Ocean Shipping Steaming Ahead

Sept. 17, 2007
Though the industry has been experiencing a softer market, the tide seems to be changing as this years peak season is underway. Newer, bigger vessels

Though the industry has been experiencing a softer market, the tide seems to be changing as this year’s peak season is underway. Newer, bigger vessels are being ordered as shipping lanes and port calls are being adjusted to meet anticipated capacity demands.

The Panama and Suez Canals are taking major steps to improve their offerings. New products are available to speed and upgrade economical movement of freight from foreign ports to the US.

An observer and participant in the ocean trade as president of NYK Line North America, Inc. (www.nyk.com), Peter Keller, speaks to broad trends at work in the industry as well as steps being taken by his steam ship line to meet present and future shipper demands.

NYK is a member of the Grand Alliance, an integrated consortium of container shipping lines established in 1998. In addition to Nippon Ysen Kabushiki Kaisha (NYK), members include Hapag-Lloyd, MISC Berhad and OOCL (Orient Overseas Container Line).

LT: How is business right now? Is the industry recovering from what seemed to be a slackening of freight earlier this year?

Keller: We’re in the middle of the peak season. It would appear that virtually all lines and all ships are full. There wasn’t so much a softening in cargo this year. What happens these days is that the lines have to set their programs and deployments and vessel availability for the peak—for these some four months when the volumes are quite strong—getting ready for the end of year time period.

What happens when we move to a more normal cycle for the other seven or eight months of the year, we wind up with a little more capacity than we like. What we try to do is vessel changes or dry dockings or withdrawing some vessels for a little bit where they’re not needed. When you see lines withdrawing a service or withdrawing some ships during a non-peak period, we’re just adjusting to where the cargo volumes demand.

LT:Well, then, how is this year’s peak season going?

Keller: These days the peak is a little bit longer and continually getting longer. What’s interesting this year, of course, is that as we are in peak right now, it appears that there is very strong cargo demand but it is not out-stripping vessel supply, which tells you that basically the supply and demand equation—as we’ve suspected—is pretty much in balance. That’s an important issue, long term. That means there are sufficient assets to handle cargo growth but there are not excess assets that would have a tendency to create disequilibrium.

LT: How about issues with port congestion or moving freight from the ports to shippers and their customers?

Keller: Since the problems we had a couple of years ago with infrastructure, I think it’s fair to say that things the industry has done over the last couple of years in terms of additional productivity enhancements—things like Pier Pass in the Los Angeles/ Long Beach area —are paying off. The rails are much more fluid this year.

Right now the system is in some equilibrium. It is a very tender system. It is a sensitive system. It doesn’t take too much in the way of disruption to back it up. But right now, it’s performing as planned.

LT: As we look at maritime, so much emphasis is placed on import business. How does the export market for ocean freight look at the moment?

Keller: Export business is growing, but does so less than the import business, which means the imbalance continues to accentuate year on year on year. Looking at export statistics you have to be very careful to pull out certain verticals. Cargo we handle on an export basis is increasing, but not as much as the import.

Our major export commodities remain residual and base products: base forest products and residual products such as scrap and waste paper and so forth. There does not appear to be any great change, except perhaps in the automotive area. I think if you look at the automotive statistics, you’ll see a tremendous amount of automotive exports, which is contrary to what we normally think.

LT: Where is ocean freight strongest and where do you anticipate it will grow?

Keller: Asia-Europe trade is very strong. Growth there looks like it’s about 18% and of course that’s creating all sorts of issues in Northern Europe in terms of terminal facilities and the same sorts of issues we had here, in North America, a couple of years ago.

Everyone continues to suggest that we will continue to see growth in the 8-10% range on a global basis and many of us continue to make significant investments to support that growth.

There are very robust services and opportunities going into Central and South America. Certainly North America is a critical market both out of Europe as well as Asia. The Asia-Europe market is extremely strong as well as intra-Asia shipping. We continue to make investments both in ships and other assets in all of the worldwide markets.

LT: As with the other modes, ocean has had to offer a greater range of service beyond moving cargo from one point to another. What are you doing in that regard?

Keller: Like others we are making investments all across the spectrum in our logistics, transload, liner and terminal businesses as well as our vessels to insure that we have sufficient capacity to sustain the growth that’s going on throughout the world in the container business. We recently made a significant investment in Nippon Cargo airlines and we have significant assets with Boeing to continue to grow that business.

It’s fair to say that international trade is here to stay. The genie is out of the bottle. That means all modes, whether land, sea or air will all prosper as we continue to flatten and shrink this world and become more dependent on each other.

LT: What does that mean for the shipper?

Keller: There are a couple of things that are “givens” today in the business that perhaps weren’t some years ago. One of those things is the importance of supply chain security. Another is the transparency of the process. Visibility is both web- and EDI-based. We have to be able to give customers what they want in terms of data and information and making the entire business as transparent as possible.

We also have to be able to take the shipper from the interior of China or India or Russia to the smallest little town anywhere else in the world. We have to be able to do that with a total service and quality capability that includes that data transparency.

