Drewry Maritime research reflects on State of Ocean Cargo: Part II

Editor’s Note: This is the second-part of an exclusive interview with Philip Damas Director - Supply Chain Advisors, Drewry Maritime Research.

Logistics Management: U.S. West Coast congestion last year caused many shippers to rethink their distribution strategies. Will shippers mitigate risk in the future by sourcing through Gulf and East Coast ports?

Philip Damas: The cost and the pain of the U.S. West Coast congestion were so high that many shippers will definitely re-route a portion of their Asian freight volume to the Gulf, East Coast ports and the Canadian ports. For imports to and exports from California, there is no real alternative to the big West Coast ports (without spending a huge amount of money on extra freight costs), but the “discretionary cargo” previously moving via the West Coast to or from inland destinations is at play. Our customers have told us that they expect a long-term, not a short term, risk diversification impact from this year’s West Coast port problems.

LM: What will the Panama Canal expansion mean for most U.S. shippers? Will there be an immediate shift in carrier deployment schedules, or have those already been determined?

Damas: The Panama Canal provides another catalyst to re-route containers from the U.S. West Coast to the East Coast, particularly for products moving to or from the Southeast. Carriers will not switch overnight from 5,000teu Panamax ships (the current limit) to 13,000teu ships (the new maximum), but they will immediately deploy more vessels on the all-water East Coast routes, not least because shippers have asked them for more capacity this route. Carriers are already jokeying for position on the Asia-U.S. East Coast route via Panama.

LM: Carriers continue to invest in capacity, but see little return on that strategy. How can shippers contribute to a sustainable ocean carriage industry?

Damas: As carriers continue to over-invest in new ships, they are largely to blame for the chronically low profitability of their industry and there is not much shippers can do about that. But savvy shippers build relationships with ocean carriers aimed at helping both parties work together and reduce costs on both sides. From the BCO side, this may include providing reliable volume forecasts to the carrier, giving early notice of bookings (when possible), transferring data and instructions electronically, and rewarding the more reliable, high-quality carriers with additional business. This will make ocean carriers more efficient, but may not necessarily make them profitable…

LM: How important are Non-vessel operators (NVOs) in today’s marketplace? Will we see more reliance on these middlemen…or less?

Damas: NVOs are increasingly important in an ocean market characterized by ocean carriers generally offering only a basic commoditized service. On some routes, NVOs are incredibly powerful. For small shippers which do not have in-house freight procurement experts, of course, NVOs are the natural one-stop-shop for a range of services, including consolidation service and personalised customer service (neither of which is provided by ocean carriers to small shippers). For larger shippers, NVOs perform different roles, including sometimes (as forwarders or 3PL) doing the shipment execution for BCOs who have contracts direct with ocean carriers. In my view, the role or roles of intermediaries will increase and ocean carriers cannot replace them. But the uncertain question is whether the role of helping small shippers organize freight shipments and find ship capacity will remain with the traditional NVOs or be taken over by electronic marketplaces and online brokers.