We use cookies to provide you with a better experience. By continuing to browse the site you are agreeing to our use of cookies in accordance with our Cookie Policy.
  • INDUSTRY PRESS ROOM
  • SUBMISSIONS
  • MEDIA FILE
  • Create Account
  • Sign In
  • Sign Out
  • My Account
Free Newsletters
  • MAGAZINE
    • Current Issue
    • Archives
    • Digital Edition
    • Subscribe
    • Newsletters
  • STRATEGY
  • GLOBAL
  • LOGISTICS
  • MANUFACTURING
  • PROCUREMENT
  • VIDEO
    • News & Exclusives
    • Viewer Contributed
    • CSCMP EDGE 2022 Startup Alley
    • Upload your video
  • PODCAST ETC
    • Podcast
    • White Papers
    • Webcasts
    • Events
    • Blogs
      • Reflections
      • SCQ Forum
    • Mobile Apps
  • MAGAZINE
    • Current Issue
    • Archives
    • Digital Edition
    • Subscribe
    • Newsletters
  • STRATEGY
  • GLOBAL
  • LOGISTICS
  • MANUFACTURING
  • PROCUREMENT
  • VIDEO
    • News & Exclusives
    • Viewer Contributed
    • CSCMP EDGE 2022 Startup Alley
    • Upload your video
  • PODCAST ETC
    • Podcast
    • White Papers
    • Webcasts
    • Events
    • Blogs
      • Reflections
      • SCQ Forum
    • Mobile Apps
Home » Ready for the next wave of disruption?

Ready for the next wave of disruption?

August 26, 2019
Joshua Brogan
No Comments

The ocean shipping ecosystem saw a period of disruption last year as demand skyrocketed in reaction to nationalistic trade policies and new tariffs. In an effort to avoid looming tariffs, shippers sought to pre-build up their import inventories. This increase in demand led to ocean-shipping capacity constraints and higher rates for shippers that lasted through the first quarter of 2019.

Ocean shipping has spent the first half of 2019 recovering from these disruptions, with container rates returning in the past few months to where they began at the start of 2018. But new potential disruptions are on the horizon as ocean carriers prepare to respond to new fuel requirements designed to reduce emissions and launch significant digital transformation efforts.

Article Figures
[Figure 1] Drewry World Container Index
[Figure 1] Drewry World Container Index Enlarge this image

Rates steadying?

According to the Drewry World Container Index (see Figure 1), rates peaked at a level of $1,800per forty-foot equivalent (FFE) in the fourth quarter of 2018 before dropping steeply.1 From March to July of 2019, rates have been trading between $1,300 and $1,400, marking a relatively "long" period of rate stability compared with the volatility experienced the past few years. In other markets, dry bulk rates echoed that pattern, with the Baltic Exchange Index recently declining in the first quarter of 2019 from elevated 2018 rates.2

While rates and demand appear to be steadying, shippers and carriers alike will face new challenges and costs as they strive to meet the International Maritime Organization's low-sulfur requirements over the next year. (These requirements will reduce sulfur oxide pollution by an estimated 77%.)

For example, dry bulk shipping has seen some temporary capacity shortfalls as carriers have taken ships out of service to make mandatory upgrades to meet these environmental regulations. This reduction in capacity has driven dry bulk rates in the second quarter to their highest points in the past five years. Additionally, in advance of the changes, many carriers have increased their BAF (bunker adjustment factor), or fuel surcharges, in anticipation of higher fuel costs. Inconsistencies among the BAF programs has introduced abit of uncertainty into pricing expectations.3 However, it appears that the implementation of the refining capacity needed to support the new sulfur mandates is moving ahead with limited risk of disruption.4

The coming digital transformation

With mergers seemingly out of the way for the immediate future and brinksmanship on tariffs the new norm, the greatest source of near-term disruption comes from digital innovations occurring across a wide swath of the ocean ecosystem. Everything from paperwork to rate benchmarking to end-to-end forwarding is ripe for digital disruption. It's clear that digital technologies have the potential to immediately change the way forward-thinking shippers have been doing business for centuries.

For example, digital startups, like Flexport in the freight forwarding arena, are attracting significant attention from both shippers and investors.5 Flexport promises its clients a "digital-native" infrastructure that will eliminate paper, automate manual processes, and provide advanced analytics to consolidate customer shipments and generate customer insights. The company has grown to $441 million in revenue in a few years. As a result, in February, investors pumped $1 billion into the company, and it is currently valued at $3.2 billion.

