Editor’s Note: This is the first of a two-part interview with Philip Damas, Director - Supply Chain Advisors, Drewry Maritime Research
Supply Chain Management Review: In this era of fading differentiation in carrier service, how do supply chain managers determine which provider is best for them?
Philip Damas: It depends partly on the objectives of each exporter and importer, which vary. For most companies, typically expect from carriers a combination of cost-competitive ocean transportation services with a good standard of reliability and transit times, we recommend choosing a couple of ocean carriers from any one of the 4 mega-alliances on the East-West routes and adding, where necessary, a few North-South or global carriers with a strong presence in a company's relevant market. Drewry provides comparative schedule reliability metrics by carrier and industry publications like yours publish independent carrier rankings, which are used by shippers to assess potential new carriers. For some shippers, what matters most is the ability of carriers to meet their company-specific KPIs and work with the shipper to resolve issues. Unfortunately, today, the only way to determine which carriers have these capabilities is to try them or to leverage relationships developed with carriers earlier in your career.
SCMR: What will be the ultimate impact made by new carrier alliances? What is the upside for shippers, and what are the negative consequences?
Damas: The positive impact of mega-alliances is that they enable carriers to fill their increasingly large ships, reduce their costs and provide more direct connections than before. But alliances also standardize and commoditize the service offering of carriers: port-to-port ocean transportation services between all the members of a given alliance are now virtually the same. For example, after MSC joined an alliance with Maersk, its previously poor schedule reliability improved. So, provided documentation and intermodal services are good enough, you can basically pick the lowest-cost carrier in any one alliance and gain access to the entire network of the alliance. Some critics say that mega-alliances will manipulate capacity, resulting in higher freight rates – an argument which Drewry has always refuted. On the contrary, the evidence of our freight rate benchmarking club and our analysis of capacity, comparing the situation in early 2014 (before the mega-alliances) and now is that rates have decreased and (over)capacity has increased.
SCMR: Is slow steaming a trend that will continue on all trade lanes? If so, is that good for all ocean carriage stakeholders…or only the carriers?
Damas: We expect slow steaming to continue on all trade lanes, but we see moves by some carriers, such as Matson, to offer one “fast” shipping loop to the market targeting very-time sensitive products. Most of the other services will continue to be slow-steaming, due to high oil prices. Of course, slow steaming is bad for exporters and importers, as it results in longer transit times and in higher inventory in transit. For a company like Toyota, which spent decades shortening its lead time and manufacturing time by a few days, longer ocean transit times was a retrograde step. How many exporters and importers will be ready to pay a 30% or 50% freight costs premium to go back to the previous fast transit times? In our opinion, there are too few companies willing to pay much more and therefore the ships will sail at the slower speed.
Tomorrow: West Coast congestion addressed
SC
MR
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