Forecasting Change

Forecasting Change

We all should have projected that forecasting would be at the forefront of the debates over the future of business processes between shippers and carriers.

In fact, projections for shipping volume and the ability to communicate those forecasts to carriers was at the top of the list for many shippers who began meeting in recent months under the umbrella of technology provider GT Nexus to consider the call by Maersk Line CEO Eivind Kolding for radical change in shipping business processes.

Carriers of all kinds should be heartened that many shippers have taken up an issue that shipping executives themselves have pointed to as a major problem in their business. Although the problem blew up in spectacular fashion in the aftermath of the deepest global economic downturn in generations, the inability to get anything close to accurate forecasts was an enormous drag on carrier finances long before rolled cargo and MQCs entered the daily vernacular.

And shippers, as many will say privately, share that pain. The ability to accurately gauge future demand, if only for a few weeks in advance, is one of the Holy Grails in a business world where manufacturers and retailers are engaged in a constant tug-of-war over when production gears will start moving.

The ability to postpone commitment to production has been at the heart of some of the most important supply chain stories of the past two decades, and those stories are changing, in part because of the impact of the 2008-09 recession but also because of changing business dynamics and consumer demands. Dell, the computer giant that made build-to-order the foundation of its success, is moving increasingly toward mass customization.

A recent analysis by researchers at Northwestern University’s Kellogg School of Management said uncertainty, oddly enough, is at the heart of the very successful (so far) business model of Netflix, which is more profitable as its subscribers hold onto motion picture discs because it saves on inventory and shipping.

For retailers and manufacturers, the questions in 2008 and 2009 over forecasting demand went well beyond shipping needs.

Directly in the wake of the Lehman Bros. collapse and the rest of the financial meltdown, companies quickly put risk management well ahead of sales opportunities in their business planning. Wal-Mart, among others, scaled back the number of products at company stores, rationalizing SKUs and willingly giving up potential sales to preserve cash.

Did you really think it should be any different in the shipping industry?

Forecasting gaps have been endemic across the shipping world for years. Even today, many trucking companies say they can’t get accurate forecasts for the weight of the shipments actually heading to their docks at that moment. But for just as many years, the problem in container shipping was buried beneath the rapid growth in volume and the growth in fleets and in vessel capacity.

Realistically, the first step in solving the problem won’t come in dialogue between shippers and carriers. The real question for many companies is when to make a commitment in an uncertain environment.

We’re making no forecasts on how that question will be answered.

Paul Page is executive director of The Journal of Commerce. He can be contacted at 202-355-1170, or at ppage@joc.com. Follow Paul Page on Twitter, www.twitter.com/paulpage.