Riding the storm
How to manage a supply chain in a market blighted by equipment and capacity shortages
In recent times, importers, especially retail importers, would not have given any consideration to topics such as vessel space and equipment availability. However, following the recession and downturn in global trade, combined with overstocked order books for new tonnage, the liner shipping industry has been forced to undertake a major rethink of how business is conducted.
This has led to a rationalisation programme aimed at drastically reducing operating costs while addressing the perennial decline of freight rates, in particular on the transpacific and Asia-Europe trades.
The rationalisation of liner shipping fleets – the delaying of delivery and idling of new tonnage, early scrapping of older tonnage and off-hiring of chartered vessels – has created a scenario aimed at addressing the gap between vessel supply and cargo demand.
With vessels being removed, transit times have increased. Concerned with the environmental impact and costs of fast steaming, most carriers have also slowed their network speeds, and this has impacted transit times further. All at a time when retailers and importers are still trying to satisfy consumer demand in conditions where speed to market gives you a competitive advantage.
As the schedules of most shipping lines were being fixed, NYK Logistics began immediate dialogue with its clients on the impact that extended transit times and slow steaming would have on existing and future orders. Initial analysis of order lead times identified that most lead-time templates were, on average, four days shorter than revised actual transit times and, in some cases, as much as seven days shorter for some northern Chinese ports.
Following the adjustment of lead-time templates, existing orders needed to be amended to reflect new arrival or into-warehouse dates, which, in turn, led to pressure to arrange delivery upon arrival at destination for those containers that had already shipped, with many having utilised the “contingency” in the lead time while at sea.
Focus then switched to orders yet to be shipped, as they were now a high priority, placing increased demands on already tightly controlled and restricted vessel space. Forecasts needed to be re-issued to all shipping lines so they could accommodate this sudden peak in demand. Had it not been for a clear prioritisation of existing orders, the impact on NYK Logistics’ clients could have been considerably worse.
Reacting thus also meant new orders reflected the new lead times, significantly reducing the level of administration required to amend key dates within each order.
The increase in order lead times is again placing additional pressure on services with faster transit times, as retailers and importers seek to gain what advantage there is in the market. For some, this has led to a review of where products are sourced, with some clients switching to sources closer to home, as extended lead times make it no longer feasible to replenish from traditional locations in Asia.
Many observers await this season’s peak period with interest. Most shipping lines are already claiming a full-ship scenario ahead of peak, while the availability of empty equipment is being impacted by increased transit times, taking longer, on average, to be repositioned back to Asia. Shipping lines have begun to place orders for new containers again, but, with most newbuild programmes on hold, the container-leasing market is expected to see its first shortfall in many years.
Aware of these developments, NYK Logistics has collaborated with its clients to identify spikes in volume and has begun a programme, or evaluation, of product demand, with the objective of smoothing the flow and thereby reducing the pressure on vessel space and equipment availability caused by volume spikes.
“Never the twain shall meet” is a phrase that might be applied to vessel-space management and a typical importer’s volume forecasts. However, NYK Logistics feels that, through its proactive approach to lead time assessment and demand evaluation, its client base will be well positioned to manage the peak season ahead.
This has led to a rationalisation programme aimed at drastically reducing operating costs while addressing the perennial decline of freight rates, in particular on the transpacific and Asia-Europe trades.
The rationalisation of liner shipping fleets – the delaying of delivery and idling of new tonnage, early scrapping of older tonnage and off-hiring of chartered vessels – has created a scenario aimed at addressing the gap between vessel supply and cargo demand.
With vessels being removed, transit times have increased. Concerned with the environmental impact and costs of fast steaming, most carriers have also slowed their network speeds, and this has impacted transit times further. All at a time when retailers and importers are still trying to satisfy consumer demand in conditions where speed to market gives you a competitive advantage.
As the schedules of most shipping lines were being fixed, NYK Logistics began immediate dialogue with its clients on the impact that extended transit times and slow steaming would have on existing and future orders. Initial analysis of order lead times identified that most lead-time templates were, on average, four days shorter than revised actual transit times and, in some cases, as much as seven days shorter for some northern Chinese ports.
Following the adjustment of lead-time templates, existing orders needed to be amended to reflect new arrival or into-warehouse dates, which, in turn, led to pressure to arrange delivery upon arrival at destination for those containers that had already shipped, with many having utilised the “contingency” in the lead time while at sea.
Focus then switched to orders yet to be shipped, as they were now a high priority, placing increased demands on already tightly controlled and restricted vessel space. Forecasts needed to be re-issued to all shipping lines so they could accommodate this sudden peak in demand. Had it not been for a clear prioritisation of existing orders, the impact on NYK Logistics’ clients could have been considerably worse.
Reacting thus also meant new orders reflected the new lead times, significantly reducing the level of administration required to amend key dates within each order.
The increase in order lead times is again placing additional pressure on services with faster transit times, as retailers and importers seek to gain what advantage there is in the market. For some, this has led to a review of where products are sourced, with some clients switching to sources closer to home, as extended lead times make it no longer feasible to replenish from traditional locations in Asia.
Many observers await this season’s peak period with interest. Most shipping lines are already claiming a full-ship scenario ahead of peak, while the availability of empty equipment is being impacted by increased transit times, taking longer, on average, to be repositioned back to Asia. Shipping lines have begun to place orders for new containers again, but, with most newbuild programmes on hold, the container-leasing market is expected to see its first shortfall in many years.
Aware of these developments, NYK Logistics has collaborated with its clients to identify spikes in volume and has begun a programme, or evaluation, of product demand, with the objective of smoothing the flow and thereby reducing the pressure on vessel space and equipment availability caused by volume spikes.
“Never the twain shall meet” is a phrase that might be applied to vessel-space management and a typical importer’s volume forecasts. However, NYK Logistics feels that, through its proactive approach to lead time assessment and demand evaluation, its client base will be well positioned to manage the peak season ahead.
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