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EU Push the Maritime Operators to Boost Cybersecurity by EOS Intelligence

23/11/2023by EOS Intelligence EOS Intelligence No Comments

Commentary: EU Push the Maritime Operators to Boost Cybersecurity

Cybersecurity in the maritime sector is of critical importance as sea routes accounted for about three-fourths of the EU’s imports and exports in 2022. The new Network and Information Systems Security Directive (“NIS2 Directive”) aiming to strengthen cybersecurity is expected to enter into force from October 2024 and will impact maritime companies with more than 50 employees or an annual revenue of over €10 million. The NIS2 directive, which will replace and repeal the NIS directive, expands the scope to cover a larger number of companies in the sector as it includes both medium and large-size companies.

Companies may feel burdened by strict NIS2 requirements

To comply with the new requirements, the companies would need to make cyber risk management a focal point for every business strategy and make cybersecurity measures a part of day-to-day operations. NIS2 adoption will not only demand additional investment but also change the way the business is done.

Increase in cybersecurity investments

A total of 156 entities in the water transport sector were subject to the NIS directive in July 2016, as it focused mainly on large enterprises. Under NIS2, this number is likely to increase to 380. In particular, the number of port and terminal operators covered in NIS2 will increase significantly. A senior IT executive from Port of Rotterdam indicated that while NIS covered only a few port stakeholders (~5 companies), more than a hundred companies would need to comply with NIS2.

European Commission indicated that the companies already covered under the NIS directive would need to increase their IT security spending by 12%, while for the companies that were not covered previously but would be covered under the NIS2 framework, the IT security spending would need to be increased by up to 22%.

Frontier Economics, a consultancy firm based in Europe, estimated that the costs of implementing the NIS2 regulation in medium and large enterprises across the water transport sector would be about 0.5% of the total annual revenue across the medium and large water transport companies, which amounts to more than €225 million per year.

Enhancement of OT security

The advent of digitization has resulted in rapid convergence of operational technology (OT) with IT systems, leaving critical OT infrastructure vulnerable to cyberattacks. OT helps monitor and control mechanical processes, making them particularly important for the safe operation of ports and other aspects of the maritime sector.

ENISA, the European Union Agency for Cybersecurity, indicated that from January 2021 to October 2022, ransomware attacks on IT systems were the most prominent cyber threat facing the transport sector and warned that ransomware groups are likely to target OT systems in the near future. NIS2 imposes stringent requirements for critical infrastructure entities, including maritime companies, to beef up cybersecurity from the perspective of both IT and OT.

Traditionally, maritime companies have considered cyber security primarily in the context of IT systems, but now there is a higher focus on OT cybersecurity, and the NIS2 is going to ensure investment momentum in this space. For instance, the Maritime Cyber Priority 2023 report indicated that over three-fourths of the respondents suggested that OT cyber security is a significantly higher priority compared to two years ago.

While NIS2 adoption may seem taxing, benefits are likely to follow

Like any new regulation, the adoption of NIS2 comes with additional costs and implementation hurdles, however, the consequent benefits are likely to outweigh the challenges.

Harmonization of cybersecurity requirements

In August 2023, a senior executive from Mission Secure, an OT cyber security solutions provider, indicated that maritime operators would welcome stringent cybersecurity standards. The maritime industry operates on thin profit margins, making it difficult for companies to invest more in cybersecurity than competitors. Implementation of NIS2 would set cybersecurity standards harmonized across the EU and thus level the playing field in terms of spending on cybersecurity while reducing the risks and losses associated with cyberattacks.

Improved competitiveness

A 2020 study by ENISA suggested that the EU organizations’ cybersecurity spending is, on average, 41% lower than of their US counterparts. NIS2 is expected to drive the necessary investments in cybersecurity.

Moreover, given the international nature of the maritime industry, the adoption of the NIS2 directive will help the operators keep up with similar cybersecurity regulations around the world. For instance, Australia reformed the Critical Infrastructure Protection Act in 2022 to address the evolving cyber threat landscape. The UK, while no longer part of the EU, is in the process of revising the cybersecurity regulation for critical infrastructure operators in line with NIS2.

EOS Perspective

Upon implementation of NIS2, maritime operators will need to invest in more effective cybersecurity requirements, potentially increasing costs in the short term. Despite this, the increased investment will result in a more secure and resilient industry in the long run, and companies that are able to invest heavily in security are going to gain a competitive advantage over those that are not able to do so.

