From just-in-time to just-in-case for container supply chains and shippers?

Personal reflections and reportage on TOC Events recent Market Intelligence session that I was fortunate to moderate on the global outlook for container shipping, ports and supply chain - opinions and interpretation my own

“We have enough containers and ships but not in the right place. We have bottlenecks and congestion across the global system. Assets are tied up for much longer than usual,?reducing capacity. It’s a big ripple effect,” said container shipping industry analyst Lars Jensen of Vespucci Maritime at the TOC Global Showcase in June 2021. Speaking as part of a Market Intelligence session that also included senior representatives from Deloitte , Drewry , Ports America and UNCTAD , Jensen along with other panellists reflected on the ongoing fallout from the global pandemic from the points of view of container shippers, carriers and ports.

Winding back to the start of the pandemic, Jensen asked – were we prepared? The answer, he suggested, is mixed: ocean carriers were, shippers were not, and ports were somewhere in the middle. “Carriers pulling capacity out when demand drops as they did is a logical move,” he said. However, the fast and extremely strong rebound in demand – especially from US consumers buying goods rather than services - sparked a chain reaction that has caused turmoil across container supply chains.

The historical high freight rates reported by the Shanghai Container Freight Index reflect the global capacity crunch, and the lack of empty containers is a key factor, said Jan Hoffmann, Chief of the Trade Logistics Branch at UNCTAD. “If containers are spending 20% more time in the system, then we need 20% more boxes to reach the same capacity as before. But we don’t have them.”

Big disruptions such as the Ever Given grounding in the Suez Canal and long tailbacks at the Ports of Los Angeles and Long Beach as the primary gateway for US imports from Asia have made global headlines. But as Jensen pointed out, there is also now little if any slack to clear everyday disruptions that are just part and parcel of the vast and complex global container shipping pipeline. That could be ships off schedule, port closure and delays due to bad weather, strikes and other factors - witness the recent COVID-19 outbreak at the Chinese Port of Yantian – customs hold-ups and a myriad of other ‘normal’ factors. As a result of system congestion, “small disturbances now have a [disproportionately] large effect,” said Jensen. So potentially, death by a thousand cuts.

"Shippers who have spent the last 40 years focused on supply chain efficiency had zero resilience to deal with the disruptions"

“Resilience is just another word for overcapacity.,” argued Jensen. “And shippers who have spent the last 40 years focused on supply chain efficiency had zero resilience to deal with the disruptions.”.

“Retail sourcing lead times are going to expand and will need more buffer stock,” said Peter Levesque , President of Ports America, the largest terminal operator and stevedore in the US. This trend will have a big impact on warehouse development at US ports which is currently a “booming market.”

E-commerce and omnichannel were already game changers for US retail supply chain management and that has escalated during the pandemic as stores were forced to shutter while consumers wanted to buy more stuff than ever. “Some retailers did well but 30 retailers filed for bankruptcy,” observed Levesque, citing Kodak as a classic example of great businesses that can go to the wall out of a “sense of denial".

Ports America has seen increased diversification of retail sourcing during the pandemic, accelerating a trend that had also already begun, said Levesque. That includes more goods coming in from South-East Asia versus China. “Where sourcing starts impacts where cargo comes in,” he added, and in this case the shift has started to favour East and Gulf Coast ports.

Ports and terminals are going to have to figure out responses to meet the demands of cross-border e-commerce trade which is realigning retail “from mass markets to markets of one” with high consumer expectations of reliability and speed from online order to home delivery. At one time last year, said Levesque, Amazon had 1,000 containers sitting at the Port of Los Angeles. Visibility to supply chains is a crucial piece of the puzzle. There has also been a pandemic trend (here to stay?) for smaller ships sailing at higher speeds on direct point-to-point service and offloading at niche US ports.

The North American consumer is at the heart of the global recovery, agreed Eleanor Hadland, Senior Analyst Ports and Terminals at Drewry. Container lines have diversified their inbound US port calls to cope with congestion, such as moving more goods in through Seattle-Tacoma rather than Los Angeles-Long Beach. But the drive to change also “needs to come from the shippers with supply chain redesign.” Hadland did not expect marine terminal efficiency to normalise in 2021 and highlighted the dependency on inland transport capacity for overall system performance and at the terminal itself.

Congestion and container shortages have been holding port growth back internationally, said Hadland, who reported a 26% cut in global capital expenditure during 2020. She predicted a catch-up across 2021 and into 2022 with the focus shifting towards digitalisation and operational resilience. Indra Vonck , Lead, Port Advisory at Deloitte cited growing interest in digital investments like port community systems and cited green growth as a strong driver for future investment, focused on energy transition and the circular economy.?

“There’s a lot of growth forecast for seaborne trade, we have had a faster recovery than in the last two trade recessions, and the escalating and exponential growth of technology makes me optimistic,” said Hoffmann of UNCTAD.?But both Hoffmann and Jensen cautioned shippers that the market would remain tight going forward with continued high freight rates. “This is a normal global upcycle in favour of the carriers,” observed Jensen. “The time of cut-throat competition in shipping should be over,” added Hoffmann.

The new battleground to watch will be the rise of integrated container logistics as carriers, ports, terminal operators and 3PLs all look to extend their digital and physical services along the supply chain

The new battleground to watch will be the rise of integrated container logistics as carriers, ports, terminal operators and 3PLs all look to extend their digital and physical services along the supply chain, redefining their historic roles. Data-driven insights will play a vital role. It’s early days but this may be the beginning of a way to close the gap between the (traditionally commoditised) might of the global container transport system and the specific needs of individual supply chains and cargoes. Time will tell…