Charting Uncharted Waters
2024, A challenging year ahead for shippers
Currently shippers are riding the wave of historically low rates, yet looming on the distant horizon, there might be some challenges ahead.
Thanks to the confluence of increasing ocean transportation capacity and lackluster demand, shippers have regained negotiating leverage lost during the Pandemic years. Unusually advantageous spot market pricing seen in the latter half of 2023 has translated for many into highly beneficial 2024 contracts. Carriers which had registered extraordinary profits are now enduring the exact opposite, and in some cases, deficits. The maritime industry’s feast or famine pattern has been largely reconfirmed.
But beneath the surface, there are real things happening that might seriously affect long-distance supply chains, particularly those starting in China and other East Asian nations. Shipping lines are adjusting capacities to demand by canceling sailing frequencies and modifying port rotations. Where possible, they are deploying their most efficient vessels to reduce operating costs. They are seeking to extract additional revenue via surcharges and reduction in free-time allowances wherever possible. And lastly, the 2M Alliance dissolution will redefine competition in service and pricing.
Adding to uncertainty, we are facing socio-economical and natural disruptions: decreased Panama Canal draft levels have limited vessel capacities and daily transits due to prolonged drought conditions. Attacks on merchant shipping in the Red Sea have triggered war risk clauses and ocean carriers announced diversions away from the Red Sea. This includes not only vessels westbound from China via the Cape but we also see behavior for eastbound vessels from Europe to China.
2024 European Union regulatory changes will also potentially impact both existing supply chain networks and attendant costs. Both, the conclusion of Consortia Block Exemption Regulation (CBER) and enforcement of Emissions Trading System (ETS) will affect shipping line networks as each company seeks to optimize its capacity utilization via transshipment strategies. These alterations might lead to void or canceled sailings, route adjustments globally (possibly avoiding the Panama and Suez Canals), and the need for Maersk and MSC to seek new services, routes, and partnerships following the 2M split. The split's impact on existing alliances is also noteworthy.
Hence, the primary challenge for shippers revolves around ensuring the resilience of supply chains concerning service availability. The services previously contracted under tender conditions, where expected pricing might not be maintained, could become unavailable. Consequently, this might cause changes in routing, transit times, and the introduction of transshipments where none existed before, or the reverse could also occur.
This disrupts inventory management, where planning relies on a continuous and structured flow of goods with set lead times. Inventory carrying cost rise and strategic market delivery come under pressure. It will be a challenging 2024 for Supply Chain Managers. Unpredictable lead times create ripple effects across on-carriage, pre-carriage, and warehousing in the supply chain. Changing ETA’s pose a threat to multi-modal solutions, requiring early bookings for capacity assurance. This situation favors road transportation, the most adaptable option for last-minute adjustments and accommodating deliveries outside the regular schedule.
In today's world, where we keep a close eye on emissions like CO2, these disruptions bring an extra cost: more pollution. Ships have to sail for 8-10 days longer, needing extra transshipments. Increasing the number of trucks and prioritizing flexibility for on-carriage relies heavily on diesel-based trucks. This situation has the potential to significantly increase CO2 emissions per container.
How to protect against this?
While limited, here are some options:
Distribute ocean volumes among multiple carriers and alliances rather than concentrating in a limited number to lessen impacts of blanked sailings and booking competition.
Create a daily vessel and ETA positioning monitor to keep production planners and other key stakeholders fully informed.
Confirm that all required customs clearance documentation is valid and current at all EU ports in the event of last-minute vessel diversion, to include the UK.
If cargoes move on through bills-of-lading to destination, verify the notification and delivery movement processes with ocean carriers or third parties in the event of unanticipated transshipment ports.
Shippers managing their own inland deliveries should maintain accurate and current.
Staying adaptable and informed can help navigate these challenges effectively, ensuring smooth operations even amidst uncertainties.