Jun 09

OOCL Adjusting Capacity for 2016 Peak Season

Trans-Pacific carriers are beginning to phase in their new deployments for the peak-shipping season in an attempt to right-size capacity in the largest U.S. trade lane.

Orient Overseas Container Line announced this week that it will suspend for six weeks the Central China service that it operates as part of the G6 Alliance, although the net result of the move will be an increase in capacity because the CC1 service will be replaced with the CC2 service, which features larger ships.

Noel Hacegaba, chief commercial officer at the Port of Long Beach, confirmed that the CC1 service, with vessels having capacities of about 5,000 twenty-foot-equivalent units, is being temporarily suspended. Hacegaba said the CC2 service, which also links Central China and South Korea with the Southern California port complex and Oakland, is returning after having been laid up during the winter months. The CC2 will have vessels with capacities of about 8,000 TEUs, he said.

Since OOCL announced that the CC1 is being suspended for six weeks, the intent is apparently to bring the service back in August. The busiest months of the trans-Pacific shipping season are from August to October, with holiday-season merchandise driving growing cargo volumes.

By temporarily suspending the CC1 service, the G6 carriers are attempting to keep rates from falling while the trade awaits the peak-season buildup. Service contract rates this year were negotiated down to record lows. Spot market rates bottomed out earlier this year and have increased the past two weeks, although they remain below historical levels, as displayed on theJOC.com Market Data Hub.

Trans-Pacific carriers also face the quandary of what to do with the increasing number of mega-ships they have on hand as newly-built vessels with capacities of up to 20,000 TEUs enter their global fleets for use in the Asia-Europe trade. Those mega-ships bump vessels of 8,000- to 10,000-TEU capacity to other trades, such as the trans-Pacific.The good news for carriers, if they can fill the ships, is that 8,000-TEU vessels have lower per-unit carrying costs than the 5,000-TEU ships they are replacing.

The CC1 service had been calling at Busan and Kwangyang, South Korea; Shanghai and Qingdao, China; Los Angeles-Long Beach and Oakland.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihs.com and follow him on Twitter: @billmongelluzzo.

May 17

Not Your Father’s Import Logistics Strategy

As I am writing this article in 2016, I have no wires going to my stereo speakers, my TV is paper thin and plays the internet, I have no landlines anymore for my phone, my neighbor has a car that doesn’t use gasoline, I hear that the new cell phone case that I ordered might be delivered by drone some day, and my phone’s screen is showing me that my Uber driver is just around the corner.

When I step into my world of importing containers from far off lands, I seem to time travel back to the 1980’s and 1990’s. Oh yes, a few things have changed, no Telex, fewer faxes, fewer phone calls, more emails, typing documents on the computer rather than the Selectric etc…  But, the “structure” of importing is still the same old inflexible, passive and unresponsive model that was designed just after the 1984 Shipping Act.

This IS still your father’s Buick!

Today, it is common for importers to still be using one, two or more NVOCC partners who also include their own in-house CHB and tracking system. This is a static import strategy that is slow to respond to changing conditions and is expensive.  Little has changed since 1984. Those who use two or more NVOCC’s use it to “spread the risk”, and “not put all the eggs in one basket”.  

The following is a visual representation of how the Freight Forwarder, foreign supplier, NVOCC, CHB, Tracking System and Delivery Management components are connected and duplicated in the traditional & static import logistics strategy.

Screen Shot 2016-06-02 at 8.49.29 AM

In the traditional strategy, the importer normally allocates a set of suppliers to book with forwarder A, and another set of suppliers to book with forwarder B. Those suppliers are given these instructions weeks or months in advance of the ready date.

When we step back and observe the old structure visually, we immediately notice some redundancies that our LEAN Master friends would title: WASTE.  Two forwarders, two CHB’s, two tracking / data management systems. This also means two sets of:  SOP’s, Compliance/KPI Agreements, CSR’s overseas and CSR’s in the U.S. etc.  If a spot rate forwarder is added, now there are 3 of everything.

The new spot rate environment has rates changing every 3 or 4 days. The traditional import structure is not designed with the flexibility needed to quickly switch to the best rate.

Switching to a new forwarder with a traditional structure is a problem. It prevents switching in a low risk, rapid and easy way. Even when that new forwarder might be offering rates $300-$500 per container lower than their current costs, the change-over is too cumbersome and the suitors are often turned away. The obstacles are Change-Over Costs, Friction, and Lag.

I have seen companies that import 1000 containers per year miss 9 months of a $300.00/container savings! This was because their import structure was not agile enough to take a trial run on a previously unknown forwarder with a great spot rate, or on a forwarder recommended by their supplier, or on an offer from a direct carrier, or even an offer from a Shipper’s Association.

That lack of agility (flexibility) has cost those companies a quarter of a million dollars in lost savings in a single year! Most importers have missed these savings during the last three years.

In 2014, I put my APICS CSCP “supply chain” training to work on replacing this traditional & static strategy. What I found was that when measured against the attributes of reliability, responsiveness, flexibility/agility, and costs (SCOR Model), and a LEAN perspective, the traditional & static strategy predictably fell far short.

Using these same attributes, I designed a “Modern & Agile Import Logistics Strategy” for Alliance International, Inc. as a service for its customers.  The Modern & Agile strategy performs significantly higher in reducing annual freight spend, reducing lead times, increasing responsiveness, reliability (on-time delivery) and flexibility/agility.

What are the significant changes in the import logistics industry that created this opportunity for a new strategy?

Three major evolutions have occurred that allows us to adopt a modern & agile strategy:

  • Technology that moves data throughout the import lifecycle. Specifically, web-based technology (the cloud)
  • Containerization has become a “commodity”. The lowest pricing on full container transportation has become the domain of the direct carriers, low-cost operators such as the Chinese NVOCC’s and the Shippers Associations.
  • The rise of the Spot Rate market.

We can take these three evolutionary elements into the equation and reconfigure the components to achieve high performance on all the attributes. This means we reconfigure the Forwarder, Suppliers, Ocean Transportation Providers (OTP’s), CHB, Data-Management, and Delivery function relationships into an efficient and effective agile structure.

This modern and agile import logistics strategy:

  • Gets a “thumbs up” from our LEAN Master.
  • Reduces direct and indirect supply chain costs. i.e. transportation spend, inventory carrying costs, cancelled orders.
  • Let’s the importer switch ocean transportation providers in a split second to get the best rate available in the market on that day, or capture lift during a week when the vessels are overbooked.
  • Results in sustainably high scores in process compliance and KPI’s.
  • Stabilizes and shortens the importer’s lead times.
  • Allows the importer to shrink it’s safety stock of inventory.
  • Results in the importer achieving higher on-time delivery to it’s customers, reduced cancelled orders, and therefore, higher customer satisfaction benefits.

To investigate how this modern & agile import logistics structure can benefit your supply chain, email me at hugh@hughfinerty.com.