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2016

Egypt’s Suez Canal Authority is conducting talks with the world’s largest container-shipping operators to change the way it charges tolls for crossing the waterway by levying charges for three or five years in advance, its chairman says.

 

“We’re talking with the big carriers about a scheme to deposit a certain balance and every time their ships transit, a deduction will be made,” Mohab Mamish, Suez Canal Authority chairman, recently told The Wall Street Journal. “We will offer—in return—a discount of around three percent in transit rates.”

 

Mamish says the talks with Maersk Line, a unit of Danish conglomerate A.P. Moller Maersk A/S, Geneva-based Mediterranean Shipping Co. and France’s CMA CGM are going well, and an agreement may soon be reached—and could go into effect at the beginning of next year. A spokesman for Maersk Line, the world’s largest container operator by capacity, confirmed the talks. MSC and CMA didn’t immediately respond to WSJ requests for comment.

 

The canal authority spent $4 billion last year on an expansion to deepen the waterway, introducing two-way traffic in August 2015 and vastly increasing the canal’s capacity, but revenue this year came in only marginally higher. The Suez generated $3.18 billion in the first half, up four percent from the corresponding period in 2015.

 

The Suez Canal Authority’s proposal aims to secure revenue as the waterway faces increased competition for ship transits from the recently expanded Panama Canal, during one of the longest-ever downturns in the shipping industry. Freight rates for container operators have been well below break-even levels for the past two years. It’s worth pointing out that the Suez Canal Authority said it earns more than $1.5 billion a year in tolls from Maersk, MSC and CMA.

 

If a deal for advance payment is reached, it will be separate from the pricing for other operators crossing the isthmus. The Suez Canal Authority will announce its tolls for 2017 in January, and Mamish says it will take steps to stay competitive.

 

“A cut in tolls is under consideration,” Mamish says.

 

Such perspective isn’t universally shared. Jorge L. Quijano, the Panama Canal Authority’s chief executive, told The Wall Street Journal during the Danish Maritime Forum conference that Panama doesn’t plan to follow Egypt’s Suez Canal in asking major shipping lines to pay tolls three to five years in advance in return for a discount.

 

“In these difficult times, I think shipping companies would prefer to have flexibility in paying tolls rather than signing up for long-term commitments,” Quijano said, a second Wall Street Journal article reports.

 

The Panama Canal handles about a third of Asia-to-Americas trade. It’s canal authority spent $5.4 billion on an expansion that included a new set of wider locks which opened in June, accommodating Neo-Panamax ships carrying up to 13,000 containers, rather than 5,000 containers previously. The new locks have made the Panama Canal more competitive with the Suez Canal for larger vessels, shortening the one-way journey by sea from Asia to the U.S. East Coast by roughly five days and eliminating the need for a trip around Cape Horn to get to the Atlantic.

 

Quijano expects the canal to generate $2.86 billion in revenue this fiscal year, up $350 million from last year. That’s because the canal authority projects cargo volumes through the canal to increase by 10 percent to 12 percent in the year ending September 2017, as well as continuous growth in coming years as the shipping industry emerges from its downturn. Container ships make up 47 percent to 50 percent of the canal’s revenue, bulk carriers make up approximately 20 percent and tankers around 15 percent of the revenue. Other ships such as car carriers and general cargo ships make up the remainder.

 

What are your thoughts about costs of using the two canals? Does paying in advance at a discounted rate make better sense, or is it better for shipping companies to avoid long-term contracts?

As companies strive to reduce their environmental costs, evaluating total cost of ownership provides a means to achieve greater environmental accountability and better resource management, according to a new report.

 

When done effectively, a total cost of ownership approach to goods and services can deliver financial savings and other business benefits, the report from CDP, formerly Carbon Disclosure Project, explains. As the report, “A Paradigm Shift in Total Cost of Ownership” notes, by assessing cradle-to-grave impacts, including environmental factors such as emissions from suppliers as well as those of consumers using the products and services, companies may reduce their costs and “push innovation” in business.

 

“We looked at whether companies were seeing opportunities through climate change, and whether they were engaging their suppliers—not just where the emissions are but where the solutions are,” Dexter Galvin, CDP’s head of supply chain, says in an article on Environmental Leader.

