Ocean container shipping and logistics are the lifeblood of global supply chain movements. For over two years, Supply Chain Matters has been advising our multi-industry supply chain readers about the effects of substantial overcapacity conditions occurring among major shipping lines, and their consequent impacts for service, cost and logistics. Efforts directed at introducing ever larger mega-ships, multi-carrier capacity agreements, outsourcing of certain services and increased transit times and tariff rates continue to compound themselves.
All of this places industry supply chains on the short end of any semblance of voice of the customer outcomes. The literal final straw has been the effects of the recent five month U.S. West Coast port disruption, which will take additional weeks or months to unravel.
Now, strategic advisor Boston Consulting Group (BCG) has weighed in with a recent bcg perspectives report, Battling Overcapacity in Container Shipping. This report concludes: “The container-shipping industry has a highly fragmented value-chain, marked by complexity, overcapacity, and low returns.” The authors declare that overcapacity has fueled a downward spiral of decreased earnings and marginal shareholder value.
The report describes four destabilizing changes occurring in the industry, and observes that there are just two industry participants actually making money. They are two termed “global-scale leaders”, namely CMA CGM and Maersk Line, and the termed “niche-focused specialists” who have developed sustainable competitive advantage serving specific regions.
BCG advises the industry that in order to lift profitability, carriers will have to extract more value from commonly used cost and revenue-improvement levers and pursue scale by further unlocking synergies and more aggressively pursuing acquisitions. BCG argues that carriers have yet to tap the potential of multi-carrier capacity agreements. In the short-term, BCG warns that the current low cost of bunker fuel may provide a false sense of security for shipping lines. They define further opportunities as extended joint procurement agreements, joint operations and equipment pooling in the short-term, and joint back-offices, shared service centers and IT development over the long-term.
If shipping industry players actually embrace these BCG recommendations and advisory actions, industry supply chain teams can well anticipate even more heartburn in the months to come.
Implied is more wholesale M&A among large and mid-tier shipping lines. Joint carrier containers on single ships and back office shared service centers could well be predicated on decades old information technology, not tuned for today’s nor tomorrow’s customer service and container tracking needs. Investments in larger, more efficient vessels has not as yet been matched by corresponding investments in modernized IT and productivity directed at enhanced shipper intelligence and port throughput needs.
Larger mega-ships implies even more port congestion, since it will take longer to unload and re-load these vessels without solving the challenge of modernizing individual port infrastructure. Bottom-line: Solving the business challenges of ocean container shipping lines transfers burdens to existing ports and multi-modal logistics centers.
Supply Chain Matters advocates for a more comprehensive multi-industry approach, one that spans beyond ocean container shipping. A highly fragmented industry with competing interests, motivations and stakeholder needs can elect to continue to pass current challenges to the next tier of the value-chain, or come together to focus on the primary objective of serving shipper and multi- industry recipient needs in the new age of integrated physical and digital value-chains. A clear missing piece of the strategy is modernized technology, work practices and multi-segment and inter-modal collaboration.
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