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Logistics Executive Briefing
Maritime Financial Research

Will container shipping reliability come back?

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Over the past few months, Drewry Supply Chain Advisors has organised and moderated weekly discussions with its shipper customers. As well as informing them about how the COVID-19 health crisis has impacted shipping schedules, cancelled sailings and port operations, sessions have helped encourage the exchange of views on how to best respond to the situation and mitigate risks from a logistics perspective.

 

One common issue faced by shippers has been the major disruptions to the shipping and transport network, first in China and then in the rest of the world, and the associated operational problems that have resulted from space shortage, delays and roll-overs.

 

In this latest Logistics Executive Briefing we share some of the findings from these recent discussions and our thoughts on the service and performance dynamics now very much in the spotlight.

 

Service deterioration: survey findings

Drewry’s survey of shippers in April:

  • 83% of shippers who answered had cargo rolled
  • From Europe, the percentage of containers rolled were 10 to 15%
  • From North America, the percentage of containers rolled were <5% to 10%
  • From Asia, the percentage of containers rolled were <5% to 20%

Drewry’s survey of carrier schedules in April, May and June:

  • All 3 carrier global alliances cancelled at least four times as many East-West sailings in 2Q20 as in the same quarter of 2019.

 

 

Figure 1: Cancelled Sailings by Alliance 2Q 2019 vs 2020

Figure 1: Cancelled Sailings by Alliance 2Q 2019 vs 2020

Analysis of the cancelled sailings data shows that non-alliance carriers have not cut services as much as alliance carriers and at least one niche carrier is positioning itself as a more reliable carrier even during the COVID-19 crisis.

 

Why did service deteriorate and roll-overs worsen?

Drewry contacted several major ocean carriers to ascertain the views of the carrier’s industry. Below are key themes from the carriers.

 

1. Unpredictable and volatile demand

Maersk: "Throughout the second quarter of 2020, the ongoing COVID-19 pandemic presented exceptional challenges to the container logistics industry, with a low, yet highly volatile demand putting strong pressure on our business. This environment made it very difficult to forecast demand volumes; customers have similar poor visibility and thus shipping needs changed with very short notice throughout the quarter."

 

Hapag-Lloyd: "Since vessel utilisation is key for any carrier, what we are currently seeing is a response to the drop in demand caused by the pandemic. If demand picks up faster or more than expected, roll-overs may occur. But these will only be temporary, as carriers will respond quickly by reactivating capacities to meet customer demand."

 

Zim: "The industry is responding to the sharp drop in demand due to COVID-19 by adjusting capacity to reduce costs and sustain its business continuity. The uncertainty and fluctuations may at times result in roll-overs. It should be noted that some of the volatility and uncertainty are caused by no-shows."

 

Asia-based carrier: "Cancelled sailings are a consequence of trade forecasts. If [shipping] lines get a forecast that looks not very strong, it is unlikely that all ships will continue to sail. However, we see that despite these cancellations, carriers do offer all port pairs through other service offerings. Best example is the Transpacific trade, where BCOs this year have significantly under forecasted their demand and now demand is returning, carriers will accept only that what was contractually agreed… Roll-overs are an operational headache for carriers and represent potential extra costs. As such we would like to reduce them but as explained, we need to be sure that containers show up. Any mechanism that supports certainty about the showing up [of booked] containers will be welcomed."

 

2. Reduced demand, reduced service network

Hapag-Lloyd: "The coronavirus pandemic is impacting the entire logistics industry. In response, we had to adapt our network by reducing some sailing frequencies, making selected network adjustments for some of our services, and discontinuing some services in order to better match existing demand. Containers are now being distributed among fewer vessels to keep the ships full. But the rolling of cargo can still happen, either due to full vessels or cancelled voyages."

 

Asia-based carrier: "As observed since the outbreak of COVID-19 pandemic, the market trend seems to show disciplined capacity management in order to cope with demand slump, and it seems other carriers are doing the same."

 

Change of focus by carriers?

Contract BCOs have told Drewry carriers are prioritising much higher-paying spot cargoes and are providing less flexibility in capacity availability.

