30 April 2020

Keeping Supply Chains efficient during COVID19

A third wave of blank sailings has been announced recently by the 2M, Ocean Alliance and THE alliances. The current capacity reduction, in particular on the Far East-Europe trade, varies between 20% and 37%, depending on the alliance. Apart from blank sailings, lockdowns have also had an impact on the trades to and from South Africa and India/Pakistan, showing that the pandemic has a wider impact than just the main east-west trades. Recorded sailings, blanked as a result of the coronavirus pandemic, now stand at 456, of which 342 were on the main deepsea trade lanes.

The effects of blank sailings and lockdowns has a delayed impact on European export (backhaul) business of around  5 weeks and have therefore been relatively limited in April. However, more serious impacts on the supply chain are expected in the coming months. Due to blank sailings, maritime logistics supply chains are becoming more and more unreliable. Accordingly, current blank sailings resulting from this are harmful to European logistics and shippers, because it reduces supply chain efficiency and parameters such as capacity, sailing frequency, transit times, ports of call and associated service quality.

The question remains whether this could have been avoided and what has caused this disruption. There is no denial that volumes have decreased. However, the higher economies of scale associated with mega-ships mean that fewer ships can operate in a market of a given size. There is a strong feeling amongst freight forwarders that market consolidation and the introduction of ultra large vessels is particularly disruptive to supply chains in today’s crisis.   

In view of business, shops and manufacturing being closed, freight forwarders, terminal operators and carriers are seeking storage in warehouses, depots at the terminal and in the hinterland. CLECAT has continued to call on carriers and terminals to exercise restraint in their demurrage and detention charging practices. Storage costs can quickly mount up and even exceed the value of the cargo itself. Consequently, freight forwarders are often confronted with consignees who may decide to abandon the goods as companies look to cut their losses and walk away from the goods, leaving them stranded at ports. 

At the same time, our members continue to be exposed with various surcharges introduced by the shipping lines as revenue generators rather than actual means to solve COVID-19-related problems, without any justification. Whereas freight forwarders understand that carriers are facing increased costs to secure continuity of services, they themselves are suffering from supply chain disruptions, with the economic downturn resulting in client receipt defaults, abandoned goods, container imbalances and cash flow issues. As such, we continue to maintain that fair play and sharing of the burden between different actors in the supply chain should remain the guiding principle during the crisis. We equally hope that all players in the chain will learn from the crisis as there is a more general need in the industry for cooperation, transparency and sharing of information.  

In times of global crisis, it is more important than ever to keep supply chains flowing and to allow maritime trade and cross-border transport to continue.  We therefore continue to call on governments to keep the world’s ports open for ship calls to ensure that the landlocked countries have access to food and medical supplies through neighbouring countries’ seaports.

In this respect, the highly significant economic role of freight forwarders should be recognised, as they connect countries, markets, businesses and people. The speed of any rebound in world trade will lean heavily on the ability of freight forwarders, including many SMEs and larger players, to keep supply chains functioning smoothly.