CMA CGM: Overbooking a symptom of poor forecasting

CMA CGM: Overbooking a symptom of poor forecasting

Maersk Line estimates about 30 percent of container bookings never show up at the port for loading, according to AP Moller-Maersk CEO Soren Skou. Photo credit: Shutterstock.com.

LONG BEACH, California — Less than 50 percent of container carriers actually forecast their capacity needs, and less than half of those are forecasting properly, according to Mathieu Friedberg, senior vice president, commercial and agency network, at CMA CGM.

The carrier executive told the JOC’s TPM 2019 Conference in Long Beach, California, poor forecasting was an industry-wide problem and it forced carriers to overbook space, eroding trust between carriers and shippers and reducing service levels.

“Anything that will help [cure] one of the long lasting and major diseases of our industry is welcome,” Friedberg said. “All the inefficiencies have built up over the years. We don’t forecast properly; we overbook because we don’t trust shippers. This is a real issue in what is a service industry.”

Mutual incentive

Poor forecasting of volume has long been a source of friction between carriers and beneficial cargo owners (BCOs). When carriers overbook, cargo gets rolled to the next sailing. Knowing this, BCOs reserve more space than they actually need, which results in “no show” cargo and further encourages the carriers to overbook to avoid unused capacity.

AP Moller-Maersk CEO Soren Skou told JOC.com on the sidelines of the conference that the vicious cycle of overbooking and no shows is creating enormous waste in the industry.

“Today, the standard ocean product means a shipper doesn’t commit to shipping and we don’t commit to loading. It sounds crazy, but that’s how it is,” he said. Unlike in some industries, ocean freight contracts are generally unenforceable. Both parties agree to the terms of the transaction, but there are no penalties for altering or even breaking those terms when cargo is rolled or doesn’t show up for loading.

“For Maersk, on average 30 percent of bookings made don’t show, and we try to estimate for that and overbook,” said Skou. “The risk of doing that is we get it wrong and containers have to be rolled or the ship is not full when it leaves. Both of these situations cost money for us and our customers.”

Mutual solutions

Skou said Maersk had a “relatively successful” product where shippers were charged a no-show fee if they committed to loading and the container did not show. Third-party solutions such as the New York Shipping Exchange (NYSHEX), which provides a platform for carriers and shippers to draw up “guaranteed” contracts, with penalties for noncompliance on either side, have also emerged in recent years but have yet to gain meaningful traction in the marketplace.

Maersk is an investor in NYSHEX, and Skou said the carrier’s volume through the platform was increasing. “It is a viable product for a number of our customers,” he said.

Uffe Ostergaard, Hapag-Lloyd president for North America, agreed that few customers were providing forecasts and those that did were not very accurate.

“That is not easy to plan for. We are managing capacity as best we can, and the more accurate the forecast, the better for us,” he said.

And the container shipping industry’s poor forecasting ability has only been exacerbated as demand variables have become complex, according to Amber Road director of sales Jim Weitekamp. With global trade concerns mounting, many companies are mass ordering and stockpiling goods to avoid the risk of future tariffs, making forecasting that much more difficult, he said.

Friedberg said if the industry could collectively address the problem, it would help restore a certain level of trust and that would lead to benefits for all stakeholders.

“We will be able to come on time and in the end we will all collectively help reduce all the inefficiencies in the system. There is maybe a little uncertainty here, a little uncertainty there, and uncertainty plus uncertainty in the end means there is inventory that should probably not be there if we were all doing our jobs properly,” he said.

Michelle Weaver, senior vice president global order management at Expeditors International, said the third-party logistics provider has been collaborating with Walmart to address the importance of providing consistently accurate forecasting of their capacity needs so carriers can provide that space.

“Over the last five years, we have partnered with Walmart to build a cloud-based platform to connect carriers and shippers and provide forecast accuracy,” she said. “Carriers will plan better and focus more on service. BCOs will get their product moved at the right time, and forwarders will not need to do the double, triple work they currently have to perform. All three segments of the industry stand to benefit.”

Anthony McAuley, director of global logistics at Walmart, said the key factors were capacity planning and getting the right product to the right place at the right time, which was both helpful for the carriers and provided better visibility for Walmart and its clients.

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

Comments

If forecasting was more successful (for all) it would be simply self-defeating. After the banning of conferences in Europe, we have tried to solve this problem but better data collection and exchange; we have failed here too, in this case due to competition worries for concerted business actions. If only people could read rather than talk...

The carriers are, in essence, at the mercy of their customers and forwarders who book cargo. And who give them the forecasts. It's not a chicken and egg issue, it is decades of shippers and forwarders double and triple booking "just in case". Some of it is BCO's not having good farecasting data, a small percentage actually spend the necessary time and effort to do it - why should they, they haven't for decades, why start now? Forwarders, it's almost part of their process, make sure you get the space on or about the time you think the cargo will move. That carriers overbook is a function of their experiences, mass no-shows and apparently increasing in percentages. In the 1970's it was a 10% no-show factor, now up to 30%. Lots pf blame to go around, vast majority is on the shippers and forwarders.

Today, virtually all shippers and forwarders have the flexibility to 1. provide or not provide accurate volume forecasts and 2. provide or not provide the actual anticipated volume (with no penalty / deadfreight), but this also results in a loss of opportunities for them, too. How about if they were offered a lower rate for providing forecasts and meeting volume commitments? How about if the rate included a guarantee of capacity and a lower risk of roll-overs / less of a need to have a buffer inventory (in case capacity is not there)? Drewry is working with some companies on developing new processes and new technology to create these benefits. - Philip Damas