gets optimized.

Another issue is the lack of workforce to take care of the cargo once delivered to the port. It has been getting worse in recent years due to a practice of so-called front-loading. Facing the changing tariffs, the retailers have started to send excessive numbers of containers just to anticipate the higher fees. Once the containers would arrive to the terminal, there was not enough staff to handle them.

What’s the answer for these issues? From our perspective, all hope is in advanced, AI-driven analytics and automation.

Data Analytics in the Maritime Industry – Why Does It Matter?

Due to its complexity and subjectivity to various dynamically changing factors, the maritime industry is a tough nut to crack when it comes to optimization. Long routes with numerous chokepoints, unpredictable weather conditions, and limited cargo offloading options – all these aspects require advanced analytics to prevent delays and financial losses. In order to deal with large and unstructured data sets effectively, employing AI fuelled big data analytics is a must.

Compared to land transport, the sea cargo carriers have much less flexibility in terms of route planning and adjusting to events in real-time. Thus, they should be prepared for different scenarios. With artificial intelligence, they can predict them and test them to minimize losses in the case of downtimes, accidents, or route blockages. The latter rarely happens, but when it does, a big part of the global sea trade can get paralyzed for days.

Data analytics in the maritime industry can solve issues on the side of cargo ships, but also the ports that have been lately struggling with the lack of workforce and effective logistics of the offloading process.

Artificial Intelligence and Business Intelligence – How Deep Learning Models Can Make a Difference?

Forecasting processes are essential to the maritime supply chain. Whereas transport with land trade routes is more flexible in terms of planning due to shorter distances and less cargo, the giant ships usually take weeks to arrive at a final destination with long periods without stops. Such limited ability to react to real-time changes requires much more anticipated and detailed planning based on accurate forecasts. That’s crucial in the times of just-in-time supply chain management, which is very efficient but also much more susceptible to failure. With time-series data, the carriers can observe seasonality and trends to adjust their planning to different factors and avoid issues like route blockages or overcrowded ports.

More commonly, the data scientists pick deep neural networks for regression problems instead of relying on the traditional approach to time series forecasting (univariate models like ARIMA, Prophet, and multivariate ones like Vector Autoregression). That’s because they are not recursive like the traditional time series models. That means they enable us to receive long-term forecasts directly instead of carrying out a series of predictions, each based on the previous outcome.

Another thing that speaks in their favor is the ability to use time-varying variables as features. The neural networks deal better with a mixture of linear and non-linear trends, delivering more precise predictions as a result. Whereas single machine learning algorithms do not outperform traditional time series methods, deep learning has such potential.

Predictive Analytics in Shipping – Industry Use Cases

Considering that all the elements of the supply chain can benefit from advanced predictive analytics, we’ve covered the most common use cases to give you the big picture of its positive impact.

Predictive Analytics in Shipping - Use Cases

Predictive Analytics in Shipping - Use Cases

Predicting Container Supply and Demand

As we already mentioned, the reduced flexibility of maritime transport makes accurate predictions essential. For the container carriers, having access to precise forecasts on supply and demand is a priority as it conditions their financial safety and efficiency. Particularly nowadays, when the global supply chains are getting increasingly affected by the changing geopolitical situation, predictive analytics becomes a powerful weapon against business trouble.

Using socio-economic data (GDP, population, median income, employment rate, etc.) as input and pairing them with detected trends and seasonality in the time series data as well as geopolitical factors, shipping companies estimate the realistic container demand instead of relying on historical data.

For ports and shipping companies, predictive modeling is a win-win. Having accurate predictions, the carriers are able to reduce the number of empty containers and prepare for the increased demand with additional investments or routes. The ports, on the other hand, end up being at lower risk of congestion since the shipping companies feel safe enough to rely on just-in-time management.

Predicting Shipping Locations and Timing

Everyone – the on-land delivery companies, wholesales and e-commerce shops, and, of course, the final customer – wants to know when and where the shipped goods will arrive. A big part of the consumers may even abandon their shopping cart if they do not get the shipping time estimation right away. Introducing predictive analysis for timing and locations is thus in everyone’s interest.

After identifying the relevant inputs (which may include such features as gross weight, route, the destination port, and so on), the model trained for time or location prediction can come up with accurate output that help the carriers plan their routes, and the ports – effectively manage the offloading process. There are quite some machine learning models that can serve that purpose. Random forest and linear regression seem to be the most popular ones with their relatively fast training.

Related case study: Developing a logistics platform offering real-time visibility and integrations with different carriers

One of our clients was seeking to improve the global supply chain optimization product

Our challenge? Providing visibility and data transmission for maximum efficiency and control. We supported solution development for end-to-end execution of logistics activities in Supply Chain Management at the PO/SKU level, including PO creation, stock management, suppliers and distributors management, consolidation and load planning, carrier allocation, documentation, and final delivery.

Read more about this case study.

Dynamic Pricing Models for Container Shipping

Even though dynamic pricing model isn’t favored by the customers, it’s becoming increasingly common. With so many dynamically changing factors influencing the final cost of the shipping, the dynamic pricing models save the shipment carriers from operational inefficiency. In such competitive times, they cannot just preventively overcharge, and charging too little compromises their financial safety.

