Asia-Europe ocean capacity cuts come under fire

Asia-Europe ocean capacity cuts come under fire

Shippers complain that the often late notice given to blank sailings is hard to plan around. Photo credit: Shutterstock.com.

Blank sailings are used by carriers to manage capacity during periods of weak demand, but the inconsistencies and tardiness of canceled sailing announcements around China’s Golden Week is frustrating shippers and forwarders alike.

The issue was highlighted by Sea-Intelligence Maritime Consulting this week, with the analyst taking a dim view of what it regards as blank sailing gamesmanship by the 2M and Ocean alliances.

On the Asia-Europe trade, carriers are sailing into the slow season that extends past China’s Golden Week covering the holidays around the country’s national day on Oct. 1. Latest volume data for routes from Asia to Europe by Container Trades Statistics (CTS) show July volume increased 3.8 percent year over year, a slight upturn in volume growth that has been declining since March.

To match capacity with slowing demand, a comprehensive blank sailings program covering the China holiday period was announced on the Asia-Europe trade four weeks before Golden Week, which Sea-Intelligence said was “unnecessarily slow and inconsiderate towards customers, and reeks of tactical game theory considerations, with the two largest alliances seemingly waiting for the other to make a move.”

Paolo Montrone, Kuehne + Nagel senior vice president and head of global trades, said there were serious issues around the managing of capacity by the carriers.

"On the same alliance, different carriers provide their own sailing schedules where the same vessel is sailing on different dates and at different times. Shippers have billions of dollars in inventory planning based on this, and each week we are tasked to plan and execute many thousands of shipments that have to be planned around this,” he said.

But Montrone added that the forwarder was applying technology and big data to provide both K+N and its customers with more reliable information while working with carriers to improve the communication.

Drawing blanks

Asia-Europe shippers also expressed their frustration with the often late notice given to blank sailings that are hard to plan around.

“We do our vessel planning some weeks in advance and sudden changes cause a lot of additional workflow and costs, so I can agree with K+N,” a Europe-based supply chain manager told JOC.com. “Worse case is a rollover situation, which always kills any supply chain planning and creates a lot of costs.”

JOC.com put the issue to several carriers, and a spokesperson for Hapag-Lloyd said blank sailings were purely adjustments to expected lower demand on a particular trade route.

“If we see demand is going to be lower two months out, then we need to manage our capacity for when the market will be down,” he said.

A spokesman for Maersk Line said the carrier constantly reviewed its network and tried to plan its capacity early, but that was not always possible.

“When we must blank sailings we always try to provide options for alternative coverage to minimise any impact on our customers’ business. We strive to do these changes in a structural way, blanking sailings for a full period and announced in advance rather than ad hoc,” the spokesman said, giving as an example the blanking of the AE2 service from the end of September to mid-November this year and its blanking in the fourth quarter of 2018.

“We do so to provide more stability and predictability for our customers in these periods of lower demand.”

Regarding the sometimes contradictory nature of the sailing cancelation announcements by members of the same alliance, the Maersk spokesman said consistent with competition laws, the vessel sharing agreements were purely operational in nature, with no commercial coordination among alliance members. This meant each alliance member was responsible for its communication with respective customers and the content of their advisories.

In its analysis of blanked sailings on the Asia-North Europe and Asia-Mediterranean trade lanes, Sea-Intelligence was able to determine which services the three individual alliances preferred to blank sailings on, and conversely, the services that have rarely been subject to blank sailings.

The service with the highest number of blanked sailings between first quarter 2015 and the fourth quarter of 2019 is the 2M Alliance’s joint AE2/Swan service of Maersk Line and Mediterranean Shipping Co. Sea-Intelligence found that 12 out of the 23 blank sailings on the service have either been on Chinese New Year or Golden Week, or the following two weeks. The service will again be suspended from the end of October until at least mid-November.

The AE5/Albatross and the AE6/Lion are the next-most blanked services, with 12 sailings canceled since 2015.

The Ocean Alliance has not blanked a single sailing on the AEU3 service, which remains the only alliance service on the Asia-Europe trade that has so far been “blank sailing proof,” according to Sea-Intelligence data. The AEU1 and AEU2 services did not see a blank sailing until the fourth quarter of 2018, while the first time a sailing was blanked on the AEU5 was the second quarter of 2019.

Record sailing cuts

However, since the second quarter of 2017 when Ocean Alliance was launched, 11 sailings have been blanked on the AEU7 service — almost double that of the AEU2, which has so far seen six blank sailings. During the three quarters that AEU9 has been active, there have been five blank sailings, which means that it has the worst record.

The FE2 service has seen by far the highest number of blank sailings among THE Alliance Asia-North Europe services, double that of the next in line, the FE4.

The FE5 was THE Alliance’s most stable service in terms of blank sailing disruptions until the second quarter of 2019. The service has seen five blank sailings so far, two of which were in the second quarter 2019, and three in the third quarter. Data shows that the 16-week period between week 14 and week 30 of 2019 was the most tumultuous period for the service, with four of the five sailings blanked.

But the problem for shippers and forwarders, beyond the actual disruption from canceling the actual services, was that some of the published blanked schedules by carriers within the alliances were simply contradictory, according to Sea-Intelligence. The analyst pointed to a lack of advisory information of canceled sailings on some trades, different weeks given for the same blanked sailings, or incorrectly listed blanked sailings by carriers on the same alliances.

“Considering just how disruptive blank sailings are, and how their use is viewed with great concern by both cargo owners and regulators, there is no excuse for this horrendously poor communication,” the analyst said.

“Even the least technically savvy carriers should be able to publish an ongoing, updated list of all blank sailings, and ensure alignment with their partners.”

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.