Freight rate stability, price transparency, service reliability and better forecasting are the critical factors for improved container supply chain efficiency, say speakers at TOC Container Supply Chain Europe 2012 conference.
Ocean shipping lines need to think more like their customers and be ‘really’ innovative, said Jason Keegan, Head of Logistics, Marks & Spencer, at the TOC Container Supply Chain Europe 2012 conference held this June in Antwerp. The 3-day event was attended by more than 500 delegates and speakers, 1,200 visitors and nearly 700 exhibitors from over 70 countries, representing all facets of the global container supply chain.
For many years the UK’s largest clothing retailer, M&S is fast developing into an international operation with over 370 stores globally and a focus on emerging markets, a strategy that will require a major restructuring of its global supply chain. It currently sources from 750 factories with 300 suppliers globally. Keegan maintained that complex supply chains not only need higher service levels from carriers, but genuine interaction with all stakeholders in the logistics process. He questioned why the shipping industry could not deliver better reliability and highlighted rapidly fluctuating freight rates and service changes/closures with little or no notification as further evidence of less than optimal customer service.
Keegan added that he would like to sit down with ports and terminals to understand better how factors such as terminal handling charges are calculated, adding that the traditional attitude that cargo owners have no interest in ports is wrong. “The reality today is that shippers are as much the ports’ customers as shipping lines.”
Freight rate volatility was a common concern expressed throughout the conference. Luc Jacobs, Senior Vice President of Ocean Freight/ Global FCL at DHL Global Forwarding, said that the wildly fluctuating rates seen in the market recently had become destructive, undermining the stability and quality of service. “We believe that a 3PL can gain more in a stable market and where we will get margins out of this by providing additional services to our customers.”
One solution raised by Jacobs and others was the development of index-linked contracts between carriers and their customers. Alexandre Gallo, Vice President Intermodal, CMA CGM, agreed that the use of contracts linked to indices such as the Shanghai Container Freight Index or the World Container Index – now starting to be introduced on the transpacific trade – would bring additional stability. “We simply cannot sustain a situation where the rate is this high one day and this low the next. Shippers need to understand that we cannot survive in a market of such variations,” said Gallo.
Index-linking contracts would also remove the sense that competing shippers are paying vastly different freight rates, said Raf Cornelissen, Global Marine Dry Cargo Manager of Exxon Mobil. He added that he wanted “competitive pricing rather than absolute pricing” – as long as competitors’ freight rates were in the same band, he was happy to pay higher rates.
Michel Marstboom, Trade and Marketing Manager at Maersk Line Benelux, argued that there was real value for shippers and cargo owners in engaging in longer-term, stable partnerships. Coupled with the need for continued innovation and more operational efficiencies on the land side, the customer upside in terms of better total supply chain costs, improved efficiency and lower environmental footprints is worth far more than short-terms gains (or losses) on freight rates experienced during recent volatile market conditions.
Stanley Smulders, SVP Asia – Europe & West Africa Trade Management at MOL Liner, characterised the recent round of container liner groupings and alliances as a paradigm shift which is helping to drive down the fixed cost element of liner shipping relative and make it easier for the industry to adjust to changes in capacity and demand with less disruption. Smulders added that shippers could help smooth capacity constraints by giving carriers more realistic volume forecasts.
Jesper Praestensgaard, Chief Commercial Officer, Hapag-Lloyd, argued it is the perception – not the reality – of supply and demand that affects freight rates. Unlike in other industries, where lower rates lead to higher volumes, demand for container space is actually relatively price inelastic. “When we reduce rates, we don’t increase demand,” he noted. Looking at asset utilisation comparisons from other (profitable) transport providers, Praestensgaard showed that Deutsche Bahn only filled 46.8% of its long-haul seats in 2011, Singapore Airlines filled 78.5% of capacity, TUI Hotels 77.9% and DP World 82%. “If we can’t push through rates that provide sustainability with asset utilisation of over 90%, then we have a big problem in our industry,” he observed.
This overriding call for greater dialogue and co-operation between stakeholders was reiterated during the terminal operations sessions at TOC CSC 2012. With ever larger vessels coming on stream along with shipper demands for greater schedule reliability, marine terminals are under pressure to raise productivity levels. Achieving this will require terminal operators, shipping lines and their customers to work more closely together to streamline the process, said Ross Clarke, Head of Design and Innovation, APM Terminals.
“Disruptions and unplanned events need to be minimised,” stated Clarke. “If high productivity is paramount, vessel exchange needs to planned and prepared as best as possible. Timely receipt of accurate data from shipping lines about containers to be loaded and discharged is essential to enable full productivity potential to be realised.”
Citing internal studies following performance data at 20 facilities over a three-year period on vessels with over 2,500 container moves, Clarke noted that some terminals achieve productivity of more than 40 mover per hour. The challenge is for many more terminals to achieve that level.
APM Terminals is investing substantial resources and effort into establishing what is required to lift performance levels on a consistent basis, added Clarke. However, he stressed that terminal operators cannot do this on their own. It has to be a joint effort with customers to encourage different behaviours that remove inefficiencies in the supply chain.
After the event, Gallo of CMA CGM, told TOC: “By regrouping around the table a 360 degrees panel including shippers, carriers, ports and terminal operators, TOC is definitely an opportunity to learn more about our industry. Hearing all the ideas in free speaking discussions is helping stakeholders to forge themselves an idea for the future of container shipping and its inland implications.” Added Harald Nijhof, Project Lead for Maersk Line’s Terminal Partnering Project: “This was the first time I attended a TOC event and I was impressed. The chance to meet with so many colleagues and peers in the industry in the span of a few days is priceless. I really valued the forums and panel-discussions as these are unique platforms to develop our industry.”
“The record number of re-bookings we have received for next year’s event is testimony to the success of the show this year,” said Paul Holloway, Event Director TOC Worldwide. “Our vision for our global brand was firmly cemented here at TOC CSC Europe. Large numbers of operational attendees benefited from the open content delivered at the heart of the exhibition amongst the 150 companies showcasing the latest port solutions. Especially encouraging is the number and quality of container supply chain stakeholders who turned up to join the conference debate. We have made huge steps towards reaching our objective of creating the world’s leading port-centric supply chain forum for the people who own, move and handle containerised cargo.”
TOC Container Supply Chain Europe moves to Rotterdam in 2013 from 25-27 June. Once again the event will include a 2-day high-level container supply chain conference, no-charge port operations and technology seminars, a major exhibition of port and terminal services, equipment and technology, and industry networking receptions.
Source: Tocevents-europe, July 6, 2012