Sub-continent shippers and forwarders switch to bulkers to stay profitable
As container pricing and related supply chain challenges mount amid wild demand swings and capacity ...
Global commodities giant Cargill has said container shipping lines ought to reconsider their opposition to container freight derivatives in response to rapidly declining spot rates on the major east-west trades.
Speaking to The Loadstar on the sidelines of the TOC Container Supply Chain event in Rotterdam yesterday, Victor Helmand, EMEA container lead at Cargill, said: “I would encourage the container shipping lines to use the derivatives product because it would give them more predictable revenues.
“I understand that carriers have compared the device to gambling, but as long as the hedge is at a good level it will return them positive margins – and with the current low rates, if they had hedged before they would be now earning better revenues.”
He said that the current climate of low rates had created a culture of low service levels, with rate volatility matched by low schedule reliability, which had increased costs for Cargill.
“Because the rates are so volatile, we have had to spend a lot more time working on the inefficiencies in the supply chain created by the bigger ships. When the rates are so low our other supply chain costs increase.
“If the carriers would hedge long-term on freight rates then that would allow us a lot more time to talk service levels with them,” he added.
Although the company uses a variety of derivative products in its bulk shipping and commodities businesses, Mr Helmand added that Cargill had also used forward freight agreements a few years ago for a particular product transported in containers because “we wanted to fix the price we paid”.
He describes the container freight market as the most volatile the company trades in, and said that on many tradelanes container shipping had effectively become a commodity where the only differentiator was low prices, “which means low service”.
“We see a focus on cost, but we would rather see a focus on cost awareness,” he added.
Cargill’s overall annual transport spend across all modes is $5.5bn, and sees around 12,000 shipments a day executed across water, road and rail, serving 40 business units.
In terms of container traffic, its global spend is around $240m a year, which can vary dramatically depending on spot rates, and amounts to about 220,000 teu, Mr Helmand told delegates in a speech. It uses a total of 34 carriers, although some 80% of its volumes are concentrated with eight major lines.