A renewed focus on flaws in the container booking process that leave vessels partly empty when promised cargo doesn’t arrive or overbooked, with containers left on the dock has triggered a slew of new efforts by shippers, carriers, and consultants on how to resolve the problems.
Better forecasting; digital management platforms, such as the New York Shipping Exchange (NYSHEX); penalties for bad behavior; and greater visibility in the booking process are just some of the strategies tested. Industry consultants, start-ups, shippers searching for ways to increase certainty in their supply chains, and cash-strapped carriers desperate to improve efficiency are all looking to reduce so-called no-shows. Whether any of the solutions can succeed in overcoming a stubborn challenge in the container shipping system for years, is unclear.
At its heart, the system is driven by uncertainty: shippers face no penalty for booking a certain volume of cargo on a ship, and then failing to send it; and carriers face little retribution for leaving containers on the dock that they have committed to shipping. The two behaviors, and the apparent disregard for the impact on the other party, fuels an unwillingness to take steps to change a system that clearly hurts both parties in the long run. Carriers end up running ships with plenty of empty space, and shippers have to scramble to make alternative arrangements to get their cargo to its destination on time when containers are left on the dock.
Several shippers told JOC.com they are trying to more accurately predict how many boxes they will send in a shipment, and the NYSHEX in June launched an online portal that uses a system of contracts and penalties to encourage bookers and carriers to fulfill their commitments. Hapag-Lloyd and CMA-CGM have in recent weeks revived a strategy — that has not worked for others in the past — of charging a cancellation fee on shippers that deliver less cargo than they committed to ship.
New insights from Drewry Shipping Consultants says that the problem could be mitigated by a digital information sharing system that allows shippers and non-vessel-operating common carriers (NVOs) to better allocate their cargo among different carriers and vessels.
“Our Drewry view is that to resolve this issue will require a new technology-based capacity platform, enabling e-business synchronization of capacity in container shipping focused on “structural issues with booking and lack of technology.” The consultants found that the problem most affects small- and medium-sized shippers and non-vessel operators.
The question is what will it take to break that cycle, and will it be achieved by using a carrot to encourage more responsible behavior, or a stick to force the issue? Several BCOs say they have responded by coming up with their own methods of dealing with the problem, with some success.
Gary Fast, associate vice-president for international transportation at Canadian Tire, Canada’s largest container importer, said he believes its strategy of providing certainty for carriers has helped ensure that the retailer’s cargo is very rarely rolled. Fast said Canadian Tire forecasts extensively, based on information accessed by teams of analysts from up and down the organization, and provides them to suppliers, carriers, and service providers up to 26 weeks in advance. The company says it can forecast with 95 percent accuracy how many containers it will send on a particular ship.
In addition, the company, which does sales of $13 billion and handles about 65,000 containers each year, works to ensure that it always fulfills the minimum quantity commitment (MQC), or number of containers it will send, in annual carrier contracts, Fast said. If Canadian Tire at the end of the contract year has sent fewer containers than was committed, it will keep sending cargo through the carrier until the commitment is met, said Fast, adding that few companies are so committed to meeting the MQC.
“Having that certainty that we are going to honor that MQC, also gives (the carrier) a high degree of confidence in Canadian Tire,” and motivates the carrier to protect the retailer, Fast said. “Carriers are very much incentivized not only to give us a good rate but to watch our freight and take care of it.”
Three other shippers told JOC.com said they are working to provide the carrier with an accurate forecast of the number of FEU to be sent, in the hope it will prompt the carrier will reciprocate with a more reliable service and less cargo rolled. One of the shippers, a supplier of apparel that sends goods on the trans-Pacific and trans-Atlantic routes, said the tactic has shown results.
“By going back and comparing ‘Here’s what we said, here’s what we did,’ we feel we can market our forecast to our carrier reps and we reward those who can get us space with volume,” said the supply chain manager of the apparel manufacturer, who asked to remain anonymous. “It sounds naïve, but I believe it works — honesty is the best policy.
“We know our carrier reps lose credibility with their trade and origin teams if we don’t execute to our forecast,” the manager said. “We had one carrier who just couldn’t translate our forecast into action. We liked many things about that carrier, but structurally they gave lip service to the forecast and rolled several containers. That carrier is now seldom used.”
Another BCO, a household goods retailer, said that it was hoping that accurate forecasting combined with “providing visibility to our needs more than six weeks in advance” would help “reduce rolls and refused bookings.”
A senior logistics manager for an Illinois-based manufacturer and importer of automotive products said that he requires vendors to book space on a vessel more than two weeks in advance, and watches closely to ensure they comply, after realizing that vendors who didn’t book vessel space far in enough in advance were the ones whose cargo was left behind or delayed.
While most shippers told JOC.com that the booking process raises concerns, it’s not clear how big an issue it is, and until there is general agreement on that, significant change in the industry may be elusive. The household goods retailer said refused bookings and rolled cargo that created a delay of three days or more accounted for about 1 percent of bookings, and “factory canceled bookings probably exceed 10 percent of total.”
Drewry, in its research, quoted a shipper saying that the rolling of containers happened less than 5 percent of the time, and the consultancy quoted another saying that “about 10 percent of booking requests have problems with lack of space or lack of container equipment when you place the booking.” Even after the booking is confirmed, 3 percent of bookings are canceled, the BCO said, adding that the rate has increased from 2 percent last year.
