Port of Los Angeles in an uphill struggle to regain traffic lost to the east coast
The US port of Los Angeles is looking to technology and increased collaboration to stem ...
Online container freight buying platforms could help shipping lines respond more dynamically to dramatic changes in demand.
According to new research from Drewry Supply Chain Advisers, their widespread adoption could ease the extreme rate volatility that hits both shippers and carriers periodically.
In a study commissioned by CyberLogitec, Drewry notes that the “static” nature of container slot supply is in stark contrast to the “huge, short-term variations” in demand, leading to wildly oscillating vessel load factors, and is the root cause of freight rate volatility which is often extreme.
“Even in a two-week time frame, prices on the transpacific trade may change by as much as 94%, and on the Asia-North Europe trade even by 324%,” says the study.
“On average, the two-week freight rate variations are 9.% on the transpacific eastbound trade and 24.6% on the Asia-North Europe.”
The inability of carriers to respond flexibly to these changes in demand – once shipping strings are designed, carriers’ only options are blanking or adding extra sailings, which can be difficult at short notice – has to led to the twin scourges of overbooking and rollovers, it adds.
However, it argues that, if shippers, forwarders and carriers embrace the use of flexible technology platforms to negotiate and place contracts, carriers would find themselves with greater forward visibility and be better placed to adjust capacity accordingly.
“Any technology platform aiming to improve the alignment between supply and demand should be able to capture and visualise future demand earlier than is the case in the current spot markets. This could be achieved through online technology platforms where shipping lines and their customers meet to negotiate shipping contracts.
“Ideally, either party could post initial offers, the characteristics of which could be negotiated flexibly and dynamically. However, any final contract should contain a space guarantee and a volume commitment.
These could be enforced via a deposit scheme, the study argues, noting also that any non-conformance on the part of carriers or their customers could “feed into a reliability scoring mechanism which identifies high and low performers in their future agreements”.
It suggests using platforms would allow shippers and forwarders to effectively hedge against future rate increases and provide space guarantees, while reliability scores would likely lead to higher service levels from lines.
“Our study concluded that many of the market’s pain points could be addressed through a capability to flexibly buy or sell ocean freight services in advance, using a neutral, global platform,” said Philippe Salles, head of e-business, transport and supply chain at Drewry Supply Chain Advisors.