Shippers, container lines, and forwarders grappling with the supply and demand effects of the coronavirus disease 2019 (COVID-19) are increasingly using technology to dynamically align their respective sides of the container equation, according to two providers of predictive analytics software.
Taking the effect of withdrawn capacity for Lunar New Year in February in tandem with additional capacity removed due to blank sailings driven by the impacts of the coronavirus, Singapore-based shipping analytics startup Portcast estimates almost 950,000 TEU of capacity was removed in February from China to Europe alone. The company estimated the combined impact would cause a 75 to 80 percent drop in container demand from China to Europe compared with the same month in 2019.
Nidhi Gupta, co-founder and CEO of Portcast, said planning in real time can help container lines and forwarders avoid additional revenue losses due to low vessel utilization or delays in supply chains.
“Being a black swan event, COVID-19 could obviously not have been predicted,” Gupta told JOC.com. “However, what we can do is dynamically quantify the impact on container shipping demand.”
Portcast is subscription-based predictive software for carriers and forwarders to optimize internal operations and provide customers with information on delays or disruptions to their containerized supply chains. The company currently works with eight shipping lines and forwarders.
Calling the supply side reductions “just the tip of the iceberg,” Gupta said the demand side is now the more problematic part to calculate for container lines and forwarders. She said reduced factory throughput in China will continue to affect demand negatively for March and April, pointing to the National Bureau of Statistics of China’s Purchasing Manufacturers Index (PMI), which has fallen to a 10-year low of 35.7 versus an average of 50 in recent years.
“New orders, raw materials inventory, and employment indexes also show a steep fall,” Gupta said. “Similarly, the Supplier Delivery Time Index fell to 32.1 versus an average of roughly 50, indicating a considerable lengthening of supplier lead times. These numbers are even more severe than the 2008-09 financial crisis numbers for the PMI, showing the magnitude of the impact on domestic manufacturing in China.”
Clearing the decks
Gupta said Portcast estimates that additional blank sailings in March will lead to effective utilization of remaining container shipping supply, as shipping lines have already removed more than 250,000 TEU from China to Europe in March. “Considering that manufacturing is only starting to resume, the utilization for the remaining shipping supply is likely to come from the backlog of containers [delayed since the onset of the outbreak], rather than new production,” she said.
She pointed to substantiating data from xChange, a German-based start-up focusing on the repositioning of containers, which is projecting a surplus of empty containers in Chinese ports and low availability in Europe and the United States will continue for 40-foot containers but will reduce for 20-foot containers in early March.
Portcast assists shipping lines by using their internal data, such as customer shipping patterns, and external risk indicators to plan capacity utilization at each port across a service dynamically, six to eight weeks out.
“Such dynamic estimates allow the shipping company to adjust the capacity across ports and improve overall load factor or pricing continuously,” Gupta said. “As this can be done six to eight weeks ahead, the [container line] can better decide if they require additional blank sailings or need to skip any port if the utilization is below the required threshold. This allows the shipping company to shift capacity from China to other ports in order to maximize the total load factor of the service.”
Portcast is also assisting forwarders in preparing for delays in ocean freight movements dynamically, using vessel position and carrier schedules in tandem with data related to port performance and risks such as adverse weather, missed sailings, and rollovers.
Gupta said Portcast data shows that carriers change shipping schedules an average of 2.5 times per voyage, an issue that’s exacerbated by events such as the coronavirus outbreak. Portcast’s platform integrates with forwarders’ transport management systems (TMSs) and control tower systems to feed dynamic visibility on container movements. She said forwarders and shipping lines can mitigate expected revenue losses by 3 to 5 percent using the technology.
Shippers are leveraging similar tools to predict when their cargo is likely to be delayed, rolled, or transshipped, said Adam Compain, CEO of San Francisco-based ClearMetal, which works with a number of BCOs.
“The typical way to get to supply chain visibility is based on rules and averages, but that doesn’t hold up” during times of significant deviation from the norm, he said. “You can’t solve for a continuously evolving situation with a static way of doing this, whether using static data or the rules you established with carriers or forwarders a year prior. The core issue is that this is affecting shippers’ [service-level agreements] with their customers.”
Compain said users of ClearMetal focus on two areas: dynamically determining the best plans for shipments and improving the customer experience using predictive estimated times of arrival. That customer may be a retailer awaiting the goods of an apparel maker or consumer packaged goods company, or it could be a manufacturer awaiting raw materials or components.
For shippers, mitigating the impact of the coronavirus outbreak — similar to any major supply chain disruption — is “really about how to make sense of the data at hand,” he said. “Does this moment define our supply chain because everyone has to jump in to play detective? It’s less about having a crystal ball, and more about how responsive you are going to be, and what is the method to keep the customers up to date on where your stuff is.”
Whether they’re dealing with a black swan event such as the coronavirus or business as usual, ClearMetal’s “playbook” for BCOs has four components, Compain said. “First is, what are the regions you care about; is it outbound out of China?” he said. “You create a filter so you have a live updating view, and proactively pushed alerts to whoever you care about as you look across your 22,000 containers around the world.”
The second element is viewing the situation in the context of lead times and “customer promise dates,” the time by which a supplier has committed to have goods to the buyer. “For stuff that hasn’t moved, what right now is the most reliable mode, carrier, lane that we should be allocating shipments to, or reducing shipments to?”
Shippers can also use ClearMetal’s planning-focused application programming interface (API) to feed information to a shipper’s customer relationship management (CRM) or enterprise resource planning (ERP) system to set up-to-date promise times to customers in those systems.
The third component is a dashboard for specific types of delays and disruptions, and the fourth is a customer portal that lets ClearMetal users and related parties access the information directly.
“The whole premise is, we can’t control the situation, but we can be better agents to our customers,” Compain said.