Jason Lloyd, director of freight trade at Interra International, of North Carolina, a global distributor of food products, said he believes the problem of overbooking stems more from NVOCCs, who make multiple bookings to ensure they have enough space for their customers, or because they get a better-priced offer on another vessel. That in turn causes problems for BCOs, who may be shut out of a vessel that appears overbooked — even though in reality not all of that cargo will arrive, he said.
Mike Hashmi, manager of import-exports and customs compliance for The Apparel Group of Texas, said a carrier refusing to take cargo at the last minute, having agreed to take it earlier, “happens often,” although mostly during the July-to-October peak season. Hashmi cited an email he received on July 12 from a carrier saying that a shipment three days later could not happen, and offering space on a vessel a week later.
“They weren’t telling us what’s the reason, but I know what’s the reason,” said Hashmi, who refused the later booking and instead went with another carrier sailing closer to his preferred date. He said he believed that the carrier did not want to do the extra work needed to provide a container for “garments on hanger,” which requires the installation of bars in the container on which to hang the clothes.
That uncertainty over who causes the problem, and why, can make it difficult to find a solution.
Carriers have in the past tried — unsuccessfully — to levy booking cancellation fees on BCOs that do not deliver the amount of cargo they promised in advance. BCOs have generally resisted, and it is too early to say how the recently initiated effort by Hapag-Lloyd and CMA-CGM will play out. The German carrier is charging $60 per cancellation on all bookings that are canceled within three days prior to the vessel’s arrival on the Indian-Singapore route, and CMA-CGM is charging $150 per TEU on the North Europe-Middle East-Indian Subcontinent trade.
NYSHEX also is trying to change behaviors with a penalty system, albeit a more sophisticated one. The company in June moved from a test phase to the full launch of an online portal that can book cargo with carriers, but also monitors whether the booking is fulfilled by shipper and carrier.
Carriers that use the portal post specific details about a cargo movement they are willing to make — including the origin and destination, the number of containers to be moved, and the price of the move. Shippers can then commit to sending cargo under the deal, and are required to back up their commitment with a bond, cash deposit, or insurance policy. If the shipper fails to send the cargo, it forfeits between 30 to 40 percent of the agreed shipping cost, depending on the route. A similar penalty is levied on the carrier if it fails to complete the delivery.
“If carriers can use enforceable contracts to reduce their downfall rates, it will give them more confidence in being able to utilize their vessels,” said NYSHEX CEO Gordon Downes. “And consequently they can avoid overbooking their ships, which is the most common cause of rollings.”
That in turn, he said, “means shippers will know at the time of contracting how much capacity is available, which is far better than waiting to make a booking two or three weeks before the departure date only to be told that the ship is full and then being forced to scramble for an alternative carrier, or worse.”
Drewry suggests a different solution, believing that greater visibility in the booking process would enable carriers to better allocate cargo, and prevent excessive volumes beyond what a vessel can handle arriving at the dock.
The consultants suggested that could be achieved with a “network capacity management platform” that shares information between carriers and shippers and NVOs. That would enable shippers and NVOs to book cargo on a vessel with “real time” information that would enable them to see whether space is available for cargo of the specifications they are trying to send — rather than the current system of booking and then waiting a day or two for confirmation that the space is available, the consultant said.
“The carriers could publicize their capacity and rates — either publicly or privately — to shippers and forwarders, or other carriers,” Drewry said. That would facilitate access to the information and distribution of containers across the carriers and reduce overbooking and shipments being held up due to lack of available capacity.
The consultant likened the system to the way portals such as Amadeus and Sabre handle business to business travel bookings.
“It would indeed work as a carriers’ marketplace, where carriers can share their total or partial available capacity,” Philippe Salles, head of e-business advisory, transport, at Drewry said. “However, the system would not allocate the booking automatically. The shipper would be the one to decide on the carrier, to agree the price and booking’s ‘No-show’ policy.”
Key to better allocation of cargo, however, is giving shippers more accurate vessel scheduling data, and the ability to see the gamut of their shipping options, and assess which are the most beneficial.
Drewry’s cited CargoSmart’s Routemaster as a step in the right direction. The software provides optimization tools that allow a shipper to find the most efficient, and cheapest route for sending cargo. Included in the estimation are factors that enable the shipper to pick the most beneficial routes — such as carrier schedules and on time performance, weather reports and industrial action around a terminal that would affect the shipment. Also available is the carrier’s performance record on rolling cargo, as well as the cost for the trip, CargoSmart said.
That analysis enables a shipper to judiciously select a route that avoids carriers and terminals that are potential trouble-spots, said Kim Le, strategic alliance director for CargoSmart.
“That helps mitigate that, minimize that, because it gives them alternative options, and it also gives them a view of their existing routes, and compare it to other alternative options,” she said. They can see if cargo regularly gets rolled, or a shipment is frequently moved to a secondary carrier, and can use that information to shape the next route booking, she said.
The effectiveness of such a strategy, however, will still depend on resolving the problem of uncertainty: while the allocation of cargo may be more efficient, the system will still fall down if shippers don’t send what they say they will.
“Their logic is that if carriers can better manage their capacity, they can better serve their customers with fewer declined bookings and rollings,” Downes said, of the Drewry proposal. “But carriers are already pretty good at managing their capacity, and this logic only touches on a small part of the problem.
The biggest cause of bookings being declined or cargo being rolled, Downes said, is that “carriers don’t know what cargo is going to be booked on each vessel until around two or three weeks before the departure. And even then, the bookings can have high downfall rates.”
Contact Hugh R. Morley at Hugh.Morley@ihsmarkit.com and follow him on Twitter: @HughRMorley_JOC.