Cash-strapped deepsea container lines could achieve around $250m of annual “hidden value” cost savings in the European feeder market, according to a new white paper published by SeaIntel Maritime Analysis.

Carriers lost a collective $4bn in the first half of 2016, intensifying the pressure to drive down costs through network efficiencies.

SeaIntel chief executive Alan Murphy said: “In an industry under significant cost pressure, it is important that all stakeholders involved understand the value which is available.

“Our experience is that carriers, big and small alike, are very good at calculating the traditional value related to operational expenses. However, we also find that the value which lies ‘hidden’ in statistical volatility largely goes unnoticed.”

The report says substantial savings could be achieved across European hub-and-spoke networks by carriers if they aggregated cargo flows with alliance partners and utilised third-party common feeder operators rather than running their own feeder services.

SeaIntel accepts that if a carrier has sufficient volume to fill its own feeder vessel, at first glance this should be the way forward.

For many carriers, operating dedicated feeders is seen as a commercial advantage and a differentiating factor between deepsea vessel sharing partners.

It allows the container line complete control over the scheduling of its feeder cargo while a pooling of cargo with competitors would require a change of mind-set by the carriers.

However, having been given access to confidential data from a number of carriers that call in Europe, SeaIntel says weekly demand fluctuations can be as much as 30%: shortfalls that will make the fixed-cost of an own feeder more expensive per unit, or overflows that could involve the extra expense of an additional vessel charter.

Pooling cargo from multiple carriers would reduce cargo fluctuations to around 19%, according to SeaIntel, but using commercial feeders the variable cost element of the relay would be overcome – depending on any specific minimum/maximum slot rate agreements with the feeder operator.

Nevertheless, disagreements could arise if a feeder operator has to decide on which carrier’s cargo should be shut out if the feeder vessel is overbooked on slots or weight.

However, schedule reliability could be enhanced by the more frequent sailings offered by feeder companies, compared with the common fixed-day weekly departures typical of carrier-controlled feeder vessels.

Additionally, the cost exposure to strikes, berthing and weather delays passes to the feeder operator and does not impact the carrier’s bottom line.

And with endemic freight rate volatility plaguing the Asia-Europe trade, the fixed daily hire rate of the chartered-in feeder ship often causes more budget headaches for the carrier.

Although the carrier would still pay an agreed slot rate to the feeder operator, SeaIntel flagged up the “more advantageous” credit terms enjoyed with feeder carriers – often 30 days or more – in comparison with the generally strict in-advance payments requested by owners of time-chartered ships.

In a timely message for members of the new alliance structures currently drafting network plans for next April, SeaIntel suggests that for most carriers the best solution for hub-and-spoke operations, not just in Europe, is to aggregate their feeder cargo requirement.

“Once this is done, a decision can be made as to where to use own services and where to use feeder services,” said SeaIntel.

“However, solely focusing on the traditional visible value pool related to the direct costs of operating a service, leaves a large value pool untapped.”

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  • John Roberts

    September 15, 2016 at 4:04 pm

    this article basically confirms what I said in January this year.


  • Ed Enos

    September 16, 2016 at 5:10 pm

    Good article that, in some ways would seem intuitive. But within the last several years we have witnessed the big carriers run the small carriers out of town on purpose. The rest is history. Now even the big carriers with their mega ships are stunned by losses on a daily basis. There is nothing out there on the horizon that will change this scenario any time soon. While I agree with the premise of the writer’s opinion, I don’t know if the shipping execs have the wisdom to move this way. Look at the decisions they’ve already made that brought our industry to where it is today!?

    Today we have ships big enough to carry 21,000 TEU’s. Sadly, they don’t seem to have the ability to carry any “common sense” onboard, eh?