Visibility by Logistics Service Providers

The wish for visibility through supply chains has risen in surveys over the past twelve months. However, the current congestion and delays at some ports illustrate that whenever the movement of items is controlled by Logistics Services Providers (LSPs), there is a limited range of options for the shipper.

Even if you are aware or are informed that an imported container is late, the timing is such that remedial options are limited – a retail promotion can only be cancelled or the product mix changed. If the imports are materials or components for a manufacturer, the schedule must be changed to the lesser ‘plan B’.

Demand in developed countries

Through 2020, demand signals were erratic and forecasts were bigger guesses than normal. However, in the second half of 2020, a recovery in global trade volumes occurred, due to:

• Consumer demand in developed countries increased for some items. People in lockdown spent little on international holidays and dining out and more on consumer goods and home improvements
• Consumers increased their use of online shopping, which affected some supply chains
• In the UK, additional items were imported by wholesalers, retailers and manufacturers ‘just in case’ against potential problems with Brexit

These factors provide for the current situation, where the demand for empty containers in Asian exporting countries exceeds supply, while empty containers are held in the ports of developed countries. China and other countries in Asia are shipping more exports in containers to the U.S. and Europe than they are importing (estimated at a 3:1 ratio).

Trade imbalance challenges

The increase in demand for goods in Q3 and 4, 2020 required major shipping lines to add container capacity in Asia. But these decisions carried the risk of customer demand again reducing, given the potential for further lockdowns and unemployment.

Additional reasons for the imbalance of containers at locations are:

1. “more than one-third of the containers transiting the world’s 20 largest ports failed to ship when scheduled.” Ocean Insights GmbH December 2020. For example, congestion at Shanghai port resulted in exporters waiting up to a week for shipments to be loaded. At Felixstowe UK, some of the congestion is caused by 11,000 containers holding PPE items – the UK government has not cleared them to offsite storage
2. Ships that are late, due to delays, are not loading empty containers, but ports are unable to store these containers. They are therefore transported to off-site storage parks, which adds to delays, with increased costs
3. Limited air freight capacity: With few passenger flights and a finite number of freighter aircraft, high-value items that would normally be delivered by air are shipped in containers
4. In European and UK ports, there are labour shortages due to coronavirus shutdowns and virus safe work practices. The reduced container handling efficiency means longer port time, adding to congestion. For example, at Felixstowe, the largest UK container port takes about 32 hours for a ship turnaround compared with about 25 hours at EU ports
5. Major international trade routes are controlled by few companies linked through three alliances. The top 10 companies control about 83 percent of container capacity – up from 58 percent in 2009 (Alphaliner December 2020) and the alliances control the allocation of capacity (and therefore freight rates and add-on loading’s) on each trade lane. For example:
   1. some sailings are replaced with smaller ships, reducing available capacity
   2. through the first pandemic lockdowns, orders for new containers were mostly cancelled and available container capacity was reduced by about 12 percent

The traditional response by customers when demand exceeds supply is to buy or order more – ‘just in case’ (JIC), which makes matters worse. The recent example was panic buying of household essential products at the start of the first lockdown, which stopped when rationing for consumers was imposed.

At Felixstowe UK port, the vehicle booking system was reported to not provide sufficient slots for trucks to get onto the container quay. The problem became worse at the first COVID lockdown, as freight volumes increased. Road transport operators then over-booked truck slots, even though they did not have containers booked to transport.

The other option for sellers is to increase the price. This occurs when logistics infrastructure is capital intensive, with long lead times to increase capacity e.g. container ports cranes. The response is to increase the price to reduce demand, rather than ration capacity for customers.

Freight rates increase

The December 2020 spot freight rates for Asia to North Europe increased by about 260 percent, compared with December 2019. Freight rates increased about 145 percent over the same period for Asia to the West Coast of the U.S.

Shipping lines generally quote freight rates for all ports in a country or region e.g. North Europe (EU) or US West Coast. Since the completion of Brexit negotiations, the UK is separate from the EU. Shipping companies are reported to be reluctant in accepting cargo for the UK, because of turnaround issues when vessels dock. In Q3 2020, the largest shipping lines imposed a surcharge on each container into the UK. Now there is a price differential.

A quote in December 2020 for a 40ft container from China to Southampton UK was reported as U$12,050, but China to Rotterdam, Hamburg or Antwerp (in the EU) was U$8,450. Road transport companies must then move the container to the UK, which adds about U$2,700 per container and takes an extra seven to ten days to reach the delivery point.

Fixing the problem

Rebalancing the location of containers requires ships to transport full loads of empty containers from customer ports to supplier ports. The cost is borne by the shipping companies, but actually comes from increased margins in the higher freight rates; so users pay.

The Shanghai International Shipping Research Centre stated in its Q4 2020 report that the container shortage issue in Asia would most likely disappear at the end of Q1 2021. Due to uncertainty concerning new outbreaks and lockdowns in China, plus factory shutdowns for the Lunar New Year, the earliest month expected for some normality by Asia suppliers and transport carriers at UK ports is reported as June 2021.

This experience illustrates that while obtaining visibility at nodes in supply chains is attainable, the timing for delivery links remains in the control of LSPs. For import and export orders, the time for port handling and shipping can be tracked, but the variability, due to delays such as availability of containers and port congestion, cannot be controlled by shippers. Management of inventory continues to be a solution.