Digitization and connected technology in the maritime sector are evolving faster than its ability to regulate it. Hence, the maritime sector should view NIS2 as just another measure to elevate the cybersecurity framework. Companies need to be agile and flexible to adapt to the evolving cyber threat landscape.

15/11/2021by EOS Intelligence EOS Intelligence No Comments

Hydrogen: Fuel of the Future for Shipping?

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Just like many other carbon-emitting sectors, the shipping industry is also working to reduce its contribution to greenhouse gases and get closer to carbon neutrality. For this, the sector is pinning its hopes on hydrogen-based fuel. Being one of the most polluting industries in the world, the shipping sector is also one of the most difficult ones to introduce such a profound change. This is owing to the massive size of commercial vessels, long distances, hydrogen storage issues, and commercial costs. Although small-level adoption of hydrogen fuel has already begun, it remains unknown whether it will be functional in large commercial vessels as well.

As per the International Maritime Organization (IMO), the shipping industry was responsible for 2.9% of the total anthropogenic emissions in 2018, up by almost 10% between 2012 and 2018. It is expected that the sector’s contribution towards global greenhouse emissions will significantly increase by 2050 if proper efforts are not made towards decarbonization. To counter the situation, the IMO has set a global target to cut annual shipping emissions by 50% by 2050 (based on 2008 levels). In response to this, shipping corporations and other stakeholders across the shipping industry have been exploring different ways to reduce their impact on the environment. One of the most critical aspects in this is replacing fossil fuel with a greener fuel. This is where hydrogen fuel might find its place.

As we discussed in one of our previous articles (China Accelerates on the Fuel Cell Technology Front), hydrogen fuel is considered to be the fuel of the future for the transportation sector, as it produces zero emissions. Moreover, with regards to shipping, it is one of the only conceivable options at the moment.

That being said, using hydrogen fuel alone cannot solve the issue of reducing the sector’s carbon footprint, as it depends on how the hydrogen fuel is produced. Currently most of the hydrogen that is produced (and used in other industries), is produced using fossil fuels, while only a small portion of it is produced using renewable energy. Hydrogen produced through renewable energy is much more expensive, which keeps the production levels low. If ships run on hydrogen fuel produced using mainly fossil fuels, while the fuel itself would produce zero emissions, the whole process will not carbon efficient. However, with the shipping industry making real efforts to consider a change in fuel, it is expected that production of hydrogen through renewable sources will ramp up, which in turn may reduce costs (to some extent) owing to economies of scale.

At the moment, several leading players have pledged to develop new or modify existing vessels so that they can run on hydrogen fuel, however, these are currently either prototypes or short-distance small vessels. Antwerp-based Compagnie Maritime Belge (CMB) Group, which is one of the leading maritime groups in the world, commissioned the world’s first hydrogen-powered ferry in 2017, named Hydroville. It is currently operational between Kruibeke and Antwerp. It runs on a hybrid engine, with options of both hydrogen and diesel. CMB, which has been a pioneer and advocator of clean fuel for the shipping industry, also partnered with Japanese shipbuilder, Tsuneishi Group, to develop and build Japan’s first hydrogen-powered ferry (in 2019) and tugboat (in 2021). Moreover, it launched a joint venture with the Japanese firm to develop hydrogen-based internal combustion engine (H2ICE) technology for Japan’s industrial and marine markets. In another move to find a strong foothold with the shipping fuel of the future, CMB Group acquired UK-based Revolve Technologies Limited (RTL) in 2019, which specializes in engineering, developing, designing, and testing hydrogen combustion engines for automotive and marine engines. Moreover, CMB is building its own maritime refueling station for hydrogen automobiles and ships at the Antwerp port, which will produce its own hydrogen through electrolysis.

Similarly, in November 2019, Norwegian ship building and design company, Ulstein, developed a hydrogen-fueled vessel, called ULSTEIN SX190. The vessel is the company’s first hydrogen-powered offshore vessel providing clean shipping operations to reduce the carbon footprint of offshore projects. The vessel, which uses fuel-cell technology, can operate for four days in emission-free mode at the moment. However, with constant development and investment in the hydrogen fuel space, it is expected that it will be able to run emission-free for up to two weeks, post which it will have to fall back on its diesel engine. Ulstein also launched another hydrogen-powered vessel in October 2020, called ULSTEIN J102, which can operate at zero-emission mode for 75% of the time. Since Ulstein used readily available technology in developing the J102, the additional cost of adding the hydrogen-powered mode was limited to less than 5% of its total CAPEX. This vessel design is expected to cater to the offshore wind industry.

