Optimising supply chains depends on real collaboration between stakeholders. Cargo owners, carriers, container terminal operators and logistics service providers all need to have trust and confidence in each other in terms of sharing common goals and relevant information. But it remains a bone of contention as to whether this collaboration is really happening in today’s globalised logistics industry.
Slow steaming and skipped sailings that make it increasingly difficult for cargo owners to manage their supply chains are some of the criticisms thrown at container lines. These factors are compounded by the impact of mega container ships entering deepsea trades and the consequent cascading of larger vessels onto regional and niche trades.
Ports and cargo terminals are also critical links along the container supply chain and they, too, require timely information in order to allocate berth space and labour so as to load and discharge vessels as efficiently as possible.
Ahead of the 39th TOC Europe Conference and Exhibition, taking place on 24-26 June 2014 at ExCeL, London, UK, The TOC Team spoke to some of the event’s key speakers about these and other issues to be discussed at the conference.
Real collaboration can work
First up, Alexandre Gallo, General Manager of Novatrans. This French-headquartered company runs more than 100 national and international trains per day across France, Germany, Belgium, Italy and Spain, and transports over 8 million tonnes of goods in over 400,000 intermodal units annually.
TOC: Is supply chain collaboration genuinely happening?
Alexandre Gallo: “Supply chain collaboration is becoming more and more a reality. When a shipper and a logistics provider share common values and when the relationship is balanced, it can result in the creation of a new service. For example, we are currently involved this sort of process which could result in a new and daily connection between Dourges (Northern France) and Barking (UK) via the Channel Tunnel. In such a case, a shipper commits to a minimum volume of containers, the logistics provider organises the transport, and we as Novatrans run the train.”
Formerly with CMA CGM and Greenmodal Transport, Alexandre Gallo joined Novatrans a year ago. He speaks on Day 2 of TOC CSC Europe in the session ‘Going beyond the gate: attracting untapped clients and cargo flows via inland logistics services.’
Another speaker, Helge Neumann-Lezius, Trade Manager Intra-Europe for global logistics giant Kuehne + Nagel, points out that supply chain stakeholders can no longer rely on rapidly growing markets in order to secure longer term business prosperity.
Helge Neumann-Lezius: “The container market is no longer growing by +10% every year and we have to concentrate more on efficiency and innovation to further improve supply chains. There are positive results from the introduction of larger container vessels, such as increased efficiency and utilization. But on the negative side there will be less service differentiation towards clients and price will be the main difference. At the end of the day we need to be open to new solutions and always prepared for a faster changing market.”
Mr Nuemann-Lezius speaks on Day 2 of TOC Europe in the session ‘Europe’s Regional Shipping Networks: Short Sea Shipping & The Future for Feeders.’
And the global view?
While collaboration can happen in targeted projects over a specifically defined logistics chain, it remains an open question as to how far this applies to wider, liner-based trade lanes. The advent of ultra-large container vessels and mega-alliances among liner shipping companies has perhaps created greater uncertainty for shippers and logistics providers and this will be a dominant talking point at this year’s TOC Europe.
The TOC Team spoke to highly respected shipping analysts, Martin Dixon, Director and Head of Research Products at Drewry, and Andrew Penfold, Project Director at Ocean Shipping Consultants, for their thoughts on new shipping line alliances, such as P3, and their potential impact on Asia-Europe container trades.
Martin Dixon: “Drewry’s view is that the new mega-alliance formations will bring some stability to container shipping, in so far as they will enable alliance carriers to better deploy capacity. However, overcapacity will contribute to continued freight rate volatility as the practice of frequent general rate increases and skipped sailings in a weak market will continue to unsettle pricing.”
Andrew Penfold: “I am not convinced of the durability of these major alliances. They are essentially defensive moves. They got together to manage tonnage oversupply, but that could change in 3 to 4 years if the oversupply issue is resolved, despite that fact that P3 is billed as 10-year alliance.”
TOC: How do you think these new alliances will impact European port dynamics?
Martin Dixon: “Larger ships are challenging ports, with fewer vessel calls but many more container moves per call, creating the potential for some landside congestion both within terminals and for hinterland transportation. Those ports that rise to this challenge stand the best chance of taking advantage of new carrier alliance formations.”
Andrew Penfold: “These alliances were never designed with port operations in mind – they were a tonnage management strategy. But P3 and other similar moves throw the issue of port-carrier relations into sharp relief and the cleverer stevedores have entered joint venture agreements for effectively dedicated terminals. Third party terminals have not just been sitting idly by, but are in a much less comfortable position than a line-owned facility. This will shake up European port dynamics and no-one knows yet where the sticks will land.”
Martin Dixon and Andrew Penfold participate in a debate on ‘Carrier Alliances, Schedules and the Supply Chain Impact’ on Conference Day 1 Tuesday 24 June.
Getting to grips with scale economies
The introduction of mega-vessels on major container trades has often been justified in terms of economies of scale. However, Ben Hackett, President, Hackett Associates, questions the basic economics behind this assertion.
Ben Hackett: “The main benefit is the lower cost of slots on a round voyage. In principle this is highly commendable but in reality it is a means of admitting that freight rates cannot be increased sufficiently. If you cannot control pricing, then the only option is to reduce costs. Economies of scale, however, raise other issues, such as the need to fill the very large ships in an industry that has a fairly high volatility of demand linked not only to holidays and production stoppages, but also to fickle consumer demand.”
TOC: What do you see as the main issue that economies of scale do not address?
Ben Hackett: “This is the inability of liner shipping management to reduce overall capacity. Excess capacity is the root of the problem of excessively low freight rates. Cost reduction can only go so far to alleviate this problem and in fact, with newbuildings of 18,000 TEU, they create further excess capacity as the remainder of the fleet that is being replaced is too young to be scrapped in the eyes of their owners. It seems that liner shipping management has a poor sense of economics and a near total lack of understanding of the basic tenants of economics, i.e., the outcomes of the supply/demand curves as they shift along an axis of too high supply vs. too low demand. We should not encourage their hedonistic drive to build ever larger ships, instead, they should be encouraged to finally come to grips with their past mistakes and quickly reduce the excess supply of ships to the point where there is a better match with demand.”
Ben Hackett appears in the debate ‘Europe’s Regional Shipping Networks: Short Sea Shipping & the Future for Feeders’ on Conference Day 2 Wednesday 25 June.
About TOC Europe 2014
As the world’s longest-running maritime and container supply chain event TOC Europe will provide a macro-to-micro perspective on global and regional supply chains and trade, bringing together a diverse group of stakeholders to explore current challenges and solutions.
Delegates can choose from the following components:
– TOC Container Supply Chain Conference (CSC) – the leading container transport and trade forum, providing shippers and their logistics partners with exclusive access to the insight and analysis that drives international trade, transportation and logistics.
– TECH TOC Conference – connecting operators and equipment & technology providers to explore the latest global innovations and best practices in container handling technology & big data tools.
– Bulk Ports & Technology – designed for people who move and handle dry bulk shipments, highlighting the latest innovations in dry bulk shipping, handling and port technology.
– PortCentric Logistics Village & Seminars – TOC Events is partnering with SHD Logistics to launch the PortCentric Logistics Village providing a unique opportunity for suppliers of materials handling equipment, logistics and intra-logistics services to engage with key buyers running distribution and transport operations located within the UK and Europe
The 39th TOC Europe Conference and Exhibition takes place on 24-26 June 2014 at ExCel, London, UK.