IMPACT OF CONTAINER LINES ON SUPPLY CHAINS

 

AN OLDIE BUT A GOODIE.  This was written a few years ago before the pandemic and everything that has happened with canceled sailing, ship layups, empty containers, and more. all these happenings make this paper relevant.

SUPPLY CHAIN PERFORMANCE EROSION
--IMPACT FROM ACTIONS OF CONTAINER LINES--

Supply chains are complex with an evolving landscape of stakeholders and practices. Container lines are important participants that affect supply chains with their operational changes. Today:

• fewer carriers are in business because of mergers and bankruptcies
• alliances, slot exchanges, and vessel sharing among carriers have been created and changed
• shipping routes are often revised
• sailing schedules are made and reworked; and
• “slow steaming” is an ongoing practice.

In addition, carriers have gotten bigger and bigger ships to meet trade growth and to reduce costs. Mega-ships are 18,000+ TEU (twenty-foot equivalent) and rival the size of an aircraft carrier. Port authorities are deciding whether to invest significant monies to handle these vessels. They must be able to quickly berth, unload, load, and get the big ships sailing again to minimize congestion and delays.

SUPPLY CHAINS

Some shippers care only about the rates they pay; companies with leading-edge supply chains know differently. Carrier operations have repercussions. The effects are about more than transport; they are about supply chains.

Performance reliability is important for supply chain effectiveness. Firms create weekly buckets of production/build plans and logistics plans. These are dynamic and critical because they often involve high volume items, seasonal goods, or new products. The plans reflect underlying lead times, which include transit times, from suppliers to factories and from factories to customers and distribution centers.

When container lines change operations, there are corresponding changes to underlying transit times in logistics and build plans. Services that are slower, unreliable, and inconsistent, require companies to go into fire-fighting mode to compensate for problematic service. Significant expediting is used-- a sign of process breakdown--and creates de facto chaos. Products may be flown to keep production lines going or to meet sales needs.

Then there are uncertainties with mega-ships. How will they be filled if supply exceeds demand? What will carriers do to ameliorate under-utilized capacity—and will it affect transit times?

Also, what will be the time factors getting mega-ships into and out of ports? If fewer ports opt-in to handle the ships, what does that do costs and to the time from the port to distribution centers or to end-use customers? All these create scenarios of questionable time consistency. How do supply chain organizations deal with such vagaries for build and delivery plans and to effectively manage supply chains?

Uncertainty creates commercial and operations risks for supply chains. It is a driver for carrying extra inventory to buffer the unknown. Multinationals, with their global scope, are particularly concerned with these events.

To deal with varying transit times, more inventories—more safety stock--are added throughout the production supply chains. Additional working capital is tied up in raw materials, work-in-process, and finished goods. This is investment that could be used elsewhere. Such added inventories are an anathema to both supply chain management and lean logistics. The net result is a third group of inventories in the supply chain.

Many items have short shelf lives. Firms in dynamic, volatile businesses, such as fashion, and ones dealing with strong seasonality, such as retailers with Christmas, know the impact of product life cycles. Not having sufficient products timely for peak times creates problems. This, in turn, factors into managing product portfolio complexity and assortment optimization. These are important for both brand and private label items. Supply chain cost and performance have underlying roles to product assortment, sales, and profit results, all of which extend to the individual item level. Bottom line--service consistency/reliability is vital to supply chain results, both financial and operating.

CONCLUSION

Container lines play a vital role in global trade. Yet, carriers have made and are making operational changes that negatively affect the supply chains of their customers. In some ways, ocean carriers and shippers are diverging in what they are doing when the focus is placed on supply chain performance. Shippers need to take tactical actions to counteract carrier actions. More importantly, companies need to develop and implement strategic moves to improve their supply chains.