How dynamic pricing strategy works? The model estimates how changing variables impact the price and possible demand for profit maximization.

How dynamic pricing strategy works? The model estimates how changing variables impact the price and possible demand for profit maximization.

With dynamic pricing, shipping companies are able to adjust to the demand-supply dynamic. Such models estimate the cost of the shipping service in real-time, updating the prices at least a few times per day. For example, when the cost of oil suddenly peaks – what has happened a few times in recent years – the model adjusts the estimation, preventing the customers from ordering service at an irrelevant price.

Machine learning algorithms get trained with structured and unstructured data (including the time-oriented and location-specific data) to find the correlations between prices and different variables (like route, distance, fuel cost, demand, season, etc.). This way, they learn to predict relevant prices that fuel sales while sustaining financial security and growth.

To dig deeper into these subjects, we recommend our article on dynamic pricing in logistics with recommendations on building a dynamic pricing strategy with artificial intelligence.

Improving Port Operations and Cargo Handling Velocity

The role of artificial intelligence goes beyond vessel-related processes. In recent years, we’ve seen ports struggling to cope with the increasing numbers of arriving containers. The already mentioned front-loading practice (early shipping that prevents low time performance in the case of high demand and avoids higher tariffs) has led to congestion in North American and Asian ports last year. These issues continue occurring as ports lack the equipment and workforce to streamline port operations.

They could, however, be avoided by automation. Some ports in the world – like Tuas mega port in Singapore or Chinese Qingdao – are 100% automated, which reduces the risks of human mistakes that could lead to congestion. Others, like Rotterdam, value the community factor but still use artificial intelligence to optimize their management. Using a digital twin (such tools are not reserved for ships, the land facilities take advantage of them, too), they monitor all their operations in real-time. The digital twin can also serve as a testing ground, enabling ports to check their capacities in different scenarios,

With automated vehicles, the ports can solve the workforce shortage issue and reduce the probability of accidents. AI can also help the container terminals unlock the shipping space for more containers by finding the most efficient configurations.

Predicting Container Availability at Port

Artificial intelligence can also support smoother integration of the sea and on-land logistics companies. The carriers that pick up the slack after the shipping vessels use predictive models to estimate when exactly the container will be ready for a pickup at the port. That facilitates fleet management optimization, helping on-land delivery firms cut costs and distribute their workforce and equipment in a more effective way.

Implementing AI in Shipping

Each project is different, but without a doubt, the shipping industry often requires engaging models that can handle more complex unstructured datasets. As a result, it has adapted deep learning to a much greater extent than the other sectors. Since in this case, the input data is usually gathered via different channels (including sensors collecting information in real-time, maritime weather stations, port systems, or navigation systems),  the developers need to put a strong emphasis on seamless integration.

Without effective processing of data from different sources, of varied qualities and structure, it’s hard to come up with accurate predictions. In this case study, you can read about the related challenges we faced when creating a platform for carriers (including the maritime vessels) and how we approached them.

Many ports in the world, particularly the Asian ones, are heading towards complete automation, at least in the terminal area where the offloading processes take place. That trend will most likely continue since it significantly speeds up container management and reduces the probability of blockages caused, for instance, by vehicle accidents or a shortage of staff.

Many of these automated terminals are prepared to cooperate with autonomous ships. So far, they are a minority, but carriers have been showing a strong interest in employing such a solution in the nearest future. Thus, independent ships may likely follow in the footsteps of autonomous vehicles. It’s worth noting that this category covers entirely autonomous shipping vessels, as well as remotely controlled ones.

With the most recent events (Covid pandemic, Suez Canal congestion), the maritime industry has started to pay more importance to automated crisis management. Until recently, the carriers would focus on productivity, but the instability of the global economy and geopolitics enforce increased investment in risk-detection systems. With increasing probability of climate change-fuelled extreme weather conditions and chokepoint blockage, the carriers will most likely invest heavily in the optimization of their route planning models that employ advanced predictive analytics capable of detecting more subtle correlations and trends.

If you are searching for a way to solve an industry-related problem that has been affecting your company or have innovation in mind, reach out to us. nexocode is a company experienced in developing various predictive analytics solutions and other AI-based systems for logistics and supply chain management. We’d love to hear about it and suggest you some solutions based on our know-how!

About the author

Dorota Owczarek

Dorota Owczarek

AI Product Lead & Design Thinking Facilitator

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With over ten years of professional experience in designing and developing software, Dorota is quick to recognize the best ways to serve users and stakeholders by shaping strategies and ensuring their execution by working closely with engineering and design teams.
She acts as a Product Leader, covering the ongoing AI agile development processes and operationalizing AI throughout the business.

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This article is a part of

AI in Logistics
20 articles

AI in Logistics

Artificial Intelligence is becoming an essential element of Logistics and Supply Chain Management, where it offers many benefits to companies willing to adopt emerging technologies. AI can change how companies operate by providing applications that streamline planning, procurement, manufacturing, warehousing, distribution, transportation, and sales.

Follow our article series to find out the applications of AI in logistics and how this tech benefits the whole supply chain operations.

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