04 Dec Move Bits Not Molecules – Transforming Freight Using Digital
There must be an enormous amount of freight haulage to Ft McMurray for the oil and gas industry. Could the industry extract some costs and cut some carbon at the same time through digital?
Regular readers of this column know that I tend to devote my energies towards more broad and sweeping analysis of the potential of digital to impact the oil and gas sector. But this article will take a slightly different tack and will bear down on a very specific function – heavy freight movements in support of the oil and gas industry. And while my observations reference Canada’s oil sands, my conclusions apply equally to the offshore sectors and to other concentrated basins of activity.
Freight – A Costly Business
I’m not wrong in asserting that tons of freight travel northwards. Just 10 years ago, there were only 6 oil sands mines. Now there are eleven. The mining side of the industry has almost doubled in size and scale. Numerous in situ bitumen players have entered and expanded their operations, adding to the highway freight load. Throw in the infrastructure players (pipelines, tank farms, power plants). There’s little to no local manufacturing of industrial kit so it’s all trucked in. Traffic on the highway has clearly grown, the weather has not improved, the recent fires highlight new risks, and it’s still one of Alberta’s more dangerous commutes.
A few years ago, when the oil sands sector was much smaller than it is today, one of my colleagues helped one of the oil sands mines take a look at its trucking bill. They were spending close to $1b per year.
The whole thing was spectacularly inefficient. No one was in charge of freight, and everyone seemed empowered to commission urgent shipments from Edmonton or Nisku. We sorted through the lanes, consolidated the carriers, rationalized the rates, began tracking the less-than-truckload (LTL) stats, and trimmed the urgent runs. It wasn’t long before the costs of shipping began to fall.
With the downturn, I’m pretty sure the sector has a whole has a basic grasp of its freight area. It’s costly enough, and the sector copies good ideas quickly.
The Digital Enhancers
The problem is that all these basic productivity improvements were undertaken before the wave of digital enablement that has swept through industry. As well, there hasn’t really been any capital availability in the past 3 years for something like logistics.
But the digital building blocks to rethink frieght logistics are falling into place:
- It’s a good bet that every employee in the freight business has at least one super computer in their jeans. We call them smart phones, but even the Apple Watch has double the compute horsepower of a Cray super computer from the 1990s.
- The cost of sensors has tumbled by 95% since 2008. The best carriers have GPS tracking in their trucks to give them visibility to where the loads are. It’s not science fiction that the pallets, crates and containers could also have their own sensors broadcasting location and condition.
- Cloud computing is now sufficiently advanced and low cost that we can think about system level optimisation and new business models that could leverage the enormous quantities of data that all the sensors, humans and trucks generate.
- Artificial intelligence tools can help make sense of all that data, from helping to manage the flow of trucking on the highway to optimizing what gets hauled.
- 3D printing costs have tumbled. Ten years ago, the least expensive 3D printer cost $18k. Today the least expensive printer is just $400 and is 100 times faster. Why haul it if you can make it cheaply on site? Just because there’s no manufacturing today doesn’t mean it needs to remain that way.
Critical Digital Innovations
If Alberta has any hope of attracting Amazon’s HQ to the province, innovation in oil logistics would seem to make sense to me. If we assume the goal is to reinvent logistics through digital, where would you start?
Apply Artificial Intelligence
How about applying AI to the enormous data pile of what is shipped by all oil sands companies? AI could more quickly figure out that two differently named products are in fact the same thing by comparing their specifications.
I suspect AI could help point to where Pareto principles play out – 80% of the items shipped represent just 20% of the cost, or 80% of shipping costs are attributed to just 20% of the items, or 20% of all items attract 80% of the urgent shipping cost, or 80% of items are common across all the operations.
The oil sands companies could easily undertake this kind of analysis through their industry trade associations or the University sector, or through crowd sourcing, or by hiring some independent analytics.
Invest in 3D Printing
AI can then guide what could be reliably printed on site, and not shipped at all. Since 3D printing can make both plastic and metal parts from 3D design files, the industry could start with some easy to make items (couplings, insulators, jackets, tools) before moving on to metal parts.
3D printing brings more benefits that just some avoided shipping cost. Early adopters report shorter lead times, less scrap and less material usage, lighter parts, a reduction in inventories, less complex manufacturing, smaller land footprint, and the ability to make parts with complex shapes and geometries.
3D printing is also an electricity-driven process, which under the right conditions, could be fed from renewable sources, and result in lower carbon emissions.
Some industries, like aircraft makers, the military, and running shoe companies, are actively exploiting 3D printing. Some big oil companies are also experimenting with 3D printing. The services and parts companies have yet to get into the game.
Connect Up The Moving Parts
Under any scenario, there will still be considerable highway haulage of kit to the oil fields. Therefore, digitally connecting the haulers to each other and to an intelligent highway system, in much the same way that the air traffic control system works, would be a winner.
In general, Canadian highways are pretty dumb assets but if there’s a shared asset that should attract sensor investment, it would be Highway 63 to Ft McMurray. Trucks that are connected to each other would be able to platoon (drive closer together, with trailing trucks enslaved to the lead truck). Platoon trials are already underway in the UK.
The data gathered from actual movements, processed through AI, would help identify optimisation opportunities.
This is not a new idea – The Norwegian off shore industry operates this way, except their mobile assets are ships and helicopters.
Unlock The Physical Internet
Nearly all logistics services providers and carriers operate their own proprietary physical assets (warehouses, docks, trucks), as well as operational assets (information about customers, routes and markets). This model calls to mind the early days of the technology companies like IBM, HP and DEC, who had their own “walled gardens” of vendor specific technologies. This model is now credited with locking in customers, inflating cost, and stifling innovation.
Logistics is now in sharp contrast to the new business model of the internet (a logistics system that moves data not goods), which is more open, transparent, global and shared. The internet is dramatically more innovative and has grown much faster than the logistics sector. Oil companies are in some respects hostage to the legacy logistics business model design, and the incumbents are structurally in a poor position to change.
The technologies are in place (cloud computing, apps) for oil sands comapnies to stand up their own joint logistics operations to challenge the incumbents. Similarly, a new entrant (like Amazon) could find fertile ground to offer oil companies a digitally enhanced logistics service. Check out their latest innovation – a trucking app.
Again, this is not a new idea. The North Sea oil sector has started a collaborative initiative across a handful of off shore players to pool their respective critical spare parts inventories. This is an important step to unlocking the physical internet.
Bring On The Robots
Remote control automation is already live in the oil sands mines – some of the mining vehicles have no human driver in the cab. This kind of automation is rapidly coming to the transportation sector, where haulers will be remote controlled.
Unfortunately, there is little experimentation with this technology outside of the mining sector, and here in Canada, we were a full decade after the Australian miners made most of the early moves. How are away are we from robots at the wheel?
There is clearly a role for the Alberta government to promote the adoption of carbon-reducing transport in the province, perhaps by offering special R&D credits for early experiments, relaxing some transport rules to permit road trials, and purchasing a handful of the latest trucking technologies (Tesla electric trucks for example) for experiments and studies through the university system.
With a provincial megaton cap on carbon emissions, the industry must do everything it possibly can to remove wasted carbon emissions from the business model so that it can continue to generate wealth from its oil assets. A little digital innovation in logistics could make a real difference.