Transport industry on the verge of digital boom

The demand for digital solutions in the transport industry is on the rise, expected to grow 600% by 2030, at the annual rate of 20%, according to the Institute for Statistical Studies and Economics of Knowledge at the Higher School of Economics. The annual Digitalization of Transport conference, organized by the Today Conference Center, focused on the key technology that will promote a digital breakthrough for the industry and create the biggest economic effect. Invest Foresight covers the most important outcomes of the discussion.

Focus on effectiveness

Conference participants noted that blockchain remains among the most popular technologies transforming the transport industry. This technology is particularly relevant for transport companies’ main activity which is transportation and especially freight shipping. There is a segment of broker operations involving transport and freight shipping, and supply chain management, says Artem Genkin, Doctor of Economics, President of ANO “Center of Protection of Bank Clients and Investors” and co-author of Blockchain: How It Works and What Awaits Us Tomorrow. However, regardless of the niche, the distributed ledger technology (DLT) substantially simplifies the movement of goods along the global supply chains and, most importantly, helps reduce supply chain management costs without losing on speed. For example, in maritime shipping, one batch of cargo requires around 20 supporting documents, 70% of data in these documents duplicated. For comparison, implementing blockchain has improved document management and reduced the data input by 80%, making it easier to modify and clear freight and reduce the risk of penalties for violating customs regulation (according to Accenture).

It is not surprising that by the end of 2021, at least 12% of companies in the industry implemented blockchain into transport logistics while 41% planned to start using it within the next five years.

Therefore, within five years, more than half of companies in the industry are highly likely to start implementing the blockchain technology and all members of the industry should be ready for it. We should master this technology and understand its drawbacks and benefits,” Artem Genkin notes.

The implementation rate will boost the expected economic effect, among other factors. For example, Morgan Stanley estimates the potential earnings from implementing blockchain at almost $0.5 trillion.

In-house optimization 

Digital technology will not only make transport companies’ operations more effective. They can streamline and cut the costs of many in-house processes that remain cost-demanding and complicated in execution. Blockchain simplifies and lowers the cost of compliance procedures concerning vehicles. It can rule out potential frauds. A blockchain-based digital passport can prevent odometer or ownership history manipulation, Anton Genkin specifies. Indian car manufacturer MG already works on this kind of project with blockchain company Koinearth: Upgraded crossover MG Astor already has a DLT passport. Blockchain makes it easier to expose counterfeit car parts as Renault has launched Xceed, a blockchain platform tracking car parts and Russian Railways is working on a DLT solution to monitor the condition of wheel sets for its trains.

In addition to blockchain, industry players will be more widely using such technologies as artificial intelligence, including computer vision and decision support system as well as solutions based on the Internet of Things.

For instance, the industry is already utilizing the so-called digital twin model, which allows for an easier and more efficient control of vehicle technical condition. The Freight One company is already testing this solution as part of the Carriage Digital Twin project, monitoring the condition of rolling stock car wheel sets through the use of special sensors. According to Freight One product owner Anna Antsiferova, this has allowed for prompt repair of over 2,000 railcars in 2022 alone, with defect detection accuracy reaching 98%. The company plans to further develop solutions for optimizing business processes based on machine learning, which will allow for more accurate distribution of railway carriages across the transport network, let alone for a greater planning accuracy.

Digital finance

Particular efforts will be made to use digital technologies for optimizing payment system in the industry, as well as to ensure operations to develop internal documentation. Such operations still remain a weak spot in the industry that reduces efficiency indicators. This is not so much about introducing software products that already exist in the market, such as tools for automation of accounting and finance systems. The use of integration platforms, which allow for digitization of search, order and payment for vehicles, as well as of insurance of goods or passengers for many participants in a transport chain, is coming to the fore – which ultimately results in optimization. According to Kirill Borundayev, Director of Development at VEZUBR, automated calculation of transportation costs saves up to 80% of the shipping time, and the same level of optimization can be achieved by participants in the supply chain through switching to electronic document flow as well as the use of the system of digital continuous cargo insurance. Russia’s Ministry of Transport estimates that the introduction of an information system for the use of electronic transport documents across the country will increase revenues to budgets at different levels through domestic motor transportation by 90% by 2030, notes Anton Shevchenko, director of transportation EDF at the ASTRAL group of companies.

In the long-term, digital technologies may also fundamentally change the vehicle ownership system. Artem Genkin believes that there is a possibility for a shared ownership format, with all information about the latter to be stored in the blockchain platform. The technology also opens up opportunities for automating the interaction of all participants in car rental process, both for KYC checks of a renter and storage of a rental agreement, as well as for automatic payment after the vehicle is returned. The option of rental through blockchain platforms will also be available for unmanned vehicles.

In the future, self-driving cars will be able to optimize routes as well as cost of trips by real-time monitoring of traffic and client requests. Payments will be made through blockchain-based secure P2P transactions, eliminating the need for centralized payment services,” Artem Genkin concludes.

Barriers to digital transformation

However, the introduction of digital innovations in the industry is hampered by a number of barriers – particularly, a relatively slow progress in transport infrastructure development as well as insufficient interaction between industry participants and an extremely unbalanced digitalization in organizations. Sadly, the amount of obstacles is increasing, including substantial security threats during implementation of digital solutions in the transport industry, particularly as regards those from foreign vendors. In addition, innovative developments are often implemented by startup companies that always find it hard to expand their business.

In the former case, putting an emphasis on technological sovereignty could be an option. According to Konstantin Trofimenko, head of the working group on studies of smart cities at the Faculty of Urban and Regional Development of the National Research University – Higher School of Economics, it is necessary to consider a 100% probability of harmful external influences, and all digital technologies introduced in the transport sector must undergo security testing. The focus on import substitution, including long-term import substitution, as well as on efficient use of resources, remains crucial. There are also windows of opportunity for entrepreneurs in Russia who develop unique domestic solutions for the industry, including opportunities provided by the Public Council under the Ministry of Transport.

In case you cannot introduce your technologies in the industry due to some reason, contact the Public Council and we will consider all proposals, without exception,” First Deputy Chairman of the Public Council Boris Loran clarified.

Experts will evaluate the development, provide further support and take extensive outreach efforts, Loran added.

By Olga Blinova

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