 

I was interested to read that of the Global 500 companies responding to the survey, 55 percent said they found business opportunities resulting from modified consumer behavior due to climate change. Furthermore, 69 percent report increased demand for lower-carbon products and services in 2016.

 

The report highlights some of the world’s largest purchasers—such as Walmart, Unilever, General Motors, the U.S. Navy and the U.S. General Services Administration—as examples of total cost of ownership approaches to making environmental sustainability a key element of business decisions. These organizations use their significant purchasing power to reduce natural resources required to make and use their products, the report explains. They are also asking suppliers to monitor and disclose their environmental impacts.

 

The report includes a case study that analyzes the potential cost savings of Hewlett Packard Enterprise’s Moonshot servers based on the U.S. military’s draft Acquisition Guidance, which assesses the life-cycle impacts and costs of purchase systems. The study finds that replacing traditional servers with extreme low-energy servers like Moonshot would have the potential to cut annual greenhouse gas emissions by up to 100 million tons. There also is the potential to save customers up to $12 billion in internal energy costs, and reduce total environmental impact by up to $20 billion.

 

I was also interested to read in its disclosure that Alcoa says “our customers are increasingly asking for innovations and products to enhance their energy efficiency and reduce the CO2 emissions associated with the usage of their products…As a result of increased customer demand for energy efficiency, our Engineered Products & Solutions business group signed a number of valuable contracts throughout 2014, including a $1.1 billion 10-year supply agreement with Pratt & Whitney for enhanced, energy-efficient jet engine components.”

 

Finally, the report notes that 77 percent of the responding companies said they engaged with their suppliers on climate change strategies in 2016, which is up from 67 percent three years ago. What’s more, 58 percent of these companies engaged with their customers on climate change—more than three times the number just three years earlier. Be that what it may, Galvin says, when evaluating total cost of ownership, there is still much work to be done.

 

“We’re seeing 77 percent of these Global 500 companies actually engaging their supplier on climate change, and that paints a very positive picture,” Galvin says. “But if you look at the 4,000 companies responding to CDP’s supply chain program this year, we see a massive lack of engagement with supply chains: only 27 percent of those companies are engaging their supply chains. So, for the vast bulk of organizations, they aren’t doing enough at all.”

 

I’d like to know your thoughts on engaging with customers and suppliers on environmental sustainability. Are those discussions happening in your organization?

What’s most interesting to me about the massive distributed denial-of-service (DDoS) cyberattack last Friday isn’t that seemingly benign devices such as webcams, surveillance cameras and digital recorders were used as an army of malicious botnets, but that the sheer magnitude of the attack exposed the Internet’s vulnerabilities.

 

Apparently, hundreds of thousands—and possibly, millions—of Internet-connected devices were previously infected with a malicious control software, named Mirai. That code “guessed” at factory-preset passwords, which often are “admin” or “1234”, and turned them into an army of robots. Last Friday, each one was commanded, at a coordinated time, to bombard a small company called Dyn DNS with messages that overloaded its circuits.

 

Making matters worse, the attacks came in waves. Dyn said it had resolved one morning attack, which disrupted operations for about two hours. Then there was a second attack a few hours later that caused. By Friday evening, there was a third attack.

 

Dyn, an Internet middleman company, directs Internet traffic so when people type a URL into a web browser, they are directed to the correct site. Dyn spokespeople now say tens of millions of IP addresses were used, and there was so much resulting junk traffic, it froze the company’s equipment. The consequence was that the attack took down popular websites such as Twitter, Spotify, Netflix, Reddit, Airbnb, the Financial Times and The New York Times’ news feed.

 

“The sheer volume and consistency of these attacks was unprecedented,” said Dyn’s chief security officer Kyle York. “We run 18 data centers globally and it was hitting all of them at different and unique times. It was a very sophisticated attack involved tens of millions of IP addresses and the complexity of the attacks is what’s making it very challenging for us.”

 

Software IT company Dynatrace monitors more than 150 websites, and it found that 77 websites were affected by the cyberattack, CNN Money reports. The disruption may have cost companies up to $110 million in revenue and sales, according to CEO John van Siclen.

