Faced with challenges surrounding growing geopolitical tensions, the global shipping and procurement industry is grappling with unprecedented challenges that are reshaping traditional logistics frameworks.
Conflicts like the war in Ukraine and the Red Sea crisis have disrupted critical maritime routes, leading to increased freight rates, extended transit times, and greater operational costs. More than 40% of logistics leaders said recent geopolitical events have impacted their supply chains, according to an August survey by Gartner.
According to Allianz’s Safety and Shipping Review 2024, the Red Sea crisis alone has forced shipping companies to reroute vessels around the Cape of Good Hope, adding over 3,000 nautical miles and at least 10 days to voyages.
Emerj Senior Editor Matthew DeMello recently spoke with Paulo Ruy, Head of Terminal Procurement for Latin America at A.P. Moller–Maersk, on the ‘AI in Business’ podcast to discuss how geopolitical conflicts are impacting the company’s supply chain. Ruy touches on changing shipping routes and contract negotiations while laying out a vision for how AI can facilitate flexibility in negotiations and optimize rerouting operations.
A.P. Moller–Maersk, a Danish shipping and logistics company with over 100 years of history, is a publicly traded family business. In 2023, the company generated $51.1 billion in revenue and was ranked by Forbes as the 174th largest public company globally. The company operates in 190 countries and primarily ships containerized cargo, offering services to 374 ports worldwide.
In the following analysis of their conversation, we examine two key insights:
- Optimizing port operations and contract flexibility: Leveraging AI predictive analytics to detect patterns in shipping disruptions and generate actionable insights for contract negotiations.
- Expediting regulation compliance management: Integrating advanced AI models to automate the classification and analysis of shipping documents, fast-tracking regulation compliance and improving response time to bottlenecks.
Listen to the full episode below:
Guest: Paulo Ruy, Head of Terminal Procurement for Latin America, at A.P. Moller–Maersk
Expertise: Supply Chain Management, Contract Negotiation, and Global Shipping.
Brief Recognition: Paulo Ruy has extensive experience navigating global supply chains. He specializes in flexible contract negotiations and helps adapt shipping routes in response to geopolitical challenges. He is instrumental in leveraging strategic procurement practices to enhance operational efficiency and resilience in the face of shifting global dynamics.
Optimizing Port Operations and Contract Flexibility
Ruy begins the podcast by highlighting disruptions like the Houthis’ attack on the Red Sea, which necessitates shipping lines seeking alternative routes and ports. Frequent rerouting also impacts contract terms, which are traditionally based on stable seasonal patterns. Furthermore, it creates delays due not only to the conflict itself but also to contract renegotiations and regulation re-compliance management.
According to Ruy, the sheer volume of data and variables involved in shipping is far too great for procurement teams to gather, synthesize, and assess on a limited schedule.
As a result, Moller–Maersk is looking towards AI to optimize logistical operations. By analyzing historical data alongside real-time geopolitical developments, predictive AI analytics can extract emerging trends to determine which potential regions will be disturbed.
Ruy further suggests that machine learning algorithms can assess various factors for shipments and recommend the most efficient pathways for cargo movement.
These machine learning algorithms draw from several data inputs, including:
- Region Volatility
- Congestion Levels
- Port Productivity
- Vessel and Liner Schedules
- Fuel Costs
- Average Turnaround Times
With algorithms learning from real-time changes in these inputs, this proactive approach enables an agile and more optimal reaction to unforeseen events. Simulations produced by algorithms can help procurement teams evaluate various scenarios and their potential impacts on logistics and costs, according to Ruy.
Frequent rerouting also impacts contract terms — traditionally based on stable seasonal patterns. Predictive machine learning capabilities can suggest optimal contract terms that accommodate potential disruptions and shipment factors. Furthermore, they will allow companies like Moller–Maersk to negotiate more flexible contracts that reflect current risks.
AI bots also show promise in automating the negotiating process itself. Since 2021, Moller–Maersk has partnered with Pactum to automate supplier negotiations in smaller operations — particularly spot trucking services.
Pactum leverages intelligent bots to communicate with third parties and negotiate mutually beneficial contracts digitally. AI bots facilitate spot trucking negotiations even while Maersk’s ships are en route, ensuring that logistical arrangements are finalized before vessels arrive at port.
The capability has led to better pricing, supply continuity, and customer experience, according to a Pactum press release quoting Peter Jorgensen, a partner at Maersk Growth. Pactum reports generating savings of 3%-5% on average for clients, translating to hundreds of millions of dollars in unrealized savings.
Broadly, AI capabilities allow companies like Moller–Maersk to dynamically adjust their strategic operations, ensuring that cargo flows smoothly even amidst disruptions.
Expediting Regulation Compliance Management
Ruy also discusses document processing in the shipping industry, stressing that the sector is traditionally reliant on paper-based processes. Reliances lead to inefficiencies and delays, especially when dealing with bureaucratic regulations and requirements imposed by government agencies.
Such inefficiencies are particularly problematic during times of conflict when rerouting requires swift restructuring of operations. Cumbersome document processing and regulation compliance verification add more length to the rerouting process.
Ruy finds that AI analytics offers the potential to streamline document processing. By automating the extraction, classification, and analysis of documents, automation reduces manual data entry and accelerates processing times. AI technologies — like Intelligent Document Processing (IDP) — use advanced Optical Character Recognition (OCR) to extract data from structured and unstructured documents accurately.
IDP, paired with real-time AI analytical capabilities, can assist regulation compliance management by:
- Automating Compliance Verification: Validating extracted data against predefined rules or patterns in real-time, ensuring that all documents meet current compliance standards
- Tracing Regulatory Reforms: Tracking changes in local, domestic, and international shipping requirements and regulations
- Creating an Audit Trail: Automatically storing and pooling compliance-related documents together, allowing organizations to demonstrate adherence to compliance standards with ease
Ultimately, Ruy tells Emerj’s executive audience that this capability is poised to:
- Enhance Decision-Making: Providing compliance data expeditiously supports informed decision-making for rerouting
- Reduce Labor Effort: Automating routine compliance tasks minimizes the need for manual intervention, freeing up staff for more complex activities
- Facilitate Real-Time Monitoring: Enabling continuous monitoring of compliance risk factors allows organizations to take immediate corrective actions when necessary
Ruy also notes that investment in technology from government entities is typically limited, which can slow down the adoption of AI.
“The industry is a bit old school, and there is little investment in technology from their side. Most governments don’t recognize the potential technology that can help them develop their own local industry. You may have one port that is flooded frequently and another that’s not; with technology, governments can help identify and invest in non-flooded regions on a large scale to minimize bottlenecks.”
– Paulo Ruy, Head of Terminal Procurement for Latin America at A.P. Moller–Maersk
The lack of investment and modernization affects how shipping companies operate since technological advancement varies across different countries. In this way, developers should be aware that AI models may favor ports in locations that have more technological integration.
Ruy further suggests that if governments embrace technology more fully, it could lead to better development of local industries. The approach could help alleviate congestion at busy ports and optimize the use of underutilized ones, ultimately enhancing supply chain efficiency.
