Ana Casaca ponders what’s best for container shipping when it comes to route planning.
Over the years, containerships have become bigger and bigger. Long are the days when Maersk, on 10 January 1996, launched the 6000 TEU Regina Maersk, the first of a series of 12 identical ships, at its Odense shipyard in Aarhus, Denmark. Today, the world’s largest containership is the HMM Algeciras, one of the twelve 23,964 TEU Class eco-friendly containerships. The HMM Algeciras is registered in Panama; she is 399.9 m long and 61m wide, has a maximum draft of 16.525 m, a depth of 33.2 m, and a deadweight of 232,606 tons. A 2017 McKinsey Consulting Group report analysing the container shipping industry in 2067 considered the 50,000 TEU; whether this will be a reality or not is yet to be seen.
While promoting economies of scale and facilitating global trade by linking the three important markets of raw materials/semi-processed goods, production and consumption, the increasing containership size has also changed how this market segment works. Due to the inherent changes in business logistics, it needs the support of surface modes for the pre-carriage and on-carriage transport operations. Multimodal and intermodal transport have become the norm, and transport modes can no longer be seen in isolation as it happened in the past. In all this, synchromodality also referred to as ‘synchronised intermodality’, plays a critical role in promoting the shift of goods to more environmentally friendly transport modes such as rail or inland waterways, without endangering the quality of the service provided.
Shipping companies changed the way they have been carrying out their operations along the different trade routes. One immediate result is the cascading effect that occurs as the new bigger ships enter the main routes (trunklines), forcing the exit of the existing capacity, which is to be deployed on regional trade routes and so on and so forth. Another one is establishing cooperation agreements to increase their level of service that could not be achieved without companies incurring huge investments.
The number of worldwide ports that can accommodate these ships is reduced due to their inherent physical characteristics. Ports are often constrained either by land or maritime accesses, which can eventually be overcome if heavy investments in infra- and super-structures are performed. Ports must adjust as ships get longer, broader, deeper, and higher since these features influence both port and terminal choice. The rise of 64 feet in the Bayonne Bridge roadway in 2019 is an excellent example of the investments made in surrounding port infrastructures to allow a larger generation of containerships to pass underneath, if port authorities, in this case, the Port of New York and New Jersey, want to keep their ports competitive and integrated into the worldwide maritime network. Moreover, as witnessed throughout the years, the increase in vessel size has occurred at a pace that only a few ports can cope with regarding the necessary investments to accommodate these ships (see the cases of Maasvlakte 2 port development in Rotterdam and Singapore’s Tuas Mega Port). The so-called mega-ships create massive cargo handling peaks in ports and challenges for hinterland transport. Sufficiently to say the differences between transport modes capacity (1 lorry vs 1 block train vs 1 containership).
Another aspect is how ports and terminals handle their internal processes (cargo handling ship-to-shore and quay-to-yard and vice-versa), and their external processes (cargo going in and out the port gates) as ports are gateways to world trade. Furthermore, the vessel cascading effect will determine if ports are 1st, 2nd or 3rd tier ports based on the volume of cargo being handled, where 1st tier ports will be those classified as hub ports. The overall result is that both 2nd and 3rd tier ports are entirely dependent on 1st tier ones, affecting their overall revenues and consequently levels of investment to keep their competitive edge. A similar classification based on the port throughput (cargo and passengers) has been adopted at a European Union level within the scope of the Trans-European Transport Networks.
So, the development of bigger ships impacts the trade lanes in which they will be deployed and the whole maritime logistics chain. As a result, much pressure has been put on shipping companies’ management of maritime logistics. More than ever before, the knowledge of the customers’ business and the design of logistics solutions tailored to meet their needs have become critical competitive weapons to keep existing and eventually win market share. Furthermore, by fixing their routes (ports of call/schedules), which are static due to their permanent configuration, shipping companies have been able to carry out their operations with a degree of certainty and control of the external elements despite the possibility of poor weather conditions, port strikes, port congestion among others.
If it is not easy bringing all these elements together in normal operating conditions as those pre-Covid-19 Pandemic, it is far more complicated to deal with them in unforeseen circumstances. Altogether, they put pressure on the overall transport chain players that support the different supply chains which belong to wider distribution networks.
Pandemic and market uncertainty
The Covid-19 Pandemic in which the world is currently living despite the vaccination rollout that started in December 2020 has changed the existing market certainty to an uncertainty level not seen before. The lockdown experienced by the different countries in the different regions of the world with different timelines as the virus spread along the globe has promoted either positive and negative disturbances in the economy. While the goods sector has benefited from this situation much at the expense of online shopping, as is the case of the American market, the service sector declined with the ups and downs as lockdowns restrictions were enforced or gradually lifted. The airline and the tourism sectors are true losers given the severe constraints imposed on the movement of passengers for many months.
With more goods to be carried by sea, the container shipping market has witnessed a boom due to increased demand for shipping services, resulting in severe operational constraints beyond its control. To make matters worse, the grounding of the Ever Given containership in the Suez Canal in March 2021, preventing the flow of the north and southbound convoys for almost a week, also disturbed the market, forcing some ships to reroute to avoid the Canal adding around eight days to their entire journeys. The Suez Canal, which accounts for about 12% of global trade, allows a daily transit of about one million barrels of oil and roughly 8% of liquefied natural gas. No wonder that Allianz, the German insurer, estimated that the Suez blockage could cost global trade weekly between $6bn and $10bn and reduce annual trade growth between 0.2 and 0.4 