Slow steaming a benefit to shippers?

Slow steaming a benefit to shippers? Shipper groups see limited scenarios where slow steaming could positively affect supply chains.

By Eric Johnson

   Slow steaming has morphed in the past two years from a seldom-used tactic by liner carriers into an overarching strategy for the carrier industry.
   Along with that change have come proclamations ' that slow steaming is 'here to stay' being the most common. Its proponents (namely liner carriers and environmental groups) argue the benefits of sailing slower far outweigh the negatives attached to reversing a decades-long push to increase the speed of supply chains.
   Slow steaming's detractors say that adding days or weeks to the ocean transport leg of international supply chains unduly burdens shippers ' primarily by increasing inventory holding costs.
   Lost amidst the acrimony is whether there might be any positives for shippers to a world where slow steaming is the norm, not the exception.

Traill

   'I confess that apart from the situation where a consignor arranges payment terms that mean they get paid later than the transit time, I cannot immediately think of any real or sought after benefits that a shipper might proactively request slow steaming to attain,' Andrew Traill, managing director of The Shippers' Voice, a U.K.-based shippers' advocacy organization, told American Shipper.
   But Traill said it is possible to envision future scenarios where slower speeds translate into appropriately lower rates.
   'It might be ' at least one day, if carriers start to differentiate services between fast, medium speed and slow ' that such circumstances might actually be at a lower freight rate and, provided the cost of inventory, internal rates of return, and cash tied up in transit add up, it might be financially beneficial to the shipper,' he said. 'But this will vary from company to company, product to product. That is why this might work for lower value goods.'
   The trouble thus far with the nascent rise of slow steaming as an all-encompassing strategy is that it has not immediately translated into tangible benefits for many shippers. Carriers, on the whole, haven't adjusted rates to account for slower service. In fact, rates have risen markedly this year as demand rose and effective capacity was well managed.
   Shippers haven't seen marked improvement in carriers' on-time performance. Slower rotations have allowed carriers to provide coverage to more ports, but often those ports are added to existing rotations ' and that has the effect of providing more chances for delays, with more ports served.
   The Global Shippers' Forum, which represents a host of shippers' councils in North America, Europe, Asia and Africa, noted this in their annual general declaration in September.
   'Resultant cost savings should be reflected in freight rates, and schedule reliability assured, which is not presently the case,' the GSF said. 'Slow steaming should not be used as a means of restricting or managing capacity to influence the functioning of a normal competitive market.'
   Indeed, slow-steaming initiatives on major east/west trades has forced the hands of shippers, obliging them to stock up on inventory and plan for longer lead times. Those reactionary measures invariably lead to higher inventory holding costs.
   Traill said it was conceivable that shippers could make slow steaming work by using ships to store inventory.
   'The only other occasion it might pay off is if the shipper's strategy for inventory management is such that 'floating inventory' while in transit proves more cost effective than any land-based alternative,' Traill said. 'But this requires careful balancing with land-based inventory management, since the point of inventory is to ensure a steady supply to the customer. If the inventory you need is stuck on a ship then you cannot supply anyone until it is landed. This is made more difficult, of course, when schedule reliability is so poor.
   'The bottom line on inventory ' whether at sea or on land ' is that it has a cost, and only if you can find savings elsewhere as a consequence of holding inventory does it actually deliver any benefit. Otherwise it is just a part of a risk management strategy ' the tradeoff between costs and staying in business profitably.'
   And it's not just the transport of finished goods awaiting delivery to store shelves.
   'Manufacturers rely on inbound transport to deliver key components or raw materials for production,' according to a white paper released on The Shippers' Voice Web site in April. 'Particularly when operating in a 'just-in-time' environment, timely delivery is critical in avoiding costly production downtime. Slow steaming would involve longer transit times, which means that manufacturers must plan further ahead to make deliveries fit in with production schedules.
   'Advance planning is not always an easy task keeping in mind that transit times could vary from four to six weeks. Slow steaming could add another week to the transit time, making advance production planning even more challenging. Deliveries not made to schedule could disrupt manufacturing, proving very costly. The manufacturer can protect itself from such disruption by building inventory; however this would obviously come at an inventory holding cost.'
   In response to carriers' use of slow steaming, The Shippers' Voice has advocated using a mix of carriers, in the hopes that increased competition would compel liner carriers to provide better service or different price points.
   'One can only hope that with competition lines will differentiate their service offers and reliability will be recognized as a key feature,' Traill said. 'Shippers have always sought reliability, regardless of speed. It helps them to plan and ensure a smooth supply chain with the optimum amount of inventory necessary. The issue many shippers have is that they believe ' rightly so, in my opinion ' that they should not be expected to pay more for reliability. The basic rate should mean that you get what you pay for ' a service that delivers what they say ' a liner service with an established timetable. You don't purchase something that ultimately you know 50 percent of the time will let you down. The lines are going to struggle getting shippers to pay more for basic on-time delivery.'
   Many shippers have been left in 2010 feeling more alienated than ever, and European Shippers' Council Secretary General Nicolette van der Jagt said slow steaming is a perfect example of the disconnect.
   'European shippers believe that carriers introducing slow steaming to reduce their own costs must understand the possible impacts this has on their customers' supply chains: lengthening lead-times, increasing inventory cost, disorganizing transshipment patterns, and making changes to schedules and port rotations with little or no warning,' she said. 'Carriers should pay more attention to their customers needs and take the time to learn about their customers' businesses.'
   One other aspect to the inventory equation: slower speeds mean higher holding and in-transit inventory costs and those extra costs could actually surpass the costs saved by carriers in bunker consumption.
   At which point, shippers would be asking themselves this question: if carriers are saving money by slow steaming and we are spending more money, how can higher freight rates be justified?
   In short, shippers' advocates are still struggling to see the silver lining of the slower boat.