 

The attackers took advantage of traffic-routing services such as those offered by Alphabet Inc’s Google and Cisco Systems Inc’s OpenDNS to make it difficult for Dyn to root out bad traffic without also interfering with legitimate inquiries, Reuters reports.

 

“Dyn couldn’t simply block the IP addresses they were seeing, because that would be blocking Google or OpenDNS,” Matthew Prince, CEO of security and content delivery firm CloudFlare, told Reuters. “These are nasty attacks, some of the hardest to protect against.”

 

The U.S. Department of Homeland Security and the Federal Bureau of Investigation have announced they are investigating the attacks, as is the U.K.’s Home Office. The Department of Homeland Security announced it held a conference call with 18 major communication service providers shortly after the attack began, and is working to develop a new set of “strategic principles” for securing Internet-connected devices.

 

Much of the fallout remains to be seen, however Linux Systems analyst Hayden James says the impact of the cyberattack on businesses can be significant. “Even though it’s not a physical bomb, it has some similar effects,” James told CNNMoney, citing the loss in business and advertising revenue. He believes this is the worst DDoS attack in recent memory, but future attacks could last longer and cripple the U.S., like one that impacts trains or the stock market.

 

“There’s a strong possibility of far more sophisticated attacks that could shut down the entire Internet for everyone for hours, if not an entire day,” James says.

 

What are your thoughts on the cyberattack on Dyn? Do you now think differently about the Internet of Things and inherent lack of cybersecurity? What would the impact be on your supply chain if the Internet was down for a full day?

As details of more cyberattacks emerge, and the threat of attacks continues to grow, companies take more steps to improve cybersecurity. For example, companies increasingly work to engage and educate employees, and bolster anti-virus, password management and network security strength.

 

Some companies are also working to secure their cloud and better manage their backups to protect against so-called “ransomware” attacks. In this type of attack, hackers find a company’s critical data and then encrypt it—thereby digitally locking the owners out because only the person with the digital “key” can unlock and access that data. The hackers then offer the victim access to the “key” for a “ransom.” An organization under such an attack can either restore the locked data from a recent backup or pay the ransom.

 

I was interested to learn about the results of a recent survey by the Risk and Insurance Management Society (RIMS) and how survey respondents’ perspective on cybersecurity insurance is changing. It found that 80 percent of the respondents said their company bought a standalone cybersecurity policy in 2016, an article in CFO reports. As RIMS explains, policies covering cyber exposures exclusively are now the norm for many large companies.

 

The annual RIMS cyber survey polled 272 respondents (from companies with more than 1,000 employees and an estimated annual revenue of more than $1 billion) on issues such as exposure concerns, first-party and third-party risk, and government regulations. Almost 70 percent of the respondents said their company now transfers risk of cyber exposure to a third party. Interestingly, 24 percent of the survey respondents said their companies will spend more than $1 million on cybersecurity protections, including active monitoring and employee education, by year-end.

 

“Failure to keep pace with technological advancements will leave an organization at a terrible disadvantage,” says Julie Pemberton, president of RIMS and director of enterprise risk and insurance management for Outerwall Inc. “Embracing technology has enabled organizations to strengthen their performance but at the same time, it has created many new exposures which risk management must address.”

 

Survey respondents said they are most worried about reputational harm (cited by 82 percent of the respondents), notification costs (76 percent) and business interruptions caused by both network outages (76 percent) and data loss (75 percent) resulting from cyber breaches. Cyber extortions (63 percent) and the theft of trade secrets or intellectual property (42 percent) are also concerns.

 

Tellingly, the purchase of standalone cybersecurity policies increased 29 percent over the previous year. That’s thanks, in part, to more versatile insurance packages, says Emily Cummins, a member of the RIMS board of directors.

 

“The take-up rate increases as more people are educated in the space,” says Cummins, who is also the managing director of tax and risk management for the National Rifle Association. “As insurance suites become increasingly available, more and more companies want to procure a plan that can fit their own unique needs.”

 

Companies with large supply chains may be pressuring vendors to invest in more robust cybersecurity programs, driving at least part of the growth in the sector, Cummins says. For example, 25 percent of the respondents said their company bought standalone insurance because of contractual obligations with other companies, a 17 percent increase from 2015.

