If at all possible, transportation and procurement managers should make sure that they review two rather timely articles appearing in the August 19th edition of the Financial Times. The first, a front page article, Sharp upturn in use of shipping containers, (preview sign-up may be required) notes what international transportation managers may already be aware of, namely that a recent surge in ocean container movements to and from emerging markets has led to certain container shortages. This new surge has supposedly caught some operators by surprise, forcing up rates, and forcing carrier Maersk to apologize to some customers. Mind you, in late 2009 and early 2010, there was a huge surplus on containers laying idle at various ports.
The second article, The container industry’s ship comes in, provides what I feel is rather more revealing evidence that container carriers are finding novel ways to boost revenues in the wake of gross excess capacity while achieving their own cost reduction goals. The article begins by noting how six older ships owned by Maersk had been laying idle for over a year on the west coast of Scotland. Five of these ships were ‘fast ships’, but consumed huge amounts of fuel. There was speculation that these vessels would lay idle for quite some time. By June, booming shipping volumes caused Maersk management to activate these ships. Similar scenes are playing out in other idle ship storage areas, and industry officials note a swing back to normality. Shipping lines however read the same economic data that we note on Supply Chain Matters which indicate a potential slowdown in global manufacturing for the second half.
So what do they do to address normalization? They continue to run ships at slower speeds which save fuel and reduces costs while achieving green and carbon reduction goals. But in the midst of a surge in shipping volume, capacity becomes constrained because of slower transit times (we call that cycle time in manufacturing and lean parlance). Slower transit means that container space per individual ship becomes a premium on any one slow voyage, and shipping lines can now charge a higher rate to time-sensitive shippers. Slower transit also causes containers to turn more slowly, causing imbalances with supply and demand needs, which also adds to rates.
What a great business model for shipping lines who desperately needed means to build rebuild revenues and overcome gross excess shipping capacity. A novel demonstration of ‘the new normal’.
If your supply plans call for volumes of ocean container shipments into Europe or North America in the coming weeks, you might want to factor in the reality of higher rates with more attention to safety stock. Ocean container lines have apparently found a novel way to pass their burdens on to shippers.