A leading oil corporation, Shell, also announced that it is looking at hydrogen as the key fuel for its fleet of tanker ships in the coming future as the company aims to become carbon neutral by 2050. In April 2021, the company commenced trials for the use of hydrogen fuel cells for its ships in Singapore. The trial encompasses the development and installation of a fuel cell unit on an existing roll-on/roll-off vessel that transports wheeled cargo such as vehicles between Singapore and Shell’s manufacturing site in Pulau Bukom. Shell has chartered the vessel, which is owned by Penguin International Ltd, however, Shell will provide the hydrogen fuel.

In addition to this, several other companies across Europe and Japan are undertaking feasibility studies to understand and assess the use of hydrogen fuel to power ferries and also the production of hydrogen fuel from renewable sources for the same purpose. For instance, in 2020, Finland-based power company, Flexens conducted a feasibility study to generate green hydrogen through wind farms in order to fuel ferries in the Aland group of islands. Similarly, Japan-based companies, Kansai Electric Power, Iwatani, Namura Shipbuilding, the Development Bank of Japan, and Tokyo University of Marine Science and Technology, are collaborating on a feasibility study to develop and operate a 100-foot long ferry with hydrogen fuel. The ferry is expected to be in operation by 2025.

Apart from small ferries, hydrogen fuel is also making a slight headway with commercial vessels. In April 2020, a global electronic manufacturer, ABB, signed an MoU with Hydrogène de France, a French hydrogen technologies specialist to manufacture megawatt-scale hydrogen fuel cells that can be used to power long-haul, ocean-going vessels. While most of the currently operational hydrogen technology is used in small-scale and short-distance vessels, this partnership, which builds on an already existing 2018 collaboration between ABB and Ballard Power Systems, is expected to bring this technology for larger vessels (which in turn are responsible for most of the carbon emissions).

In April 2021, French inland ship owner, Compagnie Fluviale de Transport (CFT), in partnership with the Flagships Project (which is a consortium of 12 European shipping players), launched the first hydrogen-powered commercial cargo vessel, which will ply the Sevine river in Paris. The vessel is scheduled for delivery in September 2021. In 2018, the Flagships project was awarded EUR 5 million of funding from the EU’s Research and Innovation Program Horizon 2020.

While several companies are bullish about hydrogen fuel being the answer to the industry’s carbon woes, others are skeptical to what extent hydrogen fuel can replace the current traditional fuel, especially given the challenges with regards to large commercial vessels. For instance, Maersk, global player in the shipping industry, does not feel that hydrogen fuel is suitable for container ships as the fuel takes up a lot of physical space in comparison with traditional bunker oil.

As per estimates, hydrogen fuel takes up almost eight times as much space as gas oil would take to power the same distance. The more space is occupied by the fuel, the less space is left for carrying containers, and this negatively impacts its container-carrying capacity and revenue per trip/ship. Moreover, container vessels travel extremely long distances across oceans, and carrying that much hydrogen fuel in either liquid or compressed form at this moment is not physically and commercially viable. To be stored as a liquid, hydrogen needs to be frozen using cryogenic temperatures of -253˚C, which makes it expensive to store. Currently about 80-85% of the sector’s emissions come from large commercial vessels such as cargo ships, container ships, etc., and considering that hydrogen can play only a limited role in these vessels, its adaptability and effectiveness as a tool to reduce carbon emissions may be restricted.

However, that being said, the industry is open to alternative fuels and one such fuel is ammonia, which in turn is also produced from hydrogen. Thus using green hydrogen to create green ammonia is another option to explore. Ammonia can be used either as a combustion fuel or in a fuel cell. Moreover, it is much easier and cheaper to store since it does not need cryogenic temperatures and takes up about 50% less space compared with hydrogen fuel, since it is much denser. Thus ammonia seems to fit the needs of commercial vessels in a better manner, however, at present most of ammonia being produced (mainly for the fertilizer industry) uses hydrogen obtained from fossil fuels. Moreover, it further uses fossil fuels to convert hydrogen into ammonia. Thus, to create green ammonia, additional renewable energy will be required, which adds to further costs.

EOS Perspective

Given the industry’s vision to reduce its carbon footprint and the ongoing efforts, investments, and feasibility studies, it is safe to say that hydrogen will definitely be the fuel of the future for the shipping industry, whether used directly or processed further into ammonia. However, how soon the industry can adapt to it is yet to be seen.

