The volatility faced by the shipping industry
Q&A with Cas Pouderoyen
Cas Pouderoyen is Senior Vice President of Global Ocean Freight at Agility and one of the logistics industry’s leading experts on ocean shipping. He spoke to Tradelanes about the volatility faced by shippers, carriers, forwarders, ports and terminal operators.
Q: What’s happening to importers and exporters as carriers consolidate and vessels are upsized? They’ve got fewer choices – fewer carriers offering service along the same routes, less competition and the potential at some point for higher prices. Up until now, they’ve benefitted at the expense of carriers in terms of rates. But as shippers, it’s time to recognize that there is only so much blood you can squeeze from the proverbial stone. Now you have to weigh the risks of moving cargo with carriers that might not be around much longer. The impact of dealing with arrested vessels, in terms of delays and extra expenses that could have a considerable impact on a customer’s supply chain.
Q: Are there other risks? We have to be cognizant that when the pendulum shifts in the carriers’ favor – and it’s just a matter of time – the lowest-rated cargoes will be left at the pier. These are painful lessons we learned from previous cycles. So selecting the right carrier to entrust your cargo to is something that’s becoming more important today. Not every carrier will be around tomorrow or will honor its commitments. We place a lot of value on selecting the right carrier partners; we try to build win-win relationships with them over time and through all the up-and-down cycles because that helps take risk out of the equation for our customers.
Q: How has the ocean world changed for shippers over the past five years? Carriers cut costs to survive. They centralized and automated a great deal, installing central operations centers and call centers, making more use of electronic booking technology, document release, status updates, archiving and storing. The carriers have curtailed “live” customer service, they’ve reduced sales forces, and this in turn has resulted in more self-service online. That’s all fine when the shipments move as per plan, but difficult to manage when a client needs “exception management” through live intervention. It has opened the door even wider for full-service freight forwarder/NVOCCs (Non-Vessel Operating Common Carriers that organize shipments).
Q: If I’m chief supply chain officer at a company that moves goods from Asia to Europe or the United States, what am I doing to make sure I’m getting the best rates and the best service? The best service and the lowest rates are nirvana, which is rarely achieved. You have to decide what the acceptable trade-offs are. If service is key, then your options are reduced and you will have to pay a premium for such service levels. One can still obtain below average prices by buying smartly in terms of timing the pricing cycle – as an example you don’t negotiate during peak season — and to mitigate your risk by looking at multiple providers.
Q: Port congestion seems to be a huge issue because big ships are coming online before a lot of ports, particularly in the U.S., can handle them. What do you see? I don’t think it is an isolated U.S. issue. Most ports around the globe are not really prepared to handle those Ultra Large Container Ships in an efficient manner. Terminal operators have to invest heavily in the infrastructure. They need to uplift their cranes and design a better structure and process to support inland moves by train, truck, etc. Due to long load and unloading time – up to five days — the export documentation and cut-off dates have moved towards more or less a week prior to sailing. For customers, this is a huge challenge.
Q: How are forwarders and 3PLs helping customers deal with all the confusion – the schedule and route changes, the port congestion and other problems? We are looking hard for alternative solutions and proactively informing customers when new challenges and trends coming up.
Q: How long do you see freight rates staying near these record lows? Rates are already going up from their recent record lows, and the carriers have no choice to increase them if they want to stay in business.
Q: What about the idea that bigger vessels and port consolidation lead to additional risk? So much cargo is moving through or stored near fewer, bigger ports. It seems like this is getting a new look from the insurance industry and others as they reassess risk in the wake of the Tianjin, China port explosion. Some insurance companies are placing limits on the number of containers that can be shipped on a single vessel. However, we do not see port consolidation as a trend or an issue at the moment. We do see port diversification as an important part of risk mitigation with the more sophisticated importers/exports.
Q: What’s your view of the container-weighing requirements? What are you telling customers? We explain the new SOLAS rules and requirements to clients, and we will enforce compliance. Otherwise, the containers will not be loaded aboard vessels. It will definitely cause some discomfort to certain shippers, though we expect most of the pain will be with the bulk commodities, which is not a large part of our overall business.