2014 State of Logistics: Ocean is slow and steady

Analysts and observers of global ocean cargo movement see a number of emerging trends surfacing in the ocean carrier arena later this year. In one of the latest reports on the segment by international consulting firm JLL, ocean shippers are provided the following five trends to follow over the next five months:

Cascading of vessels. Watch for larger vessels that allow carriers to maximize efficiencies and therefore lower per-container expenditures by up to 35 percent, which has resulted in an industry-wide push to go bigger. For instance, the Post Panamax (8,000 TEU) vessels that were once commonplace at the Port of Los Angeles and Port of Long Beach have gradually been replaced by New Panamax (14,500 TEU) ships.

Slow-steaming the new norm. Fuel can account for 60 percent of aggregate shipping expenditures, and in a move to cut costs, carriers have engaged in slow-steaming at 15 knots to 20 knots, not the typical 24. By slow steaming, fuel consumption can be reduced by 53 percent, and also helps minimize carbon footprints. Although it can add up to one week to transpacific shipping times, carrier customers have grown more tolerant when shipping less time-sensitive items.

Big ships lead to port congestion. Bigger vessels and slow-steaming may further strain seaports due to more concentrated, intermittent shipments at a time when overcapacity is a growing concern. By expanding berths, utilizing on-dock labor more proficiently, and investing in new cranes and automated operating systems, terminals can go a long way towards boosting productivity and expediting the flow of goods.

Alliances reconfigure supply chain. Carrier alliances and consolidations are strategies to further control costs by sharing vessels and port facilities. While China nixed the proposed “P3 Network,” the G6 collaboration is moving forward with its plans. American President Lines, Hapag Lloyd, Hyundai Merchant Marine, Mitsui, Nippon, and OOCL had agreed to join forces as a competitive alternative to P3 and will work as a team through 2016. Earlier this year, Hapag-Lloyd AG and Compañía Sud Americana de Vapores signed a binding contract on merging CSAV’s entire container business with the German carrier.

Winners and losers. Larger vessels and the G6 collaboration suggest fewer ships in the water and less frequent port calls. It also means carriers can potentially pick the winners and losers. The haves will be those industrial corridors with excellent connectivity to inland ports and those seaports able to quickly and efficiently off-load cargo. On the industrial real estate front, JLL believes that Atlanta and Baltimore will be notable beneficiaries.

Atlanta is a key population center and is connected by rail not only to the Port of Savannah, which is now ranked third in the nation in TEU volumes, but also to several other Southeast seaports—each of which is enhancing their infrastructure to accommodate larger ships. At this point, Baltimore is Post Panamax ready, and CSX is building a near-dock intermodal facility that will be incorporated into its National Gateway double-stack network project, which could also help to drastically reduce transportation costs for global shippers.

“In the end, this is not a zero-sum game, and established markets home to large consumer bases will continue to prosper,” says Richard Thompson, global head of supply chain and logistics solutions at JLL. “All will have to evolve to remain competitive.”