Moreover, the industry cannot bear the cost of the transition alone. To transition to a greener future, the shipping industry needs support in terms of on-ground infrastructure and investments in production of green hydrogen. Till the time production of green hydrogen reaches economies of scale, it will definitely be much more expensive compared with traditional fuel. This in turn, will make shipping expensive, which would possibly impact all industries that use this service. While the shipping industry may absorb a bit of the high costs during the transition phase, some of it will be passed down to the customers, which is likely to be met with resistance and in turn will impact the overall transition.

On the other hand, green hydrogen projects are expensive to set up and require significant investment and gestation period. Hydrogen companies do not want to rush into making this investment, unless they see global acceptability from the shipping sector. Thus while the transition to a more carbon-neutral fuel is inevitable, it may not be a short-term transition. Unless governments and regulatory bodies come up with strict regulations or a form of a carbon tax on the sector to expedite the transition, the change is likely to be slow and phased, especially when it comes to large commercial vessels.

02/07/2020by EOS Intelligence EOS Intelligence No Comments

The Future of Urban Mobility Is “Up, in the Air”

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Traffic congestion is a major problem in most metropolitan areas globally. Ever-rising number of vehicles exceed the road infrastructure capacities, prompting the need to look for possibilities of transportation beyond roads. Electric Vertical Take-Off and Landing (eVTOL) vehicles – more commonly known as air taxis, unmanned aerial vehicles (UAVs), or autonomous air vehicles (AAVs) – are considered as a genuine solution to the problem. While they are still in nascent stage of development, we look at the opportunities that may arise in the Urban Air Mobility (UAM) market.

Electric Vertical Take-Off and Landing, or eVTOLs, for a layman, can simply be defined as electric-powered vehicles that have vertical take-off or landing capabilities similar to a helicopter, minimizing the space required to become air-borne.

While the concept dates back to the early 2010s, development in the eVTOL space has gathered pace since 2016, when Uber released its Uber Elevate white paper envisaging its plans to present a working test prototype by 2020, and commercially launch an air taxi service in 2023.

State of eVTOL development

Uber’s announcement acted as a stimulus for eVTOL manufacturers to fast-track the development and testing of their aerial commuter vehicles. Several leading eVTOL manufacturers have conducted unmanned and manned testing of their prototypes in controlled air spaces across major cities across the world, with a view to ensure the operability and safety of these air taxis for commercial deployment.

In 2016, Germany-based Volocopter became the first manufacturer to get a permit to fly its eVTOL prototype in Germany. In 2017, the company conducted a successful public demonstration of its air taxi – making an unmanned flight near Jumeirah Beach Park in Dubai, with an aim to launch a commercial pilot air taxi program in Dubai in early 2020s. Since then, the company has completed similar tests in the USA in 2018 and Singapore in 2019.

Chinese company EHang has stolen a march on its competitors, becoming the first company to successfully commercialize passenger-grade autonomous aerial vehicles. As of December 2019, the company had delivered 38 two-seater passenger-grade air taxi (EHang 216) to private customers globally.

Uber has also entered in partnerships with several eVTOL manufacturers (mostly companies owned or backed by aircraft manufactures), engineering firms, real estate companies, and research organizations, over the past four years, including Joby Aviation, Aurora Flight Sciences (a Boeing subsidiary), Embraer, Bell, Pipistrel, Karem Aircraft, Jaunt Air Mobility, and Hyundai.

Other key manufacturers such as Lilium, Opener, Kitty Hawk, and Airbus have also conducted multiple flight tests globally since 2017.

Companies have also taken initiatives to develop other critical components of the air taxi business. Uber entered into a partnership with NASA in 2017 to develop unmanned air traffic and airspace management systems, which could help Uber smoothly drive its air taxi operations.

Companies are also partnering with real estate companies to develop dedicated infrastructure which could act as nodes for any air taxi network, as well as with power solutions providers to deploy vehicle charging solutions at these nodes.

Capital investments

Various analyst firms believe that eVTOLs present a high growth opportunity. Deloitte, for example, forecasts the eVTOL market to be valued at US$3.4 billion in 2025, and grow to US$17.7 billion by 2040 – a CAGR of 11.6%. German consulting firm Horvath & Partners estimates the number of air taxis could exceed 23,000 by year 2035.

Investors are banking on this growth potential, which is evident from the amount of investments flowing into eVTOL development companies.

