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Sunday, March 29, 2020

Maritime Logistics Professional

Casual putter across oceans has shippers steaming

Posted to Far East Maritime (by on May 22, 2012

Slow steaming may be good for the carriers, but it is sending shippers tumbling down the happy camper index.

There is nothing wrong with focusing on profits - that's how business works. Revenue falls, squeeze the bottom line costs.

That seems to be the perennial position of container lines. Barring the odd good year, the lines manage to lose money like a Chinese government official at a Macau casino.

Poor forecasting and a focus on maintaining market share means overcapacity is an enduring problem, dragging down the carriers’ ability to keep freight rates at sustainable levels. Driving up operating costs is the price of bunker fuel that has risen sharply in the last five years as OPEC and oil companies rob their way to maximum profits.

In a desperate bit to maximize their own profits, the carriers began to slow down their ships. Slow steaming has now become SOP and involves ocean carriers cutting the speed of ships from 24 knots to about 18 knots.

Also prevalent on the longer trades is “extra slow” and “super slow” steaming that reduce speed even further (look, a shoal of plankton just swam past), all with a view towards cutting fuel costs and helping lines absorb extra capacity. If you are moving at the speed of an ocean current, more vessels need to be added to long-haul strings to maintain schedules. Naturally, that also means days, and sometimes more than a week, can be added to voyage times.

So how do shipping line customers feel about the extra time at sea on a scale of “ecstatic” to “take your ship and @$#% it”.

Carrier customers have never been a happy lot, but if there is something (terminal handling charges, surcharges, rolled cargo, complaint of your choice here) that really gets them steaming, it is slow steaming.

A recurring gripe is that despite offering longer voyage times and by definition a reduction is the service offering, the lines do not offer lower rates. By contrast, the first few months of this year have seen rates soaring, even though all carriers have slowed their vessels.

But even more important is that the extra time in the transportation pipeline is costing shippers some serious green.

The logistics provider of a large German appliance maker, who did not wish to be named, said after a study he made into the actual cost of slow steaming, his client was shocked at the result.

The manufacturer imports parts from across Europe and ships them to China for assembly in a voyage that usually takes around 28 days from Rotterdam to Shenzhen. Slow steaming became extra slow steaming, and then super slow steaming, which has lengthened the voyage time by at least a week, and often longer.

The logistics executive said that for every extra week the parts were in transit it was costing the appliance maker US$1 million. That is just one shipper. Imagine how much money is being lost across the industry.

Of course the appliance maker needs to reconfigure his supply chain to accommodate the extra voyage times, but surely the lines and their customers could put their heads together and come up with a rates-to-transit time package that everyone can live with.

 

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