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With shipping across oceans on the rise, companies are looking for ways to both increase ship container capacity and reduce cost. As global commerce increases so does the demand for ocean freight logistics solutions for supply chain visibility.

Ocean freight logistics is an ever-changing environment combined with marketplace competitiveness where fiscal bottom-line impact is now measured in hours not days. Within any ocean freight logistics scenario, there will be a multitude of dynamic situations, changing circumstances, variables both known and unknown, seasonal influences and other unique factors based on service capacity.
According to a research report titled ‘Merchant Shipping: A Global Outlook’ announced by Global Industry Analysts, global ocean freight shipping tonnage is expected to reach 12.4 billion metric tonnes by 2015. Almost 90 percent of goods traded across borders are transported on ocean freight vessels. As global commerce increases so does the demand for ocean freight logistics solutions for supply chain visibility.
Supply chain visibility and rapid customer communication is a high priority between shippers and transportation service providers. Seamless, time-sensitive information flow is rapidly becoming essential for everyone in the supply chain to have visibility simultaneously.
The bottom-line margin between winning and losing is supply chain visibility, speed of execution and delivery. The winners will be shippers and carriers who form closer alliances with transportation software companies to brainstorm and create better and faster collaborative supply chain visibility solutions.

Modal shift
With increasing number of companies discovering the potential benefits of shipping via ocean rather than air, the shift from air to ocean shipping has become a trend. Businesses that make the switch tend to do so because of ocean shipping’s lower transport costs, and it is likely that we will see more companies make the switch for the same reasons.
Since the economy is still not completely out of the doldrums, businesses are seeking out cost-savings even if it means sacrificing other efficiencies. Logistics managers are being pressured to reduce their supply chain costs and when switching to ocean freight rather than air freight can result in a significant cost reduction, it is a logical choice.
Ocean freight is predicted to increase as more companies become more comfortable with the practice. They will learn to adjust the rest of the supply chain in order to benefit from the cost savings, and after those adjustments have been made there will be little reason to switch back to air freight until the economy bounces back and demand changes significantly.
Industry analysts predict a growing trend towards ocean freight for the next two to three years before things may shift back towards air freight preference. There’s an explanation to this logic as well. The overall cost impact of air shipping is less for lighter cargo (such as pharmaceuticals) because air cargo costs are based on weight. Cost savings on heavier technology products were more pronounced.
Any growth in ocean cargo was met with similar percentages of decline in air cargo, which suggests that there was simply a shift in shipping trends rather than overall shipping growth.

Challenges along the way
According to Ivan Latanision of INTTRA, the ocean freight industry today is impaired by the following challenges: improving cost efficiencies and improving customer experiences.
The first challenge is finding optimal ways to reduce costs to improve profitability. A recent INTTRA survey illustrates why operating costs are an issue. Approximately US$14 billion in inefficiencies were identified in ocean transport business transaction processes (based on internal INTTRA research) — an issue that automation can resolve. Yet ocean transport remains mired in manual processes, and it’s clear that the industry is ripe for change.
The second challenge is the issue of our time: improving customer experiences in a real-time world. Customer expectations have risen, with e-commerce changing industries such as retail, travel, and finance for the better. With online evolution raising the benchmark on superior service, customers now expect the same level of experience in our industry.
On the fast lane
Growth is being driven by the fast transition to very large container ships (VLCS). By adding VLCS to their fleet, container liners have pushed operating cost down and made ‘slow steaming’ the industry standard. This major change has had significant impact on the shipping network. Because roundtrips take more time, container liners have reduced the numbers of ports called in a round trip and added extra ships to maintain service frequency. Freight gets concentrated in these ports creating a ‘hub-and-spoke’ network.
Low freight rates, low ROI and high capital investments required for a regular service force container liners to create alliances such as Grand Alliance, New World Alliance and CKYH Alliance or merge as Hapag-Lloyd or Hamburg-Süd. During the last few years, the top 20 container liners increased control over fleet capacity from 56 percent to the 83 percent. In the Asia-Europe lane, Maersk, MSC and CMA-CGM already control 58 percent of the capacity and operate 45 percent of the total number of ships. These carriers have taken the lead in investing in VLCS. Currently, Asia –Europe is where most of the VLCS operate and the alliances and mergers will continue.
For the next three years, more than 100 new VLCS will be going into operation. The ports with the high freight accessibility will be serviced (by VLCS) and smaller ships will deliver to the smaller ports. However, the necessary upgrades to ports capable of handling the VLCS continue to lag behind. In fact, the opening of the expanded Panama Canal is now delayed until the middle of 2015.

What can we expect for the next few years?
Altogether the industry is restructuring itself with large container liners providing VLCS to connect main ports across the globe. The ‘hub-and-spoke’ network model will become more prominent. As USEC ports are upgraded and waterway infrastructure is improved, VLCS will be able to take a larger share of the trans-ocean shipping network. The expanded Panama Canal will enable new routes for the VLCS from Asia to the US East Coast. Smaller container liners will be forced to exit main trade routes, move into alliances, and serve a more regional function because of their access to smaller ports.

Rate increase on the cards
Cargo demand has seen steady growth since the holiday season last year. In an attempt to continue to improve their financial situation and after years dealing with a difficult shipping environment, the majority of all ocean carriers have already implemented multiple rate increases throughout numerous trade lanes during the summer months and into September.
Currently the carriers plan to implement yet another general rate increasefor all dry and refrigerated cargo moving under tariff and service contracts from Far East and Indian Sub-continent Countries to USA and Puerto Rico destinations.
The TSA (Transpacific Stabilization Agreement) is a group of ocean carriers’ which includes Taiwan’s Evergreen Marine, China’s COSCO, Korea’s Hanjin Shipping, French privately held CMA GGM, Denmark’s Maersk Line, privately owned Switzerland-based Mediterranean Shipping Company (MSC), and several others.
The ocean carriers’ earnings continue to reflect a trend in which the world’s largest carriers are profitable while many of the rest of the carriers continue to struggle. The world’s largest carrier, Maersk Line and the No. 2 global carrier CMA CGM, both released their second-quarter earnings in August and both carriers show growing profits. Meanwhile, China’s Cosco experienced losses in the first half of the year which soared to $338 million as a difficult shipping environment and disposal of vessels drug down its financials.
Congestion has also affected carriers’ vessel schedule reliability during the summer, as almost all of the top 20 carriers experienced a decline in global schedule reliability, according to a new report from SeaIntel Maritime Analysis.
Unfortunately, the current ocean freight rates continue to remain below the required level for many of the ocean lines to cover increasing operating and transportation costs for sea freight. With a sense that the economy is continuing to improve throughout 2014, along depleted inventories, and pent-up demand has all provided a greater sense of security for ocean carriers, and they have taken the opportunity to try to make rate hikes stick.
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:
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.
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.
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.
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.
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.