In January 2020, US-based Joby Aviation raised US$590 million in Series C funding led by Toyota (which invested US$394 million), making it the most funded eVTOL start-up globally. Volocopter also raised U$55 million in September 2019 in series of funding led by China-based Geely group. Lilium, which is backed by Tencent, is also looking to raise more than U$400 million for its eVTOL business through venture capital.

EOS Perspective

…on opportunities in UAM Space

Uber’s air taxi vision has created opportunities for multiple stakeholders across the air taxi value chain. Several aircraft and automotive companies are participating to develop commercially practical and viable eVTOL vehicles, while real estate companies are delving into design infrastructure solutions for vehicle landing and take-off.

Innovators are teaming up to develop new-age solutions which would be able to manage air space and aerial traffic, while also ensuring the safety of the commuters (both in the air and on the land).

There will be opportunities for analytics companies – whether it is related to determining the service prices (pricing analytics) or creating innovating customer solutions (such as loyalty programs). Once eVTOLs are commercially deployed, after-market ancillary and repair solutions are also expected to gain demand.

Additionally, the social impact of these air taxis – which will help generate employment opportunities for both technical and non-technical personnel – cannot be underestimated.

…on Uber’s plans to commercialize air taxis

Uber’s plans to commercially launch an air taxi service by 2023 might perhaps be a bit too optimistic. However, given the state of the development of eVTOLs and the level of support it is generating from governments in its key target markets (including the USA, Australia, and Japan), the goal may be achievable – more likely by 2025.

However, the initial deployment, which is expected to comprise only 40-50 eVTOLs, is likely to be limited to the affluent section of the potential customers, due to limited access and high costs of such service.

Such services may be able to reach mass consumers only once the eVTOLs have a widespread deployment, which is unlikely to happen before 2030.

An extensive deployment and increased mileage (either in the form of distance covered or number of flights) is likely to help achieve operational efficiencies, eventually leading to lower pricing of air taxi services, making them more affordable for mass consumers. Uber plans to bring the pricing of its air taxi services at levels similar to that of its UberX service in the long run.

Whether Uber is able to achieve its target or not, the urban air mobility market shows significant potential and attracts considerable interest. Given the current level of development in eVTOL space and partnerships to build related infrastructure, there is a definite sense of optimism – the future of urban mobility is definitely “up, in the air”.

15/01/2019by EOS Intelligence EOS Intelligence No Comments

Bharatmala – A Game Changer for Indian Logistics?

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Due to its poor logistics infrastructure, bureaucratic bottlenecks, and heavy reliance on roads, India has long suffered from high logistics costs. This has significantly impacted its global trade competitiveness. To address these challenges, the Modi government, in 2015, launched Bharatmala Pariyojana, a flagship project that aims to transform India’s logistics infrastructure. We are taking a look at the key aspects of Bharatmala to assess whether the project has a chance to be the game changer for Indian logistics industry.

India has been long known for its inefficient logistics and freight management. The current freight modal mix is highly skewed towards roadways, which account for over 60% of the total goods transported. This signals under-utilization of cost-effective transport modes such as railways and waterways. India has therefore one of the highest logistics cost, standing at around 14% of its GDP against the average of 6-8% in many other countries.

High logistics costs are caused primarily by poor transport infrastructure and bureaucratic bottlenecks. As per The Associated Chambers of Commerce & Industry of India (ASSOCHAM) estimates, India could save US$50 billion just by reducing its logistics costs down to 9% of its GDP. To achieve this, there is an imminent need for an integrated logistics and transport policy that can bring down the overall logistics cost by addressing the present infrastructure and legislative challenges. The Modi administration has realized this and therefore strong impetus has been given to improve the nation’s logistics infrastructure.

India has one of the highest logistics cost, standing at around 14% of its GDP against the average of 6-8% in many other countries.

To improve India’s logistics and trade competitiveness, the government, in 2015, launched its ambitious Bharatmala Pariyojana, an umbrella of programs that aim to bridge the current infrastructure deficiencies through corridor-based development across the nation. This in turn is expected to result in faster movement of goods and in a boost of national as well as international trade while reducing logistics costs.

The project aims to construct a network of 66,100 km of highways at an estimated cost of INR7 trillion (~US$101.7 billion). Under the first phase of the project, a total of 34,800 km of roads with an investment of INR5.4 trillion (~US$78.5 billion) are to be constructed by 2022. The funding for the scheme will be raised through various sources: INR1.4 trillion (~US$20.3 billion) will come from the earmarked Central Road Fund (CRF), INR2.1 trillion (~US$30.5 billion) is expected to be raised as debt from market borrowings, INR1 trillion (~US$14.5 billion) from private investments, and the rest from expected asset monetization of National Highway (NH) and toll collections.

