FreightWaves recently chatted with Stefan Kalmund, CEO of technology platform provider Nexxiot, and Werner Fontanive with Deloitte Consulting to discuss a new offering between the two companies called KYX.
The offering, which is based off of Deloitte’s Know Your Client (KYC) and Know Your Cargo services, seeks to increase the data visibility of containers worldwide by tracking the physical location and status of containers alongside the financial aspects related to that container, such as any insurance belonging to that container’s goods. One of the goals of the offering is to help ports and others prevent illicit trade associated with container shipments.
This question-and-answer session was edited for clarity and length.
FREIGHTWAVES: In lay terms, how would you describe this partnership and what’s being offered?
FONTANIVE: Basically, starting backwards, we’re offering a service that puts together the financial streams and the streams of container movements, because at the end of the day, it is more than just track and trace, it’s about fighting money laundering and combating illicit trade. For that, you need a combination of knowing who are the financial players, who are the owners of the shipment and where the physical shipment is. So, we screened the market very carefully, and we looked at all the suppliers out there.
After more than nine months of due diligence of several players in the market, we decided to go into partnership with Nexxiot because we believe that Nexxiot is the only supplier that has not only the technology but also the foundation to build this open standard we are trying to bring into the market.
At the end of the day, it’s bringing a new standard to the market — a new platform — where everyone can participate. But for that, you also need device suppliers that give you secure and manipulable data that is such a quality that can be approved by regulatory bodies, otherwise the entire exercise is senseless. That was in a nutshell the approach why we decided to go down this topic, why we screened the market and why we have decided to go with Nexxiot on this one.
KALMUND: When you think about how goods are being moved around the planet, much of what we need moves in containers. In 2021, over 1.95 billion [metric] tons of cargo was sent via container ship. It’s vital to our lives. It’s really important to optimize the way these shipping containers are being handled. Some of the topics [that Fontavive] addressed, like illicit trade, are usually happening in the port. If you have the ability to protect a shipping container [from being opened] and improve the reporting [about the container’s contents] to the port authorities, then that by definition means that shipping containers can be moved much faster through customs.
There are certain ports in the world which are already starting to implement [procedures where] you can only process shipping containers through those ports if you have a full audit trail at hand. And in order to do that, you need people who are independent — that’s Deloitte’s role — and who understand the requirements for financial records and the requirements of the port authorities. It requires a partner who brings with them the trust that they are independent. And then you also require people who have capabilities in the technology to make it functional. That’s our role.
FREIGHTWAVES: Was the need to address security what prompted this partnership to happen or were there other factors?
FONTANIVE: With the well-established Know-Your-Client [KYC] programs, you only capture 70% to 80% of the problem in financial crime. Twenty percent to 30% happens in the arena of physical movement of goods. So Deloitte, together with the biggest conduct agencies around the globe, decided to close that gap. We wanted to match every container movement with the financial stream.
KALMUND: We’re currently engaged in delivering the largest IoT [Internet of Things] rollout in the maritime space in the industry’s entire history for Hapag-Lloyd. We’re running a global deployment across countries throughout the world. We are digitizing shipping containers including hardware and software. So this collaboration with Deloitte is a natural progression on the work we do with Hapag-Lloyd and numerous other clients too. We’ve seen the incidents [that Fontavive] described so many times: A container goes on a different route than planned, a container is opened at 2 o’clock in the morning in Rotterdam when it shouldn’t be accessed. Or in other instances — for example, kids’ toys were declared in that container but really it contains fireworks.
There’s lots of ways KYX will add value, but ultimately, it’s about protecting the shipments and reducing risk for all the stakeholders. It’s also about protecting the actual ship that transports the goods, of course. You don’t want a fire on your ship from misdeclared cargo like charcoal or scrap rubber. It’s also about protecting the capital and investments behind it and preventing illicit goods from being transported. We have a lot of experience with the technology and Deloitte has a lot of experience in compliance. We felt somebody needed to put these two pieces together — and make it happen.
FONTANIVE: At the end of the day, it’s a big supply chain transparency gain. With this platform, we will have end-to-end transparency on the supply chain — knowing all the participants, knowing all the players, knowing all the vessel operators, rail car operators, knowing where the containers are at every moment in time. I think that is going to make a key differentiator to the industry going forward.
FREIGHTWAVES: Is it a platform that customers can access, that tells you where the container is and the contents of the container and whether it’s been opened?
