NaviTag Technologies, LLC
Market Analysis Summary
Our target markets are those shippers seeking to improve control of the cargo movement within their supply chain and government agencies striving to enhance the security of cargo in transit.
The information today is supplied independently by the multiple service providers involved and is not coordinated through a single source. To achieve end-to-end visibility, a shipper must undertake a massive data integration project with each service provider, or outsource the entire effort to a supply chain visibility company. Even then the information is historical and reliant on third party data entry that is subject to human error.
Of the total projected market of over 300 million TEUs in 2005, our efforts will be focused on those shippers with high value, time sensitive, or hazardous cargo.
We estimate that approximately 30% of the total world market would fall within this criterion, equating to over 90 million TEUs. Our security focus will be directed to those government agencies seeking to improve security of the U.S. ports involved in processing the 600,000 containers entering weekly.
With only 2% of the imports being inspected today, the concern of dangerous cargoes compromising the port operations has created opportunities for a cargo tracking/security alert device such as ours.
4.1 Service Business Analysis
We have identified three distinct opportunities within this market as having a proven need and an expressed desire to improve the visibility of cargo shipments.
- Shippers – this group has identified a need for a cargo-tracking tool that will allow their shipments to be monitored from origin-to-destination providing accurate and timely location information.
- Government Agencies – since 9/11/01, heightened awareness throughout the U.S. has led to security concerns regarding cargo entering U.S. ports. Government agencies/offices such as D.O.T., Transcom, Customs, Department of Defense (DOD), and Homelands Security have expressed interest in technology services capable of being introduced anywhere within the supply chain that provide protection against a terrorist threat from dangerous container cargoes.
- Carriers – the equipment owners are seeking an automated process of inspecting temperature-controlled containers, providing them with positional data and immediate notification of refrigeration failures allowing them to take the necessary action to avoid cargo spoilage.
4.1.1 Industry Participants
With container volume projections exceeding 300 million TEUs by 2005 and over 400 million TEUs by 2010, the market potential for this segment is significant.
Any shipper with high value, time sensitive, or hazardous cargo is a targeted customer. The container cargo that falls within this criterion would be approximately 30% of the total market equating to over 90 million TEUs per annum in 2005.
These shippers are demanding a visibility tool that will provide them with timely, reliable data regarding the location of their shipments within their supply chain. That information will allow them to manage inventory, avoid additional transportation cost (demurrage or storage charges), anticipate customer stock shortages, and reroute cargo when necessary. They require confidence in the quality of the data and the timeliness of the report to ensure correct actions are being taken.
Today’s systems do not instill this confidence because the shipper is reliant on third party, historical data. Providing historical information about where the cargo has been, based on events designated by the service provider, does not meet their requirements. The shipper is not empowered with control of the information, which limits the value of the content.
The world has been forever changed since the attack on the World Trade Center and Pentagon on 9/11/01, and the sense of security that Americans enjoyed was shattered. Security at airports, commercial facilities and government buildings has been enhanced dramatically, utilizing a variety of equipment designed to identify and restrict dangerous contraband.
U.S. ports have been specifically identified as vulnerable and potential terrorist targets and are in need of greater security measures.
U.S. government agencies and offices have allocated funds for improvement in port security, container-tracking technology, and electronic seals that detect intrusion and tampering attempts. DOD is pursuing technology that will provide accurate and timely location information as well as intrusion notification for the containers carrying munitions or supplies to military installations.
U.S. Customs is deploying agents in foreign ports to inspect containers prior to their being loaded onto vessels destined for U.S. ports and is seeking electronic seals that will confirm security integrity has not been breached after inspection.
The Maritime Administration (MARAD) is allocating funds for technology that will assist in their effort to avoid the importation of weapons of mass destruction in containers through a U.S. port.
All of these agencies and offices have been targeted as potential markets for an automated cargo tracking and intrusion alert electronic seal. Preliminary conversations with these organizations, as well as MassPort Security and the U.S. Coast Guard, have been encouraging and have resulted in request for prototypes to perform field testing.
Ocean carriers are typically the owner/lessee of the containers and chassis that are loaded by shippers for their international shipments.
Many carriers include temperature-controlled equipment in their container fleet for perishable goods such as meats, produce, chemicals and other products that require stable temperature environments. The equipment owner is responsible to ensure the unit is maintaining the required temperature and will be held responsible by the shipper for any failures that lead to cargo damage.