Under the first phase of the project, 44 new economic corridors will be developed to improve connectivity across corridors and remote areas of the country to ensure faster movement of freight. The project will kick start from western states of Gujarat and Rajasthan, and move towards Punjab, Jammu and Kashmir, Himachal Pradesh, Uttarakhand in the north, and towards Bihar, West Bengal, Sikkim, and Assam in the east, right up to Indo-Myanmar border in Arunachal Pradesh, Manipur, and Mizoram.

Further, 35 multi-modal logistics parks are also planned to be developed that will serve as centers for freight aggregation and distribution, storage and warehousing, and other value-added services. These logistics parks will cater to key production and consumption centers accounting for 45% of India’s road freight. As a result, the consolidation of freight is expected to improve efficiencies and reduce logistics costs by approximately 25%.

EOS Perspective

There is no doubt that, if implemented as per the plan, Bharatmala project has the potential to transform the entire logistics landscape in India. However, given the country’s past project record, there are major hurdles that need to be addressed.

First and foremost, in order to catch up with the ambitious project targets for 2022, the government needs to construct 40 km of roads per day, up from the current average of 23 km. Achieving this looks very challenging, especially when The Road and Highways Ministry has so far lowered the total road projects awards to 20,000 km for FY2018/19 from 25,000 km in FY2017/18.

In addition, timely land acquisitions, lack of clear land titles, regulatory clearances, and dependence on local authorities are some other roadblocks that will hinder project implementation.

Lastly, there is a growing sense of political volatility amid the upcoming general elections in 2019. Given the recent form of setbacks that the ruling party has faced in state elections, there are growing concerns over its victory. A change in government could seriously impact Bharatmala and ancillary projects, since the new government may have different agenda as their priority.

In order to catch up with the ambitious project targets for 2022, the government needs to construct 40 km of roads per day, up from the current average of 23 km.

In 2014, when Narendra Modi’s administration took charge, highway projects over INR1 trillion (~US$14.5 billion) were stuck either for funds or various regulatory clearances. The government has made noteworthy progress since then by expediting many of these projects.

By leveraging technologies and removing bureaucratic bottlenecks, the government seems to be committed to strengthen the sector. A quick look into last two union budgets clearly indicates that the government’s thrust has been on enhancing infrastructure in India and massive budgetary provisions have been made to improve logistics infrastructure. In recent weeks, a big push has been given to complete about 320 important highway projects ahead of the elections next year.

If re-elected, the Modi administration is expected to keep the current infrastructure momentum going. This might not only improve India’s logistics competitiveness, but also make other government initiatives such as Make in India more compelling for private investors. The project might also give a strong push to the economy by generating millions of direct jobs in sectors such as construction, logistics, and transportation, as well as indirect employment opportunities in manufacturing and other ancillary industries. It can boost manufacturing as well as trade, since there will be a surge in demand for goods such as steel, cement, construction equipment, commercial vehicles, etc.

There is no doubt that once completed, Bharatmala has the potential to transform the entire Indian logistics sector. However, at present, for Bharatmala project and the logistics sector, a lot hinges on the outcome of the upcoming elections.

19/10/2016by EOS Intelligence EOS Intelligence No Comments

China’s Digital Single Market – Internet of Things

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Underpinned by immense government support, private investments, as well as the highest number of machine-to-machine (M2M) mobile connections globally, China has potential to get to the forefront of IoT (Internet of Things) development. While most countries are still beginning to understand the benefits of IoT, China already embraced the technology as early as 2010, when it built a national IoT center and aimed to create a market worth US$160 billion by 2020. IoT, with its promise of delivering continuous connectivity, is likely to usher an industrial revolution in China resulting in improved productivity, global competitiveness across industries, and higher economic growth.

IoT is helping China to build momentum and succeed in the digital age, fostering development across various industries by revitalizing manufacturing, boosting connectivity through smart cars and buildings, crafting a new consumer market for wearable devices, enhancing healthcare services, and stimulating energy efficiency.

China seeks to integrate various industries with IoT technology for economic gains and efficient management. Industries such as logistics, manufacturing, transportation, and utilities and resources, in particular, are likely to witness improved efficiency, lower costs, and better-managed infrastructure through real-time information provided by IoT technology.

Chinese consumers are very open to adopting IoT technology, which results in growing penetration of smart devices. Smart home appliances, cars, meters, and retail devices are likely to witness tremendous success in China.