 

“The strength of an insurance marketplace is determined by how effectively insurers can respond to the needs of the buyers,” Cummins says. “The evolution of products that are specific to individual companies has been really impressive.”

 

What are your thoughts on insurance in case of cyberattack? Does your organization have such a policy?

Drones may not be used to deliver packages—or even pizzas—in the U.S. anytime soon but they are being used in global medical logistics. Indeed, the technology now plays a significant role in delivering medicine to people in places where the terrain is rugged.

 

Unmanned aerial vehicles (UAVs), or drones, are being field-tested for medical uses in numerous locations in the U.S. and abroad. For example, drones successfully delivered small aid packages after the Haitian earthquake in 2012, and in Papua New Guinea, Doctors Without Borders used them to transport dummy TB test samples from a remote village to the large coastal city of Kerema, according to a Mayo Clinic report.

 

Unlike big, multimillion-dollar military drones, the small, rotary-wing aircraft used commercially can carry a 5-pound payload for 30 to 60 minutes of flight time, with a range of about 20 to 60 miles, the report explains. They can be manually operated or preprogrammed to fly specific routes, need almost no room to land, and can even drop packages from a low hover, making them ideal for medical applications in remote or rugged locations, or those which are both.

 

A UPS story that ran on Wall Street Journal reports that last summer, a drone carrying 10 pounds of prescription medications and other medical supplies successfully flew a 35-mile round trip to a rural health clinic in western Virginia. If the journey was made by car or truck, it would normally take 90 minutes each way due to the bumpy backroads. The drone, designed by UAV developer Flirtey, made the trip by air in nine minutes, UPS reports. Coordinated with support from NASA, the flight marked the first FAA-approved drone delivery in the U.S.

 

“Drone technology has the potential to expedite the movement of critical medical supplies across difficult-to-access geographies while at the same time providing pictures of the situation on the ground beneath the drone’s flight path,” says Mark Wallace, senior vice president of global engineering at UPS. “This improved situational awareness allows for proper resource allocation and mission prioritization, which are critical in times of disaster.”

 

I was also interested to read that the country of Rwanda is partnering with drone startup Zipline to deliver medical supplies to five of the country’s hospitals. Within a year, it plans to expand the program to nearly half of the country’s 45 hospitals, a story on CNN Money notes. The drones will make up to 150 deliveries a day.

 

Previously, it took an average of four hours to make an emergency delivery to a hospital. With a drone, those deliveries can be completed in 15 minutes, Jean Philbert Nsengimana, Rwanda’s minister of information and communication technology, says in the story.

 

“In certain cases it was really bad,” Nsengimana says. Roads could become impassable during the rainy season, slowing vital deliveries from the National Center for Blood Transfusion.

 

It’s cost-prohibitive to keep every supply on-hand in the country’s hospitals, so some medicines are only delivered to a hospital when there’s a specific need, Nsengimana says. This is problematic, however, if a patient is hemorrhaging, and a certain type of blood isn’t available. Postpartum hemorrhaging is the leading cause of death for pregnant women in Rwanda, CNN Money explains.

 

The Zipline drones are fixed-wing drones which resemble small planes with a long wing, rather than quadcopters, the most common type of small drone. Fixed-wing drones are more efficient, allowing Zipline’s drones to complete trips up to 93 miles. Each 31-pound drone’s wingspan is about six feet.

 

As the drone flies over a hospital, it releases a package. The package then slowly descends using a disposable parachute. Nsengimana says his government is convinced the drones are safe, in part because they have emergency parachutes that deploy when the system fails.

 

“In the worst case scenario, if an aircraft went completely out of control, it wouldn’t cause any significant damage,” Nsengimana says.

 

What are your thoughts on the use of drones in global medical logistics? Will their use soon be commonplace?

The recall of Samsung’s Galaxy Note 7 smartphones is interesting, not just for the sheer scope of recalling nearly three million phones, but also for the supply chain problems of trying to quickly replace batteries and phones. Perhaps more importantly, it isn’t easy for consumers to return the phones—which may burst into flames—so the impact on both the company’s bottom line and consumer loyalty remain to be seen.