 

In our opinion, carriers are currently more focused on cost/capacity reductions, on raising state-backed loans and on self-preservation than on providing a reliable service to customers.

 

But one of the carriers surveyed insisted that; "we see that, despite these cancellations, carriers do offer all port pairs through other service offerings." Another said: "We continue to work closely with our customers to address this situation and find solutions amid the volatility. To our understanding, these customer conversations are based on a mutual, constructive perception of the extraordinary circumstances and the need for agility in finding qualitative solutions with short notice."

 

As mentioned in a recent Drewry Container Forecaster analysis, given the highly unpredictable outlook for demand, instances of capacity over-suppression in some trades were always likely. Lines are now starting to return capacity to the worst-affected trades such as the eastbound Transpacific to accommodate higher than expected demand with some previously blanked sailings being put back on to schedules. That makes previous capacity over-reductions look more like understandable misjudgements rather than anything more malicious. However, we might change our view if capacity continues to be kept significantly below market needs.

 

The next few months will be challenging

Some ocean-borne volumes and some sailings have returned, but the outlook for trade and for the global shipping network are still uncertain and risky.

 

Asked whether the worsening situation of cancelled sailings and roll-overs was a temporary situation, one of the carriers said that “it is difficult to say”, another said that is temporary, a third said that it is dependent on the uncertainty of demand and its consequences.

 

The request of most shippers is that ocean carriers bring back the required capacity at the right time and with the right scale, when volumes increase again.

 

This calls for shippers to share their volume forecasts with their core ocean carriers and for carriers to give sufficient advance notice of sailing cancellations and better information of equipment and slot availability.

 

Technology with no visibility

A year ago, all the talk in the shipping industry was how technology was going to provide unprecedented visibility into product flows and would enable stakeholders to react promptly to changes in logistics reactions or operational problems.

 

Although we know that some BCOs have used technology to manage the disruptions to the global transport system caused by COVID-19, it appears that ocean service capacity and forward schedules have become less, not more visible, this year.

 

The crisis has also exposed that shippers are still making “ghost bookings” in the hope of securing scarce capacity and that carriers are struggling to offer guaranteed capacity to customers.

 

Maersk reports that its Maersk Spot application, which guarantees capacity and requires a penalty payment if the shipper cancels the bookings, has been very popular during the pandemic. If a sailing is cancelled, Maersk said that it provides a substitute sailing with an arrival within 3 days of the original scheduled date.

 

One of the main priorities for the international shipping sector in the next year should be to improve reliability and predictability, possibly on the basis of a reduced but more stable service network and more shipper-focused behaviour and better communication between parties.

 

Drewry is urging carriers to bring capacity back into operation to enable trade to flow more freely and with fewer disruptions.

 

Savvy shippers can also use Drewry tools and resources – like the cancelled sailings and ship waiting times tracker and the Drewry COVID-19 management webinars – to anticipate cancelled sailings, look for alternative capacity and discuss how their and peer companies are reacting to operational transport challenges.

 

Drewry believes carriers will continue their practice of tactical sailing cancellations for the foreseeable future and suggests shippers and forwarders carefully check the situation before booking and extend lead times in case of operational delays.

 

In order to support our clients further, Drewry can provide customised analyses addressing specific needs by trade lane. For further information on our full range of ocean freight cost benchmarking, procurement and supply chain advisory services, contact us at supplychains@drewry.co.uk.

 

FREE Webinar 11 August: Shippers need more stability and predictability

Join us on 11 August when Drewry’s Philip Damas and Stijn Rubens will review some of the more pressing operational problems now facing shippers, the service quality findings from our recent surveys, their impact on shippers and the importance of measuring carrier performance against agreed Key Performance Indicators.

 

Find out more and register now

 

Contact

Philip Damas

Philip Damas

Director, Head of Drewry Supply Chain Advisors

Industry at a glance

World Container Index

East-West composite ($/40ft)

Bunker Prices

Rotterdam ($/tonne)

Global Port Throughput

Jan 2012 = 100

Idle Capacity

('000 teu)