August marks the traditional start of the peak transportation period leading up the October thru December peak holiday fulfillment period involving both traditional and online retail channels. Today we feature two Supply Chain Matters commentaries addressing two separate but important trends that will make the forthcoming period far different and perhaps far more challenging for industry supply chain teams. The first was our prior posting, Amazon’s continued strategic and tactical efforts in deploying owned logistics, transportation and last-mile delivery capabilities.
In this posting, we highlight a recent report echoing the currently gross overcapacity conditions concerning global ocean container fleets, a situation which supply chain and procurement teams need to pay close attention to in the coming weeks.
Global Trade Magazine reports that certain industry alliances involving ocean container shipping lines have now suspended shipping services available for the current peak holiday global shipping season. In this report, Why are Shipowners Parking Containships?, the publication observes that in ideal world, ship fleets would be fully utilized during this upcoming peak holiday period as goods make their way from Asian based suppliers and manufacturers to global markets in-time for the forthcoming holidays at the end of this year. Instead, the G6 Alliance has suspended transpacific service resulting in five of its six vessels being idled while the Ocean Three alliance suspended its Manhattan Bridge service idling nine container ships. The report cites Drewry Shipping Advisors proprietary data indicating that over 300 container vessels, with a combined capacity of over 800,000 TEU’s were idle by early July, at the start of this year’s peak shipping period. The report further implied that the ongoing peak period is rather weak and resulted in the decisions by shipping alliances to idle vessels much earlier in the season. More importantly, the report speculates that carriers are not only moving to park unused capacity earlier in the peak period, but further attempting to boost spot rates up by increasing load factors on remaining active vessels.
This commentary further declares:
“As deliveries of new ships continue, carriers are starting to run out of options on how to deploy them even their largest ships in today’s over-supplier market.”
The above is the obvious red flag to industry supply chains as the overcapacity crisis now reaches an extreme stage. Compounding the problem is the opening of the expanded Panama Canal that occurred in June, causing ships with 4500-5000 TEU capacity to be now idle as carriers begin to route their largest vessels directly through the canal.
For industry supply chain and services procurement teams, particularly those directly related to the retail industry, the coming peak season obviously requires very careful planning of inventory and capacity needs. Those that have a higher reliance on spot market movements and rates need to be especially vigilant in the coming months, particularly if inventory movement needs relate to supporting post-peak market needs in the January-March period. By the end of the year, the overcapacity situation involving ocean container lines should be even more of a challenge that can impact transit times as well as vessel availability.
Thus, it remains critically important for industry supply chain teams to pay close attention and double-check all planning related to inventory requirements and transportation servicing needs. This advice includes teams who have outsourced much of their transportation planning and execution needs to third-party providers. While there may be an assumption of predictable rates, industry dynamics are changing quickly, and along with this, vessel availability and global shipping transit times.
Technology can certainly aide in this area, particularly that which tracks spot ocean container shipping rates and vessel availability trends. But in the end, you cannot afford to assume that your transportation partners totally have your back, especially if you are an organization that dwarfs the shipping needs of far larger global retail or manufacturing enterprises. Small and medium businesses are often subject to the mercies of the spot market.
Insure your organization does its homework, constantly checks and validates planning assumptions and keeps a keen eye on spot market transportation rates. Consider using technology that can assist in navigating these unchartered waters.