 

Samsung began a massive recall of 2.5 million Note 7 phones in early September, just weeks after they launched, due to lithium-ion batteries exploding while charging. The company said at the time it would immediately stop sourcing its batteries from the problematic supplier, and divert orders to another supplier instead. Now, however, Samsung has permanently halted production and sales of the Note 7, following complaints that its replacement devices were also catching on fire. An expanded U.S. recall was ordered Thursday for all Samsung Galaxy Note 7 smartphones, including replacements.

 

“Consumers should immediately stop using and power down all Galaxy Note 7 devices, including Note 7 devices received as replacements in the previous recall,” the Consumer Product Safety Commission said in a statement.

 

Samsung said in a separate statement from its U.S. headquarters yesterday that it would offer a $100 credit to customers who want to exchange the Note 7 for a different Samsung device.

 

“We appreciate the patience of our consumers, carrier and retail partners for carrying the burden during these challenging times,” said Tim Baxter, president and COO of Samsung Electronics America. “We are committed to doing everything we can to make this right.”

 

Samsung said it was working with the CPSC, carriers and retailers to get customers to return the affected phones. That, however, is exceedingly difficult.

 

CNNMoney reports that FedEx, UPS and the U.S. Postal Service have announced that the phones will not be allowed on their planes and there will be tight restrictions on when their trucks will be allowed to carry the phones. U.S. Department of Transportation guidelines prohibit air shipments for any lithium battery products recalled for safety reasons.

 

Shipping returned phones by ground transportation is also complicated. FedEx Ground “will accept new or used devices, but only from mobile phone retail locations...only in packaging that meets strict regulatory guidelines,” FedEx spokeswoman Rae Lyn Rushing said, CNNMoney reports. The company will not accept any phones from “individual customers or through retail outlets, including drop boxes.”

 

To make sure the returned phones are in secure packages, Samsung is sending thermally-insulated “return kits” to users who contacted the company about shipping back the faulty smartphone. The kit comes with a static shielding bag for the phone, which is then placed into a small box. That package then goes into a slightly bigger box, and ultimately a shipping box. The outermost box is lined with ceramic fiber paper designed to handle and contain extreme heat. The package also comes with safety gloves and assembly instructions.

 

“A device containing a lithium ion battery subject to a recall must be shipped in accordance with government regulations, and these special boxes are required by government regulations,” the company writes in a letter shipped with the kit, CNNMoney explains.

 

Regardless of whether the issue lies with a lithium ion battery or some other component, consumers face an arduous process of returning phones, which likely will further strain loyalty. Furthermore, halting production of the phones just weeks before Black Friday and the holiday shopping season is sure to have an impact on sales as well as stock prices.

 

What are your thoughts on managing a recall of this size? How do you think consumers will respond?

Artificial Intelligence (AI) holds tremendous potential to have an impact on everything from healthcare, education and manufacturing to home automation and transportation. Then again, noted theoretical physicist Stephen Hawking has expressed concern about AI, noting that although early forms of AI developed so far have already proved very useful, he fears the consequences of creating something that can match or surpass humans. Hawking and a host of scientists and entrepreneurs have also expressed additional concerns in a letter, titled “Research Priorities for Robust and Beneficial Artificial Intelligence: an Open Letter” last year.

 

With that in mind, I was interested to recently learn that Amazon, DeepMind/Google, Facebook, IBM and Microsoft have announced they are creating a non-profit organization—named the Partnership on Artificial Intelligence to Benefit People and Society (Partnership on AI)—to advance public understanding of AI and formulate best practices on the challenges and opportunities within the field. The objective of the Partnership is to, as the group explains in a statement, address opportunities and challenges with AI technologies to benefit people and society. The organization’s members will work together to conduct research, recommend best practices and publish research in areas such as ethics, fairness and inclusivity; transparency, privacy and interoperability; collaboration between people and AI systems; and the trustworthiness, reliability and robustness of the technology.

 

In a joint statement, Mustafa Suleyman, co-founder and head of Applied AI, DeepMind, and Greg Corrado, senior research scientist, Google, said they “strongly support” an open, collaborative process for developing AI.