Industry dynamics are improving driven by launches of new smart devices by private companies, pivotal government support, and several digital drivers (including growing M2M connections as well as smart phone and Internet users). However, there a few factors such as security and infrastructure issues, fragmentation in the market, and lack of standardization that are slowing down IoT development.

Despite IoT’s immense potential, several driving factors, and promises of economic gains across industries, a 2015 study conducted by Accenture revealed some deterring factors such as lack of specialized skills, low R&D investments, and substandard infrastructure, which may hold back IoT development in China.

EOS Perspective

Undoubtedly, China is likely to witness unrivalled opportunities in terms of productivity improvements and economic development as IoT technology spreads across the country. Efforts made by the Chinese government are stimulating the IoT growth – ‘Made in China 2025’ initiative launched in 2015 aims to integrate production with Internet to deliver smart manufacturing and higher manufacturing value. Further, with the ‘Internet Plus’ strategy, China plans to integrate mobile Internet, cloud computing, big data, and IoT with manufacturing.

However, Chinese business leaders and policymakers cannot expect to reap benefits of IoT technology without the right enabling conditions. In order to ensure development, it is imperative for China to overcome the gap in technical skill set, infrastructure, as well as focus on promoting IoT investments. To address the shortage of critical skills, China needs to improve the number and quality of tertiary graduates in science and engineering fields. Beyond that, building a cross-industry ecosystem is also essential for IoT-led growth, which requires development of an integrated communication system along with cluster of secured networks for data transmission.

China’s IoT industry, still at a developing stage, has promising growth potential that could materialize only if the country takes all necessary measures to improve its infrastructure and technological platform, which will allow IoT to diffuse through its industries and completely transform them.

24/09/2015by EOS Intelligence EOS Intelligence No Comments

Intermodal Transportation Picks Up Steam

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Intermodal transportation is emerging as a popular mode of transporting cargo owing to its economic and environmental benefits. While companies preferred over-the-road (OTR) transportation as it offered higher flexibility, a significant surge in freight rail infrastructure (especially across the USA and Europe) and a decline in availability of OTR drivers have led to several companies shifting to intermodal shipping. However, intermodal transportation has its own share of challenges, which, if not addressed effectively, can severely impact the entity’s operations.

As shippers are looking to cut costs as well their carbon footprint, they are steadily shifting towards intermodal transportation. This is further boosted by countries investing heavily to improve their intermodal infrastructure. However, growing popularity of intermodal transportation has resulted in shortages in chassis equipment and severe traffic jams at ports and terminals, among other challenges. Companies that manage to overcome these challenges by better planning and use of technology can definitely reap savings offered by this mode of transportation.

EOS Perspective

The question regarding intermodality is not of a yes or no, but more of a ‘how much’. While intermodal transportation offers several benefits over OTR, it is very critical for companies to assess the extent to which intermodality can work for them. Moreover, given the improvements in infrastructure and technology, companies that currently feel that intermodal does not work them, should not dismiss it once and for all, but should continue to re-evaluate the situation every six-monthly to annually.

25/06/2015by EOS Intelligence EOS Intelligence No Comments

Container Shipping Industry – The Need Of The Hour

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Global container shipping industry has suffered through five unprofitable years and still does not seem to see much light. The industry is battling overcapacity, declining freight prices, and stiff undifferentiated competition, and with the new capacity expected to come online, these challenges are likely to persist. But the hurdles also present hidden opportunities for ship liners to improve performance across organizational, commercial, and operational activities. Moreover, extracting more from strategic alliances to include joint procurement and operational benefits can also help the industry in whole.

As the industry suffers from a host of challenges, it is imperative for the carriers to step up and develop plans that could improve their profits. It is believed that several sound initiatives could potentially elevate these companies’ earnings by up to 15%, which could be enough to can steer them back to profitability.

To realize these benefits, companies need to bring about significant changes in their organizational structure, operational management, commercial management, and nature of alliances. Carriers that manage to introduce these changes will be in a better position to combat the current depression in the business and return to profitability.

While these changes might be challenging to embrace, the industry has reached a stage where only drastic measures can keep them afloat and profitable. Carriers that can initiate a comprehensive transformation in their operations and organizational structure are likely to be to only ones able to steer ahead of competition.

19/02/2013by EOS Intelligence EOS Intelligence No Comments

India – Reducing Reliance on Diesel

India’s subsidy on diesel currently stands at about INR 950 billion (~ USD 19 billion).

