Ocean Shippers Must Come to Terms with Carrier Efficiency “Myths”

Given all the mysterious and metrical nuances of ocean cargo shipping, supply chain managers are increasingly challenged on how to monitor and measure this essential mode of global transport. Thanks to recent research conducted by MIT’s Center for Transportation & Logistics (CTL), that may soon be changing.

“Ocean Transportation Reliability: Myths, Realities, and Impacts” represents a breakthrough body of work done by two of CTL’s most eminent professors. Here in riveting detail, Dr. Chris Caplice and Dr. Basak Kalcanci describe and debunk common myths surrounding containerized sea freight shipping, using actual transactional data. Additionally, they describe the impact that transit time variability has on logistics costs and outline the business case for addressing this variability.

After viewing the webcast presentation last February (just before ocean contracting negotiations were to begin) SCMR spoke with the two researchers about their remarkable findings. Chief among them was this: slow-steaming contributes significantly to the carrier’s bottom line without yielding any measurable benefit for the shipper….yet.

But let’s explore more of this myth-busting work at a glance. According to Caplice and Kalcanci, shippers have largely been relying on “anecdotal” intelligence when preparing for contract negotiations. Much of this is based on the belief that there is single definition of reliability. This is a faulty proof, argue researchers, as they maintain that there are really two dimensions at work here. First, there is credibility – did the carrier fulfill its promise to reserve slots, load all the boxes, and make all the port calls? But the second dimension on schedule consistency should also be considered. How close was the carrier to its quoted schedule, for example. And how consistent is their transit time?

Such questions are looming large these days while many major carriers are touting their on-time sailings as a key differentiator. But researchers have discovered that another myth may dog them for some time to come. Contract reliability in procurement doesn’t always match with carrier operations. So while estimates of port-to-port transit may actually be accurate, the port throughput may be less so.

Furthermore, port-to-port performance is not necessarily a good measure of end-to-end reliability. Most shippers know that there can be significant dwell time at the ports, while landside legs have still more variability. The CTL team analyzed 72,000 container shipments, and discovered that carriers have “radically” different dwell times at the same port. They also discovered that port throughput time decreases when (1) more terminals are used; or (2) when the carrier has a dedicated terminal.

It should come as little surprise then, that transit time data is not being used effectively by shippers for inventory planning. Indeed, argue researchers, only a handful of shippers collect lead-time reliability data, and it often does not even feed into their ERP systems. That’s because most of these systems only accept a single value for lead time – not a range of values or even a standard deviation. Therefore, the inventory level is usually based on the worst, rather that the average metric, and the business case for increased reliability is far from clear.

Given this scenario, shippers may well be asking themselves if “slow steaming” should be embraced or resisted. So far, The National Retail Federation, along with National Industrial Transportation League have been adamantly against it, insisting that the fuel cost savings are not being passed on to the beneficial cargo owners.

This was consistent with the findings in a study conducted by third-party logistics services provider BDP International in conjunction with Centrix – BDP’s consulting unit – and Saint Joseph’s University last year. Shippers surveyed here were in the chemical, consumer goods, retail, and healthcare sectors, with 73 percent involved in import and export activity, 15 percent in export-only and 12 percent in import-only.
Among the reasons shippers gave for opposing slow steaming was that it extended transit times, thereby requiring more comprehensive advance planning and increased inventory levels.
CTL researchers don’t take a position on whether slow steaming is good or bad, but do offer rather compelling evidence that the global carrier trend will remain with us for some time – especially on the Transpacific. And while shippers don’t actually save as much money as the carriers, they do benefit when some of the variability is taken out of the equation.

There is even some discussion of port efficiency in the CTL’s paper, but shippers seeking more on that particular aspect may benefit by following the progress made at a vital industry event in Los Angeles this May. For only the second time in this century, the International Association of Ports and Harbors will be meeting in the U.S., with the Port of Los Angeles playing host.

The port authorities in this case, may wish to consider busting some myths of their own…namely that the Panama Canal Expansion in 2014 and a seemingly ongoing contentious dockside labor situation will result in fewer inbound calls.

SC
MR