The recent delays surrounding ocean cargo capacity can be traced back to early 2019 and the onset of COVID-19 when customers across the globe fueled a higher-than-ever demand for containerized goods.
As anyone who’s tried to order anything in the last year will know, the effect of this is long wait times for containerized goods. According to McKinsey & Company, “Average container schedule delays have doubled globally, and increased by six times on the Far East and North America trade […].”
Understanding these delays and the ocean container capacity problems behind them is essential for building an ocean transport company that can survive and thrive.
Problem #1: The Ongoing Effects of the Pandemic
COVID-19’s effect on ocean shipping capacity is immediately apparent when looking at more significant trends within the ocean transport industry. The combination of closed warehouses, the difficulty of maintenance, and the higher demand placed on vessels by the sky-high demand for containerized goods have wreaked havoc upon ocean shipping capacity.
Problem #2: Carriers Are Forgoing NA Exports to Speed Up Turnaround Times to Asia
With ocean container capacity at a premium, some carriers choose to forgo North American exports to decrease their turn-around time to Asian markets. This leaves fewer options for North American distributors, and increases congestion in an ocean transport market that’s already experiencing unprecedented demand levels.
Problem #3: Ongoing Labor Shortages Limit Berth Speed
Continued labor shortages and complications can exacerbate slowdowns at ports, affecting ocean shipping capacity. As labor organizations in the United States and abroad renegotiate agreements, it’s trickier than ever to establish a reliable labor base to unload ocean transport vessels.
Problem #4: All Parties Still Face Limited Visibility in Utilization & Accurate Forecasting
Ocean transport companies need to have a real-time, accurate understanding of their ocean shipping capacity. Yet, with the complications of the current supply chain, it’s easy for freight assets to get slowed along the way, which affects ocean cargo capacity. Without an accurate understanding of their freight assets, companies are hostage to slowdowns.
Problem #5: Distrust in the Market, Especially When Container Rates Are Above-Average
According to Drewry, the World Container Index “[…] decreased by 0.9% […] but remained 33.7% higher than a year ago.” This high WCI has heightened tensions between shippers and carriers, eager to keep close to their bottom line. This pressure can bog down profits, as well as ocean shipping capacity.
How Integration and a Single Source of Truth for Contracting Can Boost Capacity
The issues surrounding ocean shipping capacity are incredibly complex. By integrating these issues into a two-way committed contract, ocean transport companies can protect themselves from the unpredictable. Below are why more companies than ever are turning to execute committed contracts.
- Both BCOs and carriers interact in an independent, third-party platform. Using a third-party platform, all parties can ensure their interests are safeguarded against bias.
- Independent rulesets enable a faster, easier path to exception management. Ocean cargo capacity issues are constantly evolving, so why shouldn’t the rulesets surrounding these issues evolve with them?
- Committed contracts enable better forecasting and PO planning. Committed agreements take the guesswork out of ocean cargo capacity and supply chain management.
- Shippers can intentionally match supply and demand. By taking on a two-way committed contract, shippers can better witness their supply and demand, which allows them to avoid the chaos of freewheeling spot prices.
- Data-Driven allocation reduces the risk of rolled cargo. By utilizing data-driven allocation methods, committed two-way contracts can help freight management parties maximize their ocean cargo capacity.
- Clear payment terms reduce concerns over cash flow and after-the-fact price changes. Two-way committed contracts can take the uncertainty out of freight pricing in ocean transport and help companies guarantee ocean shipping capacity.
Two-way committed contracts, overseen by industry veterans, can provide a single source of truth in confusing ocean transport issues, taking the guesswork out of ocean cargo capacity and allowing companies to plan for the unpredictable.
Source Available Capacity With Better Contracts and Proactive Allocation Management
By utilizing the latest contract design and management innovations, ocean transport companies can finally avoid contract failure and maximize ocean cargo capacity.
Request a demo with NYSHEX today to find out how committed two-way contracts bring peace of mind to the ocean transport industry.
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