Monitor your ocean carriers more closely, Drewry says

by Emily Atkins

Shippers need to take a more proactive approach to tracking ocean carrier performance to avoid some of the lasting effects the Coivd-19 pandemic has had on capacity. In a webinar today, Drewry Supply Chain Advisors suggested that keeping better track would help shippers avoid cargo roll-overs and consequent delays.

The size of the problem

Carriers cancelled 468 departures between January and August 2020 on east-west routes. These blanked sailings represented an increase of 151 percent from 2019 on routes from Asia to the U.S. West Coast (USWC), and a bump of 226 percent on Asia to Northern Europe (NEU) routes in the same time frame.

Drewry research shows that as a result capacity was constricted up to 20 percent on Asia to USWC routes and 24 percent on Asia to NEU routes at the peak of the pandemic. These declines have largely been erased now, with routes to USWC at only 0.7 percent of previous capacity, and Asia-NEU routes still down about seven percent.

Compounding the issue, carriers were extremely poor at meeting schedules in the first half of the year when fewer than two out of three vessels arrived within 24 hours of their scheduled ETA. In 2019 70 percent arrived reliably.

In April 83 percent of shippers Drewry surveyed suffered at least one cargo roll-over. This results in massive amounts of extra work to try to rebook and rearrange schedules, as well as a sense of panic among shippers that there is insufficient capacity in the system, said Philip Damas, Drewry’s head of supply chain advisors.

According to Stijn Rubens, a senior consultant, with Drewry Supply Chain Advisors, “roll-overs have increased, but shipping lines have been reluctant to bring in capacity too quickly, trying to avoid errors they made in 2009 when freight rates collapsed completely. Perhaps there were a bit too slow this time.”

Cost implications

Some carriers and forwarders are addressing the problem by offering a “no roll-over” service at premium prices. It’s a partial solution, Damas said, which is welcome, but it can also be seen as offering “normal service at a premium price”.

Drewry estimates that as a result of these delays direct costs have increased by about 16 percent. And while indirect costs are harder to quantify they include lost sales, depreciation of inventory, need for increased safety stock levels, and potentially reduced customer satisfaction.

Many shippers do not receive good data from carriers or forwarders on roll-overs or are not able to measure rollovers using their own internal systems. As a result, shippers need to actively benchmark carrier performance against performance promises, against other carriers, and with their shipper peers, said Rubens.

The consultants advise shippers to take the following actions to keep costs under control as the ocean freight marketplace adjusts to the new normal.

  • Keep an eye on cancelling sailings so that rebooking can be done proactively and early
  • Measure ACTUAL vendor service levels and lead times, not just what they say
  • Measure the right KPIs and contract terms
  • Take a closer look at detention and demurrage (D&D) unplanned costs and figure out how much you need to plan for
  • Ensure better coordination of origin and transport handoffs
  • Optimize inventory in transit and buffer inventory
  • Use realistic lead times (including variability) to plan product flows. There will be some need for longer lead times in some cases.

New normal

Damas concluded by pointing out that the frequency of external threats to ocean shipping has been steadily increasing in the years since 9/11. Events such as the 2009 recession, natural disasters like the volcanic ash cloud and tsunamis as well as the increase in accidents as a result of improper declaration of hazardous cargo all contribute to a more risky environment. Shippers need to embed continuity planning into their businesses to minimize the chance of supply chain disruptions.