Commerce has matured to the point where it really is a supply chain business today as opposed to ocean shipping or air shipping or trucking business. It is supply chain, and as with any other chain, it is only as strong as its weakest link. It’s really important for large carriers like us to make sure that every link is strong and is transparent and is supported with the data and information that the customer needs.

LT: What challenges are particularly daunting today?

Keller: Fuel and bunker costs are a significant concern for the industry. Our ability to recover that is something we work hard on. We have no real influence over the cost of bunker any more than anyone else in the world.

As an operator of some 750 capital ships, we take our Corporate Social Responsibility very seriously. We have Liquefied Natural Gas ships, tankers, a vast number of assets out there and we have our own in-house research institute, MTI, that looks at different technologies to make ships more efficient. In places like Southern California, we do burn low sulfur diesel when we hotel there. We are part of the slow speed programs to cut emissions within the local area.

There are a lot of challenges. There are challenges next year with labor. There are always challenges of infrastructure. But, we are busy building ships, terminals and warehouses to support our very strong customer base. We see nothing more than positive days ahead.

NYK is not alone in seeking new ways to serve shipping customers. A one-year old service that combines strengths of APL Logistics (www.apllogistics.com) with those of less-than-truckload carrier, Con-Way Freight (www.con-way.com), OceanGuaranteed, has so far had success. In marking the service’s first birthday on September 5, the partners said that shipments are arriving 98.6% on time. The performance goal is 100% for the movement of first-mile logistics in Asia through last mile delivery in the US, notes John Labrie, Con-way Freight president. He claims a 500% increase in OceanGuaranteed business in the first six months of the year.

One company taking advantage of the service is Knoll, Inc. (www.knoll.com), that manufactures high-grade office furniture. Terry Matten, supply chain manager, uses OceanGuaranteed as an emergency service as an alternative to paying airfreight charges. “It’s when we have a little additional time,” she explains, “and can’t wait for a container to come in.”

Knoll has three plants in the US and one in Canada. The company is doing more global sourcing of components and raw materials. Matten focuses on importing components primarily for Knoll’s seating line.

Matten prefers to move shipments in full containers, having them arrive at East Coast ports. The plant at which she is located is in Eastern Pennsylvania. “All of my containers come into Newark or Baltimore because it permits more consistent planning,” she notes. “I know exactly how long it’s going take for the container to arrive, clear and to arrive here.”

Though full container shipments arrive from Asia, she is opposed to having them arrive at West Coast ports because of concerns about possible strikes, rail car shortages, congestion, bad weather, or just that movement by train can take longer than expected.

That said, Matten understands that for OceanGuaranteed to work, the lessthan-container load (lcl) shipments have to land at the Port of Long Beach, since it’s the shortest route. “Knowing that a shipment is going to be put on a Con-way truck and driven straight through, means that I’m going to get it,” she claims. “I’m comfortable with that because I know it’s not going on a train.”

Since it is a premium service, Matten will only use OceanGuaranteed if she’s in a pinch for material but can afford to wait a few extra days from airfreight. “Anyone who does importing knows about delays and quality issues and can get themselves in a situation where they have to airfreight,” she notes. “Everyone knows the cost of airfrieght. OceanGuaranteed is a wonderful and more economical alternative to airfreight. It’s certainly speedier than typical container loads, whether full container or lcl. Price per kilogram it’s not competitive with typical ocean freight but it certainly is cheaper than airfreight and that’s the advantage.”

OceanGuaranteed service includes consolidation, freight forwarding and Customs clearance. Since Knoll is C-TPAT certified, movement through the process is speedy. Once the shipment arrives in the US, Con-way sends an arrival notice and an estimated time of arrival that helps Knoll with in-plant scheduling.

Matten has shared her enthusiasm for the results of OceanGuaranteed with others at Knoll who have found use for the service. “Word has spread quickly through the company,” she says. “We were the first to try OceanGuaranteed and I told others there was a true fast boat and here are the particulars and that it costs a little more but it is guaranteed.”

Matson Expands Its Services

Matson Integrated Logistics (www.matson.com) has formed a subsidiary, Matson Global Distribution Services to expand its services to include warehousing and distribution, freight forwarding and Non-vessel operating common carrier (NVOCC) services.

Matson Global will also provide benefits to Matson Navigation’s guaranteed China-Long Beach Express ocean transit service. There are two of these premium level service products that cover movement of cargo from Ningbo and Shanghai to Long Beach. The first guarantees the transit time and delivery of full container load shipments to the West Coast and selected inland destinations.

The second offering, a guaranteed transload and inland point delivery option, involves a partnership with J.B. Hunt (www.jbhunt.com). The product provides shippers with economy of scale savings on inland delivery costs by reducing the number of containers and trailers required. With J.B. Hunt's 53-foot trailers, shippers can consolidate freight from ocean containers into fewer domestic containers for either intermodal or over-the-road delivery.

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