Other startups go beyond forwarding to include ocean-ratevisibility (Xeneta) and digital marketplaces (such as Shippabo, CoLoadX, and Kontainers). Innovation is not limited to the container world, either. Startups, like London, U.K.-based Fractal Logistics, are applying analytics and data science to dry bulk shipping.6

Flexport and Fractal support their digital operations with hard assets like ships, aircraft, and warehouses. In turn, some traditional asset-based players like Maersk are also keen to be at the forefront of this wave of digital invention (while others are more skeptical of immediate change). For instance, Maersk is developing several key offerings internally. The ocean-shipping provider has launched a digital forwarding platform called Twill. Additionally, Maersk is a leader in driving the adoption of blockchain standards and has developed blockchain-based solutions like TradeLens. On top of homegrown solutions, Maersk is incubating external startups through programs like OceanPro in India. Through this program, Maersk is supporting the growth of local startups with the ultimate objective of leveraging developments in its own digital ecosystem.

On top of digital transformation, Maersk is also changing the nature of ocean contracting.7 Its digital solution Maersk Spot is creating guaranteed bookings for specific ships. For shippers with predictable supply chains, this innovation offers reduced lead time variability, which would translate into significant reductions in inventories for shippers.

For shippers, all these innovations are generally good news. These digital solutions are driving new service offerings, more efficient operations, and tailored offerings for underserved corners of the market. For instance, there has probably never been a better time for smaller manufacturers to leverage rate transparency and cargo consolidation to minimize their disparities of scale versus larger manufacturers. Larger shippers, for their part, are developing new capabilities (and in many cases, investment funds) to select and foster startups to meet their unique needs and create competitive advantage.

All shippers need to keep in mind that there will be winners and losers in this transformation, and they need to carefully consider potential impacts to their networks should any of their current partners struggle as a result of these changes.

Notes:

1. Drewry Shipping Consultants, World Container Index, https://www.drewry.co.uk/supply-chain-advisors/supply-chain-expertise/world-container-index-assessed-by-drewry

2. BDI Baltic Exchange Dry Index, https://www.bloomberg.com/quote/BDIY:IND

3. Greg Knowler, "Low-sulfur BAFs offer shippers path to hedge exposure," Journal of Commerce (May 1, 2019), https://www.joc.com/maritime-news/container-lines/low-sulfur-bafs-opportunity-shippers_20190501.html

4. Bill Mongelluzzo, "Enough low sulfur fuel at U.S. ports come 2020?" Journal of Commerce (Feb. 19, 2020), https://www.joc.com/maritime-news/container-lines/enough-low-sulfur-fuel-us-ports-come-2020_20190219.html

5. Alex Konrad, "Freight startup hits $3.2 billion valuation after $1 billion investment led by SoftBank," Forbes (Feb. 21, 2019), https://www.forbes.com/sites/alexkonrad/2019/02/21/flexport-raises-1-billion-softbank/#e865a0b56507

6. Sam Chambers, "Maersk Spot unveiled as Danish carrier moves ahead with online box bookings," Splash (June 25, 2019), https://splash247.com/maersk-spot-unveiled-as-danish-carrier-moves-ahead-with-online-box-bookings/

7. Ibid

Ocean
  • Related Articles

    Analytics: The next wave

    Shifting currents

    Rough seas

Joshua Brogan is a vice president in the Analytics practice of A.T. Kearney, a global strategy and management consulting firm.

Recent Articles by Joshua Brogan

Handle with care

One thing after another

You must login or register in order to post a comment.

Report Abusive Comment

Most Popular Articles

  • Survey: parcel delivery drivers are frustrated by using their own smartphones for work

  • Survey: most Americans unaware that truckers face shortage of parking spaces

  • Best practices in logistics sustainability

  • Supply chain executives not yet seeing expected results from technology investments

  • Postal Service plans to seize items mailed with fake stamps

Featured Video

20221107korber large vs

Enhancing Customer Experience with Your Supply Chain Strategy

Viewer Contributed
With the rise of e-commerce, many businesses have had to transform their warehouses to handle online orders in addition to regularly scheduled inventory shipments. This means warehouses need more information than ever before to ensure they can meet customers' needs. As a result, companies need to select warehouse...

FEATURED WHITE PAPERS

  • Five tips for parcel success in 2023

  • Guide to Pallet Rack Safety

  • 3PLs: Complete Orders Faster with Flexible Automation

  • A shipper's guide to navigating post-pandemic holiday freight

View More

Subscribe to Supply Chain Quarterly

Get Your Subscription
  • SUBSCRIBE
  • E-NEWSLETTERS
  • ADVERTISING
  • CUSTOMER CARE
  • CONTACT
  • ABOUT
  • STAFF
  • PRIVACY POLICY

Copyright ©2023. All Rights ReservedDesign, CMS, Hosting & Web Development :: ePublishing