Digital solutions will save the shipping industry billions

Relentless cost pressure have forced shipping lines to embrace the wave of digitisation sweeping across the ocean container freight industry.

Frank Smet, chief commercial officer at Hamburg Sud, told delegate at the keynote session of the TOC Americas Container Supply Chain conference in Cartagena that the only way to reverse the carrier industry’s eroding margins was to eliminate the multiple additional costs it often needlessly incurs; and the best way of achieving that was through digitisation.

“We need to take out the inefficiencies from the system – and I don’t mean just squeezing the weakest link in the chain through procurement, because this doesn’t lead to acceptable returns either and cannot be a long-term strategy,” he said.

For example, increased use of predictive analytics could improve vessel utilisation: “The common estimate is that 10% of slots on the headhaul sailings remain unfilled. The top 10 carriers have around 16m teu capacity, so if we can reduce this to 5%, then at a conservative figure of $10 per slot you could see a combined saving of $5bn in industry savings.

“The reason for the empty slots is because shipping lines have become so lenient with no-shows, which are becoming more commonplace – during the peak season no-shows can be up to 25% of a vessel’s bookings, and if all the carriers sailed with just 75% utilisation they would go belly-up,” Mr Smet added.

The carriers’ standard response to this has been to overbook by 25-30% which leads to cargo rollovers and that creates new cost for customers, he said.

“Every delay, every shunt of a box to another terminal brings with it extra cost: it affects the entire container supply chain because no one lives up to their commitments, and carriers are reacting by rolling out new platforms where this commitment is reintroduced with penalties, and I am convinced that this will improve utilisation.”

He said Hamburg Sud’s Instant online booking platform, which was formally launched in mid-September and developed in cooperation with parent Maersk, will guarantee no rollovers to shippers and forwarders booking through it.

“We hope that the new offer with guaranteed booking will be to everyone’s benefit,” he said, adding that as shipping lines had exhausted most other avenues to profitability, they now needed to attack non-liner costs.

“An accelerated level of consolidation has certainly changed the landscape of the industry, but there has also been slower growth and reaching the end of the conversion process [of previously breakbulk or general cargoes into containers].

“The deployment of ever larger vessels which has improved the cost efficiency per slot is coming to an end, and while these have created a lot of operational cost benefits at sea, they have created a lot of operational costs in the ports and hinterland.

“I could talk about the costs of empty repositioning; I could talk about the cost of container transport with merchant haulage; I could talk about the costs of hinterland congestion… there are so many inefficiencies we could address.”

And the way to address many of them is through digital solutions.

Projects such as the Maersk and IBM-sponsored Tradelens and carrier group the Digital Container Shipping Association (DCSA) are important developments, he said, because of their collaborative nature.

“I was very pleased that the DCSA was formed and that the major carriers can work together to create the standards because it’s been the greatest barriers to us so far,” he said.

Reporting by Gavin Van Marle of The Loadstar

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TOC Events has been leading successful maritime industry events for over 40 years. The nineteenth version of TOC Americas will take place in Cartagena de Indias, Colombia, October 29-31.

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