Accenture Gives Exclusive Interview on Current State of Ocean Cargo Supply Chains

While there’s no shortage of demand from consumers, there continues to be shortages of labor, equipment and shipping capacity to meet their expectations. Supply chain disruptions, port congestion and rising shipping costs could continue to be challenges through the end of the year, a prominent ocean cargo expert maintains.

Shippers might as well forget about planning for a “peak season,” industry analysts contend. Due to ongoing pressures from e-commerce and post-pandemic demand, ocean carriers are operating at crisis-driven velocity for the foreseeable future.

While there’s no shortage of demand from consumers, there continues to be shortages of labor, equipment and shipping capacity to meet their expectations. Supply chain disruptions, port congestion and rising shipping costs could continue to be challenges through the end of the year, a prominent ocean cargo expert maintains.

Sarah Banks is a managing director and global freight & logistics lead at Accenture. She has spent more than 25 years in the logistics industry, working with clients on complex and impactful solutions to transform organizations, processes and technology.

Supply Chain Management Review: What impact will inflation have on demand, if not controlled?

Sarah Banks: After decades of a low inflation environment, many are expecting an uptick. No one can predict how lasting the inflation impact will be over the next 24 months but this likely presents a situation most organizations have not lived through for almost a generation. The upside is that companies are ready to engage in broad, commercial discussions—including pricing—on how to grow while maintaining margins.

SCMR: Will ocean carriers be able to sustain the current high rate structure?

Banks: The ocean industry historically operates in cycles with rates fluctuating over typically sustained periods, going up and then going down. The cycle we are in represents a sustained “up” cycle, one that continues to be shocked mostly by the effects of the pandemic which have created a variety of constraints in port operations, vessel capacity, container availability and intermodal operations. These constraints are still creating backlogs in shipment demand, further stressing supply chains and creating more urgency to order and move product inventory that can address both current demand as well as a buffer to address future needs. So, over the foreseeable future, carriers will have the upper hand in the rates until the shocks are minimized, inventory is re-built and demand normalizes. We would not expect this stabilization to occur until sometime in 2022, with the sense that rates will come swinging back again with higher levels of product availability and localized inventory.

SCMR: Do you expect shippers to leverage volume for favored status?

Banks: In short yes – there is a long precedence for this, however the proliferation of new products from carriers that provide broader constructs for shipper-favored status will help evolve this notion. Most recognize that the relationship between shippers and carriers around minimum quantity volume commitments and corresponding capacity guarantees has always been complex. There was little consequence on either side (shipper or carrier) for failing to live up to their respective side of the bargain. This has led to carriers allowing allocation overbooking (when they suspect a shipper shortfall) and shippers overbooking to ensure their cargo isn’t rolled. It has been a vicious cycle. However the proliferation in carrier products will allow a Shipper various options to commit volume in return for favored status. We are seeing carriers offer flexible allocation options, insurance for on-time delivery, and enhanced monitoring capabilities to prove service performance all becoming part of what shipper should expect in terms of volume commitments with carriers.

SCMR: What about service? Can carriers deliver on their promises, or are they overwhelmed?

Banks: Carriers are able to better deliver on promises today than they did 6+ months ago, as they better understand the impacts to global supply chains and effect on ocean shipping demands. However the heavy demand, and in some cases poor response by carriers to improve service, has led many shippers and forwarders to just adapt to these difficult conditions, putting more effort to manage each export booking to ensure service commitments (and shipment risks) are well understood and can be met. It is a balance of carriers stabilizing services, and shippers, and forwarders lowering expectations that have helped to reduce the carrier burden of missed service levels.

SCMR: How likely will shippers opt for air cargo if ocean carriers can’t manage schedule integrity?

Banks: Shippers whose supply chains typically involve shipping large volumes by sea will keep moving containers as part of their overall transportation approach. The constrained capacity availability in air, the higher costs, the smaller pallet sized shipments, etc. make air a difficult choice for large shippers. This isn’t to say that shippers will not use air freight to help supplement inventory demands, but it will be an “and” versus an “or.” Shippers will continue to make the necessary adaptations to get through ocean carriage service level issues and will use air freight strategically, and when required, to help keep supply chains running.

SCMR: Will global supply chains remain clogged for the rest of the year? What is the solution?

Banks: A key part of the solution will be the stabilization of the transpacific eastbound trade as the severe congestion impacts seen at the US west coast have had a knock-on effect to the other trades. If, for example,  shipping lines were able to return empty equipment, currently tied up in the US, back to Asia at its normal frequency, the impact to that trade but also the export trade out of Asia would be improved, lessening the stress on the global network.

SCMR: Ports and terminals are congested too…should shippers avoid bottlenecks on the U.S. West Coast by sourcing from the East and Gulf Coasts?

Banks: Shippers should be continually assessing all elements of the shipment flow to make real-time adjustments in response to supply chain challenges. This includes export port conditions, transshipments versus direct sailings, and of course the arrival port constraints. Based on the current port and infrastructure challenges on US West Coast, moving cargo in / out of the East Coast and Gulf Coast ports can be a good option depending on service availability, cost and other factors such as brokerage relationships, inland transport concerns, etc. The events of the last year will likely change the way Shippers plan freight moves in and out of the US and those with a multi-coast export / import strategy will be able to better respond to future disruptions with more agility. New capabilities leveraging data such as digital twins, which can simulate supply chain operations, risks and impacts, make continued monitoring and proactive response, including easy assessment of port options, more possible than ever.

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