Monday, April 14, 2014

SUPPLY CHAIN EROSION BY CONTAINER LINES

More proof how container lines are negatively impacting supply chains.  From American Shipper -- Research reflects rise in skipped sailings
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Monday, April 14, 2014
Shippers should prepare for longer transit times and more frequent use of skipped sailings or "blank voyages" by container carriers, according to recent research.
BlueWater Reporting tracks skipped sailings globally on a week-to-week basis of all inter-regional services, and skipped vessel capacity has been running ahead of levels from a year ago.
Hayes Howard, chief executive officer of BlueWater Reporting said, "Carriers are pulling sailings more frequently as one of several tools deployed to manage capacity. From a carrier perspective, pulling unneeded capacity enables them to do a better job of matching supply with demand and the new alliance agreements mean that capacity can be pulled without much impact on service commitments to shippers. Shippers may be concerned that restricting capacity will enable carriers to raise rates, but it will also enable carriers to raise supply quickly when demand increases."
Source: BlueWater Reporting.
Drewry, the London-based consultant, noted, "There was a time when vessel optimization was achieved by simply deploying the biggest ships at full speed so to minimize the number of vessels required. It was a rare example of a win-win scenario for carrier and shipper, aligning carrier profitability with service quality in terms of fast transit times." But, it added, "The global financial crisis and hugely inflated fuel prices shattered those bedrock assumptions of how to operate liner services and ever since, it has been much more cost effective to operate more ships at lower speeds.
"Slow steaming (combined with additional ships being phased into loops) was first adopted in the Asia-Europe trades and then gradually expanded from early 2009 into the transpacific and several north-south routes. Carriers quickly realized the fact that as well as reducing voyage costs, slow steaming offered a way of managing the vessel surplus that was building up as demand shriveled."
Drewry added that the average number of ships in Asia-North Europe services has jumped from eight to 11 as voyage speeds have dropped from 24-25 knots to 17 knots.
Drewry estimated that about 3 percent of ships are in idled (defined as vessels not attached to a service for 14 days or more), but notes that is a much smaller bite out of the global fleet than it was in 2009, when container ship capacity in layup reached 10 percent.
As a way of measuring the effectiveness of carriers’ capacity management tactics, Drewry said, it has compared the current supply-demand situation with what it would have been if such methods had not been adopted.
"The net result is that total effective capacity has only grown by 22 percent since 2008, whereas at “full speed,” the global capacity would have grown by 40 percent over the same period. In 2013 alone, slow steaming and lay-ups reduced available supply by nearly 3 million TEUs.