BCOs: Schedule reliability more important than ever

BCOs: Schedule reliability more important than ever

Ocean carrier on-time performance in the eastbound trans-Pacific trade fell below 40 percent in January, according to data from CargoSmart and SeaIntelligence Consulting. Photo credit: Caught in the Moment Photography.

Correction: A previous version of this story referred to the port of Singapore in Nixon's comments.

LONG BEACH, California — Ocean carrier schedule reliability has emerged as a major point of conflict between container shipping lines and retailers frustrated by delays and missed deliveries, especially in the wake of a wave of imports to the Southern California ports late last year. The issue is bound to come up in shipper-carrier contract talks as beneficial cargo owners (BCOs) say they need to mitigate risks and meet their own customer demands.

BCOs point out on-time reliability in ocean freight is far below that of surface modes, while carriers maintain they are doing the best they can, often in less than ideal circumstances. If service performance doesn’t improve, shippers say they may seek freight forwarding alternatives, especially when the need for on-time delivery trumps lower costs.

For retail logistics managers, nothing is scarier than an empty shelf. “When my shelves are empty and customers can’t get product, that’s what keeps me up at night,” Kim Vaccaro, senior manager of international operations for Home Depot, said at the 2019 TPM Conference here Tuesday. For the home improvement retailer, “customer service begins with in-stock,” she said.

Keeping those shelves stocked becomes much more difficult, however, when cargo doesn’t arrive when it’s supposed to. Ocean carriers have long struggled with schedule reliability, and on-time performance in the eastbound trans-Pacific trade fell below 40 percent in January, according to data from CargoSmart and SeaIntelligence Consulting.

“It’s hard to determine how delayed our product is going to be or when it’s going to arrive,” Vaccaro said. “We really need predictability and consistency.”

Expecting the unexpected

The recent glut of containers caused by BCOs rushing to get goods into the United States ahead of threatened US tariffs both exacerbated and highlighted the problem. “With the disruption earlier this year, all shippers have this in mind going into contract season,” Vaccaro said. “I see midsized shippers looking at freight forwarding as an option for risk mitigation.”

“The more disruption, the more bad weather, the more stuff you can’t control, the more value provided by freight forwarders,” said Peder Winther, global head of ocean freight for Panalpina. “We all have a key role in facilitating global trade. I think we underestimate the impact we have on the global economy. We’re all trying to do a better job for the end customer.”

The gap in on-time service between the container shipping industry and the rest of the supply chain is broad and stark. “When we talk about service performance in rail and truck, it’s 90 percent plus on-time performance, even with weather and all the other factors,” said John McCauley, vice president of transportation and logistics for manufacturer Cargill.

“In ocean, we’re conditioned to believe we can’t hit anything more than 80 percent,” he said. He asked the TPM audience of about 2,600 to stand and remain standing if they thought 65 percent, 75 percent, or 90 percent reliability was achievable. Most sat down at 75 percent.

That’s a major factor in “the hidden iceberg of costs we as shippers face,” McCauley said. “I’m not saying all of this can be resolved, but what are the repercussions that arise from such a performance level?” On-time performance “is an element I think they’re all trying to improve,” he said, “but there needs to be an orientation toward things that really matter to shippers.”

Container lines are working on that, said Jeremy Nixon, CEO of Ocean Network Express (ONE), the Singapore-based shipping line established in 2017 through the integration of Japanese container carriers ”'K” Line, MOL, and NYK Line. “Today, at a global level, we’re at 65-70 percent on time and we want to get to 100 percent,” he said during the panel.

But carriers are limited in how much they can do, he said, when many of the issues that result in poor on-time performance start on shore, with delays at ports and when containers are transferred from ships to trucks or rail, not at sea. “The real challenge with schedule reliability is on the land side, where we’ve seen utilization of terminals and ports increase substantially,” Nixon said. “When we get delays within ports, the knock-on impact is so significant.”

And although it cannot be blamed entirely, Nixon said the negative impact of severe weather also should not be underestimated. “In Asia last year, we had 18 typhoons. For almost one month out of five months, the port [of Shanghai] was closed. We have to think more cleverly when we design our schedules, so all our vessels aren’t calling on the same ports when the typhoons come through.”

All hands on deck

Shippers bear some responsibility in this area too, McCauley said, and should do more to help ocean carriers improve schedule reliability. Better forecasting would help, just as it does in mitigating problems with surface transportation reliability and capacity. “There’s a lot [that] the industry on the shipper side is not contributing to scheduling and performance liability,” he said.

“You can’t talk about having an efficient supply chain if you don’t know when the product is going to land,” said Vaccaro. “The ocean carriers have one piece of the problem, the terminals another, and then the downstream operations. Can we really get a handle around an end-to-end integrated approach and bring that to market? That’s really what shippers are asking for.”

Shipping lines are investing in technology to gain greater precision, Nixon said. “The ships today are more reliable; they have more modern electronics, and we’re monitoring them 24/7 and using data analytics to route them away from big storms,” the ONE CEO said. Investment in artificial intelligence, which is already being used to make container stowing more efficient, will help.

“One day we may be able to make more progress on the trucking side,” Nixon said. “Globally we have a shortage of trucking, and if we can optimize trucking using artificial intelligence in the future, that will be a big value.” ONE also is converting more manual tasks to digital processes, he said. “We do pricing online, chat online, and we’re now looking at going to the next stage.”

The need for solutions to deeply ingrained problems is growing. “We’re still in an extremely volatile market for container shipping,” McCauley said. “All of us are trying to make sense of it, not to make opportunistic plays, but to make sure we can get our capacity, can work with our carriers, can serve our customers. We’re going to face a very difficult period soon when all the containers finally get unloaded and everybody tries to figure out what happens now.”

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @willbcassidy.

Comments

The reliability of ocean carriers is horrendous, down to 40% in a recent report. The need to correct this is obvious, but carriers pay lip service to it, and have done what about it? The flip side of the coin, shippers and forwarders getting worse at no-shows, up to 30%. And the surges in volumes at non-traditional times in the midst of carriers changing schedules to account for the normal slow down on volumes. Better communications with reasonably close data more than a week out is required. Good quarterly forecasts by lane, followed up weekly by adjustments to know issues in production and deliveries allowing carriers to adjust as required. It just doesn't happen, all involved are part of the problem and have to be part of the solution.

Port of Shanghai......not Port of Singapore! Between April and August 2018, due to typhoons / inclement weather Shanghai port operations was closed for 27 days (compared with 8 days in 2017). There were similar other knock-on impacts at other ports in N.E. Asia. Typhoons are getting more regular and severe unfortunately. THEA's 2019 network plans has tried to de-risk some of these elements by making further adjustments to port coverage and buffer contingencies, but no doubt some weather related delays will inevitably impact the whole industry again this year.

Sorry for the error - it's been corrected - and thanks for the additional detail on the threat from typhoons.