Total diesel consumption was 64.74 million tons in 2011.

Diesel accounts for about 38% of India’s total fuel consumption.

3 million ton of diesel is consumed in private power generation.

On 17th January 2013, the Indian government took a major step towards the deregulation of diesel prices. A monthly (duration, undecided) hike of INR 0.50 (USD 0.01) for retail customers and INR 11.00 (USD 0.20) increase in diesel price for bulk customers has been proposed. This move is expected to reduce India’s fuel subsidy burden by about INR 150 billion (~ USD 3 billion) annually.

Why such high dependence on diesel?

Agriculture and power generation account for 20% of India’s diesel demand.

The agriculture sector, the mainstay of India’s economy, accounts for about 12% of India’s total diesel demand. For a typical Indian farmer engaged in semi-mechanized farming operations, diesel can account for up to 20% of the input cost. This primarily consists of expenses towards fuel used to plough field and a substantial amount used to operate water pumps for irrigation purpose.

The power sector demand for diesel is largely driven by inadequate and inefficient power generation, transmission and distribution infrastructure. As per available statistics, there is about 10% supply-demand gap in India’s power sector, which results in regular outages. Though India added about 20GW of generation capacity in 2011, more would be required if the country aims to match global per capita electricity consumption standards of 2,700Kwh. At present, India’s per capita consumption is about 900Kwh.

This mismatch in supply-demand of power is met by private power generation, accounting for 8% of India’s diesel demand. Shopping malls, housing societies, large hospitals and telecom towers are among the major consumers of diesel-generated power.

Across the country, diesel generators operate for 8-10 hours every day, to supplement government-supplied electricity, thus leading to excess demand for diesel.
According to government statistics available for 2011, private power generators and mobile phone towers consumed 4.6% and 1.93% of diesel, respectively.

Power is also lost in the form of aggregate technical and commercial losses, which amount to about 30% of the total power produced in the country. With a generation capacity of 205GW, approximately 60,000MW is lost while transmitting and distributing power to end-users.

As an indicator, reduction of these losses by even 50% can ensure power to about 8 million diesel pumps of 5 HP rating thereby saving of about 4-8 million litres of diesel per hour.
If the government took necessary steps to improve power availability by 50% of the current outage time (assumed to be eight hours daily as an average) then it is estimated that it would lead to the reduction of diesel usage in private power generation by about 4.5 million litres annually.

So, how can the heavy reliance on diesel be reduced?

Reduce price differential – Minimizing the price differential between petrol (gasoline) and diesel, which can be up to 30%, could go a long way in helping reduce the burden on diesel. Artificially-kept low diesel prices (coupled with better efficiency of diesel engines vis-à-vis petrol engine) have led to increased demand for diesel vehicles in India, thus resulting in greater diesel consumption. In 2012, diesel cars accounted for more than 50% of all passenger vehicles sold in India. In 2011, approximately 16% of diesel sold in India was consumed by passenger vehicles. Economists have often questioned the rationale behind selling subsidized diesel to passenger vehicle owners who can afford it at the market price. Policymakers have also mulled options to discourage the sale of diesel cars, which include higher taxes on diesel cars. However, such moves have been opposed by the Indian automobile industry. Industry experts admit that parity in diesel and petrol prices can shift balance in favour of petrol vehicles with a sales ratio of 55:45. For instance, if achieved in 2013, this could reduce the consumption of diesel by 200 million litres (based on a conservative estimate).
Alternate sources of power – Adoption of renewable sources of energy for power generation could also help in reducing the current diesel burden of India. Renewable power currently accounts for only about 12% of total installed capacity. For instance, an Indian telecom service provider Airtel has installed a 100 KW solar power plant in one of its major routing centres in Northern India. This is expected to save 26,000 litres of diesel annually. The company is planning to install similar system in six other locations as well.
Other measures – Better roads and highways would result in improved fuel efficiency of vehicles leading to lesser use of vehicles. Efficient intermodal logistics infrastructure, with a larger share of railways would reduce dependence on road transport.

Diesel demand in India would remain high due to its close linkage with day-to-day economic activity. However, it is apparent that current diesel usages are more than the actual requirement due to infrastructural shortcomings in the power sector. Therefore, addressing these issues would directly help in reducing diesel demand in India.

In the near term, it would be interesting to see how the gradual hike in diesel prices impact the economy at large, and more so, the budgets of the common man. As with several such measures in the past, the step towards change has to be politically driven and with general elections in sight in 2014, only time will tell how effective this much awaited reform is for India.

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