Globalization has led to a substantial increase in maritime trade, with the growth factor being at times three times higher than global growth in terms of GDP. This has recently reduced to a factor of one. In this article, Jens Roemer, FIATA Working Group Sea Chair, addresses many of the industry developments and challenges facing a sustainable maritime supply chain.
Protectionism and trade restrictions
Globalization and related trade agreements have led to a reduction of import tariffs, red tape and corruption, and have significantly increased the movement of goods. Over the last three years, however, the situation has changed and there are now strong protectionist movements involving countries that were previously in the forefront of promoting trade and reducing trade barriers.
As things stand, COVID-19 is providing an unprecedented shock to the global system that could result in several negative GDP growth quarters. No doubt the ongoing pandemic will lead to a review of the supply chain and procurement priorities, as it is argued that there has been too much reliance on China. If goods are locally produced or sourced from nearby, they will be lost for the maritime supply chain.
The environment and sustainability
The protection of the environment and long-term sustainability objectives have finally become major items on corporate agendas. The carbon footprint is on everybody’s mind and whilst local manufacturing appears to have advantages, the maritime industry must continue to argue their case for being the most environmentally friendly mode of freight transport. Above all, environmental objectives of the International Maritime Organization must be met and adhered to. With the exception of the environmental aspects, there is very little the maritime sector can do to control its destiny. It can however ensure that shippers and forwarders alike can count on a maritime supply chain that is reliable, efficient and resilient– which is currently not the case.
Responsibility for an unreliable, inefficient and non-resilient maritime supply chain
In addition to the external developments, the liner shipping sector is confronted with problems which are of their own making. They have created havoc to maritime supply chains that frustrates freight forwarders and shippers alike.
Vessel size and alliances
The rat race for bigger vessel and lower unit cost seems to have come to an end and some lines have now expressed the wish to focus on service quality. But isn’t it too late? How much room is there for shipping lines to differentiate themselves when they are all organized in only three alliances in which they are sharing their vessels? There is no room for competitors either, except for a few established niche operators, the investments to compete with the established and highly protected alliance system are simply too high.
Shipping lines have been inventive in introducing terms such as blank sailings. These are not a new development, they were introduced years ago and have already played havoc to the EU-China trade three years ago. The current pandemic has led to a massive use of the blank sailing tool, which is largely a capacity management tool having a direct impact on price levels. This was probably necessary to avoid another ‘Hanjin scenario’, but as a long-term effect one must caution that reliable planning has become impossible.
Even if a vessel is not blanked and is actually sailing, a container that has been booked and accepted by means of a booking confirmation well in advance may not be loaded. The term for this one-sided contractual violation is called ‘rolling’. Containers that are accepted and confirmed for loading on a specifically agreed vessel are simply rolled to the next vessel.
Lead times – export closing times
Vessel cut-off times – the latest time a container may be delivered to a terminal for loading to a scheduled vessel – have significantly increased over the last ten years, putting reliable supply chains under stress. Cut-off times for the export delivery of loaded containers to the terminals has doubled; for ultra large container ship sized vessels it increased from two days (prior to vessel departure) to four days and more. At the same time, terminals are dealing with higher peaks and need to improve productivity to deal with congestion. The increase in cut-off times that has led to an increase in dwelling time of the container inside the terminal is counterproductive.
Shorter demurrage free time and very narrow delivery windows
At the same time, the demurrage free time has dramatically reduced for the merchant. This leaves a very small window for the delivery of the export container to the terminal in time for vessel cut off and free demurrage, adding additional stress on roads and already strained infrastructure.
The current situation and its effect on the maritime supply chain
A good organized supply chain aims to match demand with supply subject to the least possible inventory and just-in-time deliveries. A reliable, predictable and resilient supply chain with fast lead times adds value and represents a competitive advantage. However, due to the above-mentioned situation, the maritime supply chain has become extremely unreliable as it seems to be at the mercy of a few major shipping lines holding world trade hostage. It is simply impossible to organize a supply chain subject to bookings as long as four weeks in advance that may anyway be blanked or rolled.
Why should anyone expose themselves to such a situation that only creates additional cost, unproductivity, uncertainty and above all frustration when there are options to home sourcing subject to reliable and predictable supply chains? Then there is the pricing and structure of freight tariffs, with surcharges invented at will and often not substantiated, in addition to the criticism related to rate levels that appear to be abusive during COVID-19. The current structure of the liner shipping industry allows carriers to manage their capacity within the alliances and reduces competition and choice, allowing carriers to have some ‘pricing discipline’. All stakeholders are seriously threatened by the current pandemic and its economic consequences, certainly also the major container shipping lines.
All stakeholders must ensure that the maritime supply chain becomes once again more attractive by assuring more reliable, predictable and faster lead times, as otherwise there is a potential risk that trade will be lost for good.
Stakeholders should find platforms for regular dialogue rather than taking one-sided decisions are hitting out on each other in the media. The International Transport Forum at the OECD had a good initiative promoting dialogue amongst the maritime stakeholders, which unfortunately lost drive due to cancelled meetings related to COVID-19.
Tariff and surcharge transparency
Professional maritime services must be remunerated to allow providers to sustain their services, cover their costs, undertake maintenance, invest in the future, ensure employment and provide a return to their shareholders. However, tariffs should be transparent and limited to surcharges that are justified and clearly defined.
Fair and just demurrage and detention practices
The Federal Maritime Commission in the United States has clearly identified that many demurrage and detention practices are unfair and unjustified. Consequently, related practices should be reviewed on a global scale.
The stakeholders of the maritime supply chain must increase cooperation in exchanging and sharing data. FIATA has a clear focus in its digital strategy to provide the global forwarding industry with an ecosystem that will enable its members the exchange of data. The reputation of the global maritime supply chain has never been as bad as today, at least in the eyes of global forwarding. It is therefore time for stakeholders to come out of their hook and take initiative to facilitate long-term planning for those who wish to trade globally.