Four Risk Mitigation Actions for Weathering a Stormy Market.Connect
The recent decision by Japan’s three largest container companies to merge their shipping operations is yet another symptom of the volatility that is roiling the freight business. How can shippers navigate a course through these unpredictable times?
So many changes are buffeting the industry that such a mission might seem futile. But it is possible to stay a step ahead of events by identifying the risk factors, and developing a strategy for managing the main threats.
“K” Line, MOL, and NYK are the three Japanese ship lines that are consolidating. The Wall Street Journal reported that a new joint entity could start operating from April 2018.
It’s one of many changes that are reshaping the struggling container trades, which are still feeling shock waves from the decision by South Korea’s Hanjin Shipping Company to file for bankruptcy in August.
Although container shipping is in dire straits with several other lines at risk of failure or in the throes of restructurings, it is by no means the only source of unpredictability in freight markets.
Consider, for example, the Panama Canal puzzle. The enlarged waterway opened in June 2016, and is capable of handling container ships up to 13,000 TEU’s in size. As expected, the Canal’s increased capacity provides more routing options for shippers in the U.S. – but choosing the optimum route is not necessarily straightforward. Deciding whether to ship cargo via the U.S. East Coast or West Coast, for instance, requires shippers to weigh various factors such as the type of cargo, the required transit time, and the potential cost savings. Achieving lower freight costs by switching to another coast might not be viable if the new transit time is too long. A key battleground region that stretches from Detroit in the north to Houston in south is especially sensitive to such trade-offs.
Vessel size is a further consideration. The trend to build bigger vessels culminated in the construction of Triple E containerships; mammoth vessels that can carry 18,000 TEUs. Larger vessels reduce the cost of slots and hence delivery price, but instability in the container shipping market has curtailed the rush to build jumbo-sized ships. Some mega-ships have even been scrapped.
Labor unrest in U.S. ports is another uncertainty. The 2014-15 West Coast port labor dispute delayed cargo for a protracted period, and the economic cost ran into billions of dollars. Current East and West Coast dockworker contracts expire in 2018-19, and although no one knows whether there will be slowdowns at that time, shippers need to be looking at such a possibility.
Here are four actions that shippers can take to prepare for disruptions emanating from uncertainties like these.
- Assess your network’s footprint and freight flows. What commodities do you ship, and which ones are at risk?
- Balance risk in your supply chain. Evaluate potential routings as well as transit time pressures. Review the financial stability of ocean carriers and closely monitor industry developments.
Prepare for the 2018-19 port labor contract negotiations. What will your supply chain needs be and what contingency plans can you put in place?
- Work with rail carrier partners to ensure capacity. How is the demand for box car capacity likely to change, and how can you prepare for possible shortages?
The freight business is inherently unpredictable, but the current period of volatility is unusually taxing. The above actions will not eliminate risk from your supply chain, but they will help you to keep disruptions to a minimum.
For more information on how to minimize the impact of supply chain disruptions, download our white paper, “Add Resilience to Supply Chains.”