 

“This group is a huge step forward, breaking down barriers for AI teams to share best practices, research ways to maximize societal benefits, tackle ethical concerns and make it easier for those in other fields to engage with everyone’s work,” Suleyman and Corrado write. “We’re really proud of how this has come together, and we’re looking forward to working with everyone inside and outside the Partnership on Artificial Intelligence to make sure AI has the broad and transformative impact we all want to see.”

 

The organization’s founding members will each contribute financial and research resources to the partnership and share leadership with independent third-parties, including academics, user group advocates and industry domain experts. There will be equal representation of corporate and non-corporate members on the board. The Partnership also says it is in discussions with professional and scientific organizations, such as the Association for the Advancement of Artificial Intelligence (AAAI), as well as non-profit research groups including the Allen Institute for Artificial Intelligence (AI2), and anticipates announcements regarding additional participants in the near future.

 

“These are truly exciting times for AI,” says Subbarao Kambhampati, president of AAAI. “The rapid research advances are expanding the scientific scope and day-to-day impact of the field, and are spawning enormous public interest. The time is ripe for a concerted job, of the kind this partnership promises, toward fostering the public’s understanding of how AI will augment and benefit our lives, and facilitating thoughtful dialogue about the responsible uses of this technology.”

 

The use of AI has significant potential for manufacturing and the supply chain. It will be interesting to watch the work of the Partnership on AI and other organizations as they address emerging challenges and opportunities for AI technologies.

Executives at companies in many industries are thinking about managing a product safety or quality crisis. Indeed, 42 percent of the respondents to a recent Deloitte poll said they expect government agency scrutiny of product safety to increase through 2017. Interestingly, only 15 of the respondents said their company is fully prepared to manage a product safety or quality crisis.

 

Almost 20 percent of the respondents reported that their companies experienced a business disruption due to a product compliance, safety or quality-related issue within the past 12 months. As would be expected, respondents reported higher incident rates in the consumer product, automotive, life sciences and industrial product industries.

 

“The stakes continue to rise on product safety and quality management,” says Don Mays, Deloitte Advisory managing director of product safety and quality with Deloitte & Touche LLP. “Lapses in product safety and quality can do significant financial and brand reputation damage. Taking a centralized, collaborative and analytics-enabled approach to effectively manage product integrity can help companies identify and respond to emerging issues more quickly.”

 

The good news coming out of the study is that almost 35 percent of the respondents said their organizations have secured predictive analytics technologies to support product safety and quality management. The flip side, however, is that slightly more than five percent of the respondents describe their use as “advanced.”

 

“Advanced analytics and data science remain largely untapped in product safety and quality management, often because it takes time and money to shift programs from largely manual, lookback efforts into centralized predictive coding,” says Derek Snaidauf, Deloitte Advisory principal in advanced analytics, Deloitte Transactions and Business Analytics LLP. “But early alerts and risk ranking of anomalous events can offer internal investigators the ability to react quickly and help head-off product quality and safety issues as early as possible. Well-run product safety and quality management analytics can also help improve compliance programs, customer satisfaction and brand perceptions while reducing quality management costs.”

 

I am reminded by this survey of a similar Deloitte survey last year, which found that although 42 percent of the automotive executives responding to the survey said they expect more industry recalls in 2015 and 2016, only eight percent said their organization uses advanced predictive analytics to help prevent, prepare for and manage recalls. What’s more, at the time, nearly 25 percent of the respondents said their company has no operational product safety and recall anticipatory analytic capabilities.

 

The problem, Snaidauf from Deloitte said at the time, is that many automakers still take a manual, rearview-mirror approach to vehicle quality and safety. However, leading OEMs are starting to adopt innovative analytic capabilities like proactive sensing for early issue identification and command centers for campaign management, he said.

 

“By cross-source correlating internal and external data sources, employing specialized advanced analytics, and leveraging interactive visualizations, these companies can improve customer satisfaction, vehicle safety, and brand perceptions,” Snaidauf said. “They also can realize significant reductions in their total cost of quality spend.”

 

Regardless of your industry, do you expect increased federal agency scrutiny of product safety? Secondly, do you think your company is fully prepared to manage a product safety or quality crisis?