Shippers, particularly importers from Asia, are aware that the market has become dangerous for importers’ careers. Shipper groups are reporting more than 100 “blank sailings” or vessel cancellations in just six months in the eastbound Pacific trade.
These have felt like robbery because they happen within the shippers’ order cycles when they thought they had a firm promise of regular service from carriers. And, the real pain happens when transport buyers have to tell product buyers their cargo will be at least a week later.
And then there’s the spot market. Carriers offer alternate sailing at spot market prices, which feels a little like the “black market” as rates for spot moves have been averaging two to two and a half times higher than contracted rates. What’s happening that supports coordinated market action by the top carriers? What can be done?
In previous articles I have written about trends that will inevitably lead to non-competitive markets in ocean, rail, and pipelines—and to a lesser effect truckload transport modes. The first is consolidation; both domestically and internationally. In many modes and markets there are few players to bid on business. Second, although illegal in most countries, it’s common to see coordinated increases in a mode.
General rate increases (GRIs) are by definition non-competitive when several major players do the same thing within hours or days of each other. Contracted shippers ignore GRIs to their peril, as this is a leading indicator of carriers’ plans for the next contract round. When a port loading is blanked only three weeks out, there is a ripple effect through the supply chain. An example is a lack of container boxes at some inland ports as loaded container flows are disrupted.
The ocean carriers are in a unique position to create capacity through larger vessels, sharing bookings and speeding up their vessels. They reduce capacity by blanking, breaking space sharing agreements, and slowing their vessels. Asia volumes are down at least 10%, but effective capacity is down more than that. Vessels are averaging speeds about 17% slower than a decade ago according to market analytics. Spot rates are very high through July 1st, although there are signs that there is a limit to what shippers will pay. In mid-July there seemed to be some easing, but my sources say at least 10 blank sailings are on the books in the Asia-Pacific trade for August.
While domestic shippers would be screaming to politicians about the loss of service by highway or rail, the ocean market is a different place with big players that can act without fear of government meddling.
Owners are acting in their best interests to keep their company on solid ground—an understandable approach in light of recent bankruptcies. The problem, as always, is communication. Carriers say that they need better forecasts, and shippers say that they give those forecasts, but they are ignored.
The solution is a strategic one: Better forecasting, constant updates to those forecasts and a feedback loop that tells the shipper what the carriers are seeing. Technology exists to illuminate all the corners of a supply chain. The discussion about blockchain tends to focus (rightly so) on financial tracking. The connectivity of blockchain, its visibility by all parties—from planning to final payment—is what will allow each party in the chain to optimize for the entire transaction and not only their piece. Think blockchain from end-to-end.
It would be in the best interest of all parties to speed up the adoption of digital standards and platforms for demand planning, tracking and settlement for all modes of transport.
About the Author
Peter Moore is Adjunct Professor of Supply Chain at Georgia College EMBA Program, Program Faculty at the Center for Executive Education at the University of Tennessee, and Adjunct Professor at the University of South Carolina Beaufort. Peter writes from his home in Hilton Head Island, S.C., and can be reached at [email protected]