The carriers perform inspections of the equipment at predetermined intervals throughout the transport route; physically monitoring the operation of the refrigeration unit to confirm the required temperature has been maintained.
The physical inspections are labor intensive, expensive, subject to human error, and may experience extensive time lapses between intervals. Should there be an equipment failure between inspections, the temperature may fluctuate enough to spoil the cargo and generate a claim.
The equipment owners are seeking an effective method to automate this inspection process and provide immediate notification of equipment failure, allowing them to take the appropriate action to avoid cargo spoilage.
Our research has found the carrier market already has several companies offering solutions to meet this need, and we have decided not to focus our efforts in this area at this time.
Comprehensive research of competition within this market identifies the existing segmentation of the services available today. In each case, NaviTag Technologies offers a unique solution to address the needs that are not fulfilled by our competitors.
We differentiate ourselves by providing the cargo owners and government agencies with a tool that monitors cargo and security without reliance on third party equipment owner’s historical and inaccurate data.
4.1.2 Competition and Buying Patterns
The need to track and secure cargo is not new, and vast arrays of solutions exist from companies large and small to deal with the unique needs of each party. Merging and acting on partner messaging is typically found in supply chain management solutions while event notification and positional information of a physical device is categorized as asset management. Cargo security devices span the gamut from breakable plastic seals to hardened iron bars. The following is a breakdown of each category’s offerings:
Supply chain management – Supply chain solutions strive to manage every step of a product’s life cycle, from raw material procurement to customer delivery. After each step is automated, data exchange procedures with each business partner (supplier, carrier, trucking company, etc.) integrates the disparate information flows into a single efficient process. Examples of such solutions are X, Y and Z.
If a company already has a supply chain solution in place, an alternative is to outsource all the data exchange processes to a supply chain messaging aggregator. Only one integration is required – between the customer and the aggregator – and the burden of conversion and data quality is outsourced. An example of such a service is W company.
In both situations, integration with shipping partners aids in increasing the flow of information to the company, but partners can only provide data that is – for the most part – historical. “Where the container is” isn’t captured, “when a container passed a checkpoint” is.
Asset management – Apart from asset recovery solutions such as LoJack, asset management solutions permanently attach a wireless transceiver to a device to gain visibility and control over its usage. The transceivers range and type of data it provides is highly dependant on the application.
Container ports need to maximize the flow of containers though their facility by precisely tracking their location. Systems such as AAA & BBB address this need by creating a localized sensor network and attaching transceiver beacons on their yard equipment.
Container owners – typically the carriers – need to maximize the utilization of the thousands of containers that are scattered throughout the world. Refrigerated containers are particularly needy; an individual outage translates to spoiled cargo and lost revenue. Solutions like those from CCC, DDD, EEE & FFF utilize nationwide coverage networks with status reporting and – with CCC – remote control/restart capabilities.
In all cases, the capital investment – and benefits gained – is borne by the equipment owner. While this might not be that difficult for a Port to justify a system to track 35 pieces of yard equipment, carriers need to manage anywhere from thousands, to hundreds of thousands of containers.
Security – While the introduction of containers into the shipping industry provided far greater protection than break-bulk shipping, total losses due to theft are an estimated $54 billion annually. There are two types of security devices available in the market today that provide limited protection, a physical lock and an electronic seal.
The physical lock is straightforward – close both doors and place locks on each door handle. Variations to this model include bars, cables, and housings. Unfortunately, these approaches have the following problems.
- Key distribution to recipient/loss of the key to open the lock.
- Customs requirements to inspect the container’s contents.
- Forced access to the container though a means other than the door handle (removal of the door, cutting an access pin, etc.).
The second is an electronic seal that records a variety of activities that can be interrogated by a data collection device – typically a hand-held device. It can document actions – like a door being opened – but lacks the ability to transmit the information independently. More elaborate data capture solutions exist that can interrogate and save data on the seal – but an extensive network of these proximity activators needs to be placed throughout the entire intermodal journey.
While each of these categories offers a valuable and needed service to their customers, they lack the integration and coordination capabilities that our target market requires. Specifically:
- Supply chain solutions rely on aggregation of historical data which can be anywhere from hours to days old. The manual process from which the data is captured and the methods used to share data among partners is inherently insecure. The possibility exists that incorrect or forged data can enter the system.
