Cargo owners count cost as lines benefit from slowing vessels

PUBLISHED : Wednesday, 27 July, 2011, 12:00am
UPDATED : Wednesday, 27 July, 2011, 12:00am


Cargo owners are facing higher warehousing costs in Hong Kong and other Asian countries as they need to keep more inventory of goods and raw materials to overcome possible supply disruptions as a result of container shipping lines slowing the speed of their ships.

Jacques Chan, general manager for Hong Kong and South China with global logistics group BDP International, said shippers in Hong Kong were also experiencing a shortage of space, in addition to higher costs.

He warned that if Hong Kong was saturated with cargo with no spare warehouse space, shippers would move to Singapore. 'There would be a loss of Hong Kong business.'

Chan was speaking after BDP International released the results of a survey of 290 cargo owners on the impact of container lines cutting vessel speeds. Of the shippers surveyed, 37 per cent were from the Asia-Pacific region.

Arnie Bornstein, BDP International executive director, said carriers such as Orient Overseas Container Line, Cosco Container Lines and Taiwan's Evergreen Marine, had cut the speed of their ships from around 25 knots to about 14 knots following the economic downturn in 2008. This has cut fuel consumption and exhaust emissions by 40 to 50 per cent.

But he said slow steaming had also increased voyage times. A transpacific trip from Hong Kong to Los Angeles that previously took 14 days now took an extra four to seven days. A 20-day trip from Hong Kong to Europe was lengthened by five to seven days, he said.

Bornstein said there was a lack of information from carriers over which services were sailing slower. Consequently, shippers were faced with uncertain delivery schedules and now no longer knew when their consignments would arrive. Shippers had to boost inventory, increasing their costs, to overcome these potential supply shortages.

'Practices companies have honed over the last 20 years have had to change,' Bornstein said.

He added that shippers were 'paying the price' in uncertain delivery schedules and higher inventory carrying costs, while shipping lines reaped the benefit of lower fuel bills.

Bornstein said the economic advantages of slow steaming enjoyed by carriers meant 'all the signs are that slow steaming is here to stay'.

But he said BDP's survey of exporters and importers, representing firms in the chemical, consumer goods, health-care and electronics industries, revealed that 92 per cent of cargo owners in Asia were feeling an impact from slow steaming.

Bornstein said the biggest impact for shippers in Asia was on customer service, inventory levels and scheduling of shipments. Some 48 per cent said they had changed the way they sourced raw materials.

About 38 per cent said they had moved from using three or four carriers to multiple shipping lines to get the best transit times and freight rates, while 36 per cent of firms had increased inventory levels.

Asked about how shipping lines could share the benefits, Bornstein said 73 per cent of Asian cargo owners would like lower freight rates, while 40 per cent wanted improved customer service.

Bornstein said: 'In carriers' zeal to protect their business, they have overlooked they're also in business to serve their customers. Shippers want a more collaborative environment with carriers.'

The results of the survey, which was carried out in March and April, bore out the responses given to the US Federal Maritime Commission when it launched an inquiry into slow steaming earlier this year. Shippers, including big US retail groups, said they had not seen any benefit from slow steaming. They complained that fuel cost savings had not been passed on to them.