KALMUND: Correct. The word “platform” can be ambiguous because people interpret it in different ways, but ultimately, it’s a service you buy. And it’s either for specific trade lanes or for specific containers or specific parts of the fleet. Ultimately, what you receive are the insights into that shipment or those shipments, knowing exactly what you just described: that containers can be processed directly through fast lanes or green lanes, like Werner called them, and that the full audit trail is there. Think about borders, like between Mexico and the U.S., or Abu Dhabi, Saudi Arabia and any of the other borders where there could be strong interest for goods to be processed in a very fast way.
And then, certain ports in the world have already declared that by a certain date, they want to ensure that no more illicit goods can be handled. Think about Rotterdam. You probably remember the recent case at the Hamburg port where people have entered the port during the night, trying to open containers and access illicit goods. So, there’s lots of cases and it’s a multibillion dollar issue.
The advantage is, if you fully audit and trace a container for its entire trip, because you have digitized it, there’s obviously also a lot of other things you can put on top. You can suddenly look at insurance for a shipment. And so there’s lots of financial services which are being put on top of KYX.
FONTANIVE: It’s a powerful combination between a service, a utility and a platform. It’s an interaction with multiple players: The bank financing the route of the container, or the bank financing the shipment itself, the entire trade finance connects to the physical movement of the container and is matched on one utility platform or within one service. You have multiple players buying into the same service to create and generate exactly what Stephen outlined: We aim at full visibility and traceability and an audit trail that is strong enough for the authorities to accept as a qualified audit trail.
FREIGHTWAVES: Would this be from end to end, from origination to destination?
FONTANIVE: Yes, it’s end to end because we truly believe the industry will only buy into one platform. Several platforms will never work, so you need one platform that does … all the supply chain demands. It must be end to end and truly global. It doesn’t work if it’s only between Mexico and the U.S. because containers move worldwide. And that’s why you need companies such as Deloitte that have a worldwide and global footprint and you need companies like Nexxiot that are capable of scaling on a global scale.
FREIGHTWAVES: What kind of companies would be interested in this service?
FONTANIVE: We will roll out the service with the large multinational corporations that move goods globally from a production, extraction or production point to a production plant.
Like this, you capture 70 to 80% of the market. … Actually, 85% of world trade is done by the large corporations.
And then, once you have that established, the system will also allow medium and smaller players to join. Normally, they go on routes that have been predefined by the large players in this industry. [The service] works equally good on a national level in the U.S. — on rail services, which is the last large geographical pattern to cover. But also, it would work internationally, with rail service from Germany to China — that rail gateway between Europe and China, for instance. So, it would cover everything from national to truly international.
KALMUND: When it comes to the type of clients [that will use the service], that will continue to evolve. So we’re already working with three groups of clients. Group number one is the port authorities because they have a very strong interest in ensuring that the brand reputation of their own ports is positively perceived, with reducing the amount of illicit trading that goes on for that port.
Group number two are shippers and beneficial cargo owners, because they have a strong interest in ensuring that their goods arrive in time and are not held up by port authorities. This means faster processing, more accurate ETAs and shorter journey time.
And then the third group of clients is the ocean carriers, who actually own the assets (containers and ships) which transport the goods, whether they’re in rail or the maritime space. They have a strong interest in optimizing the way their assets are being used and handled. That’s the first layer, and then there are also potential partners or partner clients — anyone in the ecosystem who will be contributing services to those clients, such as an insurance company that says if you can prove to me that the assets have been handled in a certain way, then the insurance for the car or during that trip will be reduced because you have the full audit trail via KYX.
FONTANIVE: It is not only that you have the full audit trail and you have a reduction in the insurance premiums, but also in the case of an incident, you have full digital claim management because you exactly know at what point in time where was the container, who handled it, who dropped the container. So, you have full digital case management. There are varieties of services in all dimensions horizontally and vertically on the system that will arise as the system grows and as it goes into the public arena.
FREIGHTWAVES: Is there anything else you’d like to share?
FONTANIVE: Yes, apart from winning full transparency, it’s also about helping to reduce carbon footprint. And that is one of the large goals both companies have in mind, [which] is to significantly contribute to systems and services that help in reducing their carbon footprint for every company involved in the system.
KALMUND: I would add one more point. Everyone else who’s tried to do something similar in the past has tried to do it in a very captive way, meaning in a closed system, whereas we’ve opted for an open ecosystem because the more people who are involved, the more all participants benefit. For example, if you have proven that a specific client is really the owner of that shipment, then you know that this record, then that record can also go to everyone else on the same system. It’s not limited to one care, it’s not limited to one industry, it’s not limited to certain players, but the value really comes from making it accessible to everyone in the ecosystem.
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