Editor’s Note: As he has done in past years at this time, Philip Damas, head of Drewry’s Supply Chain Advisors, shares his views on the current ocean cargo arena. This is the second of a two-part article to appear this week.
Logistics Management: Can you share any insights on the status of IMO 2020 preparations and the freight rate implications shippers may expect to see?
Philip Damas: Most U.S. shippers have reviewed their contract bunker formulae to take into account the switch to the new IMO 2020-compliant fuel before signing their new May 2019-April 2020 transpacific contracts. So, most are prepared for the switch from a shipping contract viewpoint. But there is still no established price for the new, compliant low-sulfur fuel, so being prepared or confident in terms of budgeting is much harder. Some shippers have relied on the Drewry IMO 2020 Cost Impact Calculator or other independent experts to forecast both the increase in the fuel cost or the net increase in their annual ocean transportation spend.
LM: Small shippers may have an advantage?
Damas: Drewry’s calculations have shown that, with the exception of small-sized shippers (10,000 TEUs or fewer containers a year), the cost impact runs into millions of dollars a year per company. Globally, the IMO 2020 cost will exceed $10 billion – to be shared between several thousand shippers, several thousand forwarders and 30 or so main ocean carriers.
LM: Any other trends we may expect as we inch closer to 2020?
Damas: Following a difficult 2018 peak season and widespread congestion and performance issues in early 2019 in the transpacific trade, shippers and NVOCCs are increasingly turning their attention to ways in which they can make ocean transportation services more reliable, more predictable and less prone to “roll-overs.” Some small and medium-sized shippers have learned, at their cost, that having a very low freight rate could mean being the first customer to be put in the queue for ship capacity.
LM: And “quality” is gaining traction?
Damas. Yes, exactly. We believe that the focus of shippers in the next year or so will be to secure capacity, reduce the risk of under-performance and making sure that providers react faster to problems. This calls for new technology-enabled forwarder and carrier “guaranteed services” like the KN Pledge service and the APL EagleGo Guaranteed, to name a few. But it seems that all stakeholders will need to go back to basics and define what they mean by a “quality” service and how to incentivise providers to deliver a more reliable services to time-sensitive shippers who really need it, while keeping their main services low-cost for the majority of their customers.