It has been nearly two years since the start of the worldwide COVID-19 pandemic and its resultant trade challenges, however as we see it today, the global economy is ready for what the possible rebound predicted by the World Bank.
With approximately 90% of the world’s goods being transported by sea, and over 70% of these goods moved in containers, the importance of fleet and service optimization is paramount.
The Current Landscape of Shipping Lines
The pandemic has been both cruel and kind to the liner industry.
The first casualty of the pandemic in early 2020 was felt in the disruption of the upstream supply chain in China. For the shipping sector, in a bid to remain viable, liner organizations tried to recover in large numbers; Hellenic Shipping News reported a staggering 630 ships sent for demolition during 2020.
Positive market environment
Demand has always dictated capacity, profits were always based on which side you sat as the balance swung from one side to the other.
The peak in demand after lockdown was exacerbated by a lack of available vessels and containers, causing a chain reaction that has affected not just the shipping lines but the entire supply chain. Existing vessels are now being utilised to their fullest capacity and deployed on routes that saw them many years ago.
This has also resulted in a 500% to 600% increase in freight costs, with Drewry, reporting an increase in the Shanghai-to-Rotterdam route by 640%. McKinsey’s video explaining why container shipping prices have surged, shows that – pre-pandemic – a container from Asia to Europe or North America would set you back roughly $2,000, will now cost $12,000 or more.
To take full advantage of the positive market environment, shipping organisations are ordering more vessels to increase their capacity. CMA CGM group, with a market share of 12%, has ordered 22 additional vessels. The combined increase in capacity these new vessels bring could result in an additional 1.45 million TEU containers.
The high demand for goods from China means full containers are leaving China’s harbours, but as has always been the case, a laden return to Asia is not only unattractive freight wise but also the time taken for this returned laden to be destuffed and made ready to ship out as an export from Asia just takes too long. Therefore, some carriers are now finding it be far more cost effective to ship these containers back to Asia as empties, rather than as laden, saving them container turnaround time and having them ready for a high freighted export.
As a result of the shortage within the cycle, shipping companies like Hapag-Lloyd are also investing in additional containers to try to ease the bottleneck.
In spite of lockdowns being lifted, there are still significant knock-on effects such as port delays, lack of equipment and other issues due to Covid-19. At the ports of Yantian and Ningbo in China, cargo owners and liner shipping companies are experiencing several weeks of delays due to Covid-19 lockdowns. According to Maersk, this could have an effect bigger than the Suez canal closure, resulting in forced missed sailings, unforeseen and unpredictable delays.
Dealing with further restrictions such as vessel size limitation, Deadweight limitation, draft and air draft, tidal range, vessel age, vessel flag, dry docking, and so on, cause considerable operational constraints further aggravates the problem.
High operational costs and low efficiency
Fleet and service planners who are tasked to keep costs down work with variable freight rates that rise and fall based on market rates, making it difficult to predict long-term costs. More than that, bunker prices – typically accounting for 40% of total costs – need to be managed efficiently in order to keep costs down and maximize profits.
The deployment of vessels within a service is backed by analytical reasoning that considers certain known variables. This means it’s crucial to consider the changing scenarios and tweak your plan accordingly.
Aside from the challenge of managing multiple vessels and cargo and balancing sensitive variables, the ongoing issue of minimizing costs is often unresolved. “The true hidden cost behind manual scheduling is the cost of operational inefficiency,” says Captain Vijay Minocha, Chief Commercial Officer at Solverminds. “This is seldom – if ever – computed or even discussed. Nor is the question broached as to whether the schedule could be generated in a better way. But we have asked ourselves that question, and the answer is unequivocally, yes! It must – as manual scheduling and high operational costs go hand-in-hand.”
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