Ocean freight in 2018 challenges for BCOs JOC Container Trade Europe conference Philip Damas, Director Head of Drewry Supply Chain Advisors September 18, 2017
Agenda Drewry Challenge 1: fewer ocean carriers Challenge 2: less spare capacity, less reliable frequency? Challenge 3: higher contract freight rates Implications and conclusions 2
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Carrier Consolidation Super-Cycle of 2016-18 Fewer carrier options; loss of relationships Transaction completion date CMA CGM (8.3%) NOL (2.1%) CMA CGM (10.4%) September 2016 COSCO (4.9%) CSCL (4.3%) Cosco Shipping (9.2%) October 2016 Hapag-Lloyd (4.2%) UASC (2.6%) Hapag-Lloyd (6.8%) May 2017 Maersk (15.7%) Hamburg Süd (2.7%) Maersk (18.4%) Completion pending Cosco Shipping (9.2%) OOCL (3.3%) Cosco Shipping (12.5%) Completion pending MOL (2.6%) NYK (2.9%) K-Line (1.9%) Ocean Network Express (7.5%) Completion pending Hanjin shipping (2.6%) Bankrupt August 2016 4 Note - Percentages within brackets represent capacity market share Source: Drewry Maritime Financial Research ()
Less spare capacity? Carriers manage their capacity more tightly Asia-North Europe westbound and eastbound load factors (%) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017 3Q 2017 Eastbound Westbound 5 Source: Drewry s Container Forecaster ()
Lower reliability of frequency of sailings Carrier missed sailings can take out 3% of capacity Number of containership missed sailings, by month 10 9 8 7 6 5 4 3 2 1 0 Asia-Med Asia-North Europe 6 Source: Drewry s Container Forecaster ()
Higher contract freight rates Contract rate deflation has reversed Recent trend: On average, 3Q 17 Asia-Europe and transpacific rates are 39% higher than a year ago Based on contract freight rate data from BCOs in the Drewry Benchmarking Club Based on US$3 billion of freight spend Source: Drewry Benchmarking Club 15% 10% 5% 0% -5% -10% -15% -20% -25% % change quarter-on-quarter 9% 7% 3% 4% -3% -6% -5% -3% -18% -19% 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17 3Q 17 7
Example of new BCO strategy with e-sourcing Switch from global NVO contract to direct carrier contracts Client objectives and expectations Smooth transition to direct carrier contracts using good incumbent providers; Strict evaluation of providers capabilities, costs and services through optimisation; Thorough financial risk assessment of providers; Competitive quality and service to improve predictability; Best possible service at the lowest possible cost. Drewry s e-sourcing Ocean Freight Solution (esofs ) Results Achieved Finals and awards resulted in reduced costs of about 13% when comparing the final round to round 1. The process from planning to award of contracts took 3 months, as planned. Direct carrier contracts were secured. Risk mitigation measures were implemented. For the 2 major tradelanes, a market advantage of 9% and 16% were secured for the customer. 8
Implications for BCOs & shippers More adverse business environment; control what you can Today s business environment is starkly different for BCOs fewer carrier options, spare capacity, possibly less reliable frequency of sailings, rising rates New objectives: cost avoidance, risk avoidance improved trade-off between cost and service Last year s contract strategy will simply not work as a blueprint for the forthcoming annual ocean tender; need to re-think your contract negotiation strategy By incorporating benchmarking and e-sourcing best practices in your tender management process, rate increases can be mitigated #JusteBidIt! 9 Use of big data and optimisation in tender technology can also help find the best combination of bids
Thank you! Philip Damas supplychains@drewry.co.uk enquiries@drewry.co.uk UK INDIA SINGAPORE CHINA 15-17 Christopher Street London EC2A 2BS United Kingdom 209 Vipul Square Sushant Lok - 1 Gurgaon 122002 India #13-02 Tower Fifteen 15 Hoe Chiang Road Singapore 089316 Unit D01, Level 10, Shinmay Union Square Tower 2, 506 Shangcheng Road Pudong, Shanghai 200120 T +44 20 7538 0191 T +91 124 497 4979 T +65 6220 9890 T +86 21 5081 0508