- Asset management solutions track the equipment – not the cargo – and represent a significant capital cost if deployed en mass. Given the competitive nature of the shipping industry, and the costs associated with outfitting every container with a tracking device, the probability of carriers installing these devices any time soon is slim. It is also unlikely that shippers would be willing to forgo competitive pricing to select only carriers who make the investment, and government agencies (Customs, for example) cannot be limited in this matter.
Security products may deter and/or document entry into the container, but do not provide the opportunity to react to them quickly. Today’s situation demands a more proactive stance regarding security breaches, not just from a security threat standpoint, but from an inventory management perspective as well. The recipient cannot utilize compromised cargo, and alternatives need to be set in motion as soon as possible to mitigate damage.
NaviTag Technologies’ approach to the market is fundamentally different from other electronic tracking/sealing companies in a variety of ways.
Tracking/Tracing Visibility – The NaviTag monitors the cargo, not the container. This empowers the government agency or shipper with control of the data and eliminates reliance on third party sources. In this model the NaviTag owner receives timely location information, accurate data, and the ability to choose the cargoes they want to monitor regardless of the service providers involved. This allows them to change partners whenever they wish and still receive data in a consistent format and assured quality.
Security – The NaviTag provides immediate information regarding security breaches that allows the government agency or shipper to investigate and take the necessary corrective action. This system allows authorized parties (Customs) access to the cargo and notifies the NaviTag owner whenever the container has been entered. Should an unauthorized party enter the container by disconnecting the sensor seal or activating the light sensor, the NaviTag owner is notified immediately of the security breach and the shipper or government agency has the opportunity to inspect the cargo to establish if an action is necessary.
4.2 Market Segmentation
While the advent of containerization provided a simplified method of shipping goods internationally, the complexity of multimodal transport still requires a coordinated process of communication between the various service providers involved. Containerization allows goods to be transported from origin to destination in a single medium but requires the participation of as many as 10 different service providers to complete this task as outlined below.
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4.2.1 The Container Shipping Market
In 1950, shipping goods via container was introduced as an alternative to general loose cargo handling (referred to as break-bulk shipping). Since then, container shipping has become the preferred way to ship merchandise internationally, displacing break-bulk shipping in all but the largest of cargo2.
- It allows the cargo to move from in-land point of origin in one continent to in-land point of destination in another continent, without the need to handle the cargo itself – the sealed container seamlessly moves between multiple modes of transportation (“intermodal” shipment), from the back of a truck’s chassis, onto a specially built container ship, and back again on top of a truck, rail, or barge, as the case may be.
- Container shipping utilizes standard size containers. This standardization of capacity carrying units has introduced efficiencies into the management of shipping, warehousing and general distribution.
- Container shipping provided greater security from theft of cargoes and improved protection from breakage by avoiding the manual handling that took place during break-bulk shipments.
Today, almost all finished and semi-finished goods are shipped internationally within containers, including: chemicals, food products, wood/paper products, metals, minerals, plastics, machinery and various manufactured products, textile, vehicles, medical equipment, etc.
We estimate the size of the container shipping market at $120 billion ($80 billion in port-to-port revenues alone3).
The annual unit growth of the number of containers shipped averaged 8% in the 1990’s with 10% in 1999, 12.5% in 2000, 4.3% in 2001, and is forecast to increase by 5.6% in 2002. In the next decade, container terminals around the world are set to experience rapid growth, with global container handling throughput expected to reach between 300 million and 342 million TEUs in 2005 and between 407 million and 525 million TEUs in 2010.
Ocean carriers are currently taking delivery of new vessel orders that were placed during the strong growth years prior to 2001, increasing the container vessel fleet by 12.3% in 2001 and 14.5% in 2002. This additional capacity is creating pressure on rate levels and a significant reduction in revenues is expected to continue through 2002. On the positive side, this increase in capacity is positioning the ocean carriers to be prepared for the increase in volumes that have been forecast.
The dramatic growth in the container shipping industry is attributed to the improved efficiencies and lower cost of transport; opening borders and allowing manufacturers around the world to be competitive in foreign markets.
The container shipping industry grew from a single company in the 1950’s to a very fragmented industry of over 500 companies operating in excess of 2,500 vessels today. As the number of carriers increased, the frequency of sailings and speed of the vessels improved, providing manufacturers with the ability to offer their products around the world with shorter delivery times and lower transportation cost. This changed the nature of the market from dealing with a competitor around the corner to having to compete with a manufacturer on another continent.
In the U.S. alone, there are over 25,000 individual companies exporting container loads of cargo and over 32,000 importers based on the 2000 Journal of Commerce Piers report. This information is compiled from the export declaration forms submitted by exporters and from the import duty data collected by U.S. Customs and only takes into account cargo importing/exporting from U.S. ports.
The substantial volume of U.S. cargo transiting through Canadian ports is not included in these figures. There are no reports available to identify the total numbers of global shippers today but the number of individual companies around the world engaged in international container shipping has grown to the hundreds of thousands. The market is forecast to increase approximately 100% over the next 10 years due to increased global demand. The projected number of shippers will increase proportionally.
 Source: Mercer Management Consulting study submitted on behalf of the carriers to the House Judiciary Committee 3/22/00.
 Sources: L H. Clarkson & Company Ltd., Drewry Shipping Consultants Ltd.
4.3 Target Market Segment Strategy
Our choice of target markets is based on comprehensive experience within the transportation industry coupled with an in-depth understanding of the customer’s needs.
We have taken a unique approach to providing the visibility and security information that cargo owners and government agencies are seeking, but have yet to find an acceptable solution.
By capitalizing on newly developed technology and the requirements for security improvements, we have structured the timing of this venture to address the heightened demand.
As shippers strive to improve their customer service and maintain correct inventory level, they demand greater “visibility” into the status and location of their shipments. Unfortunately, the benefits gained by container shipping unearthed a different problem – lack of information standardization.
Informational “silos” existed – each party would know how to talk and exchange information with a few of the members, but not to all ten service providers. Additionally, shippers typically selected different service providers depending on terms of the shipment, further complicating matters.
To get to this information, the shipper must undertake a massive data integration project with each service provider, or outsource the entire effort to a supply chain visibility company. Each party’s messaging standard must be converted to a common format before the shipper can utilize this data.
Once completed, the next problem arises. All the data generated from each of the service providers is, by it nature, historical. Where a container is located is not part of the data. The information provided today is based on the last event deemed worthy of notation by the service provider.
The quality of this information can vary widely based on the sophistication and integration of the systems utilized by the service providers as well as the quality and dedication of the individuals entering the data. All but a few service providers rely on some sort of manual data entry/validation by field personnel, and are susceptible to human error. The market is seeking a single source solution to provide accurate and timely information regarding the location of their shipments.
While cargo location information is improving, cargo security data is practically non-existent. The shipper places a plastic or soft metal seal on a container and records the number on their documentation. Upon receipt, the receiver confirms that the seal is still intact and the container has not been opened.
Typically the first notice of a security breach is upon delivery, at which point it may be too late to take necessary actions to avoid inventory issues or establish where the invasion occurred. Containerization has significantly reduced incidents of theft over break-bulk shipping but with the increase in volume of international trade, this is still a common occurrence.
The U.S. Government is also seeking improvements in the security of cargo imported through U.S. ports. With only 2% of the 600,000 containers entering the U.S. weekly being inspected, there is a substantial threat that dangerous materials or weapons of mass destruction could be imported via a container, potentially bringing commerce to a standstill.
There are numerous U.S. Government agencies are becoming involved in the security initiatives and funds have been allocated to invest in new technologies.
4.3.1 Market Needs
The market has expressed the need to have more control in the transportation of their cargo through better information. This has manifested itself in the form of greater visibility and timely event notice so the appropriate corrective or scheduled actions can be implemented, to ensure an efficient supply chain. The areas that have been identified as lacking are:
- The need for accurate and timely visibility information instead of the existing event-based historical data.
- The requirement for improvement in the quality of data received through the current manual entry system.
- Confidence in the source of the information.
- The ability to apply a single visibility solution across all service providers involved in the end-to-end transport without expensive integration or outsourcing.
- The ability to receive visibility data in a consistent format across multiple service providers.
- Timely notification of a security breach to allow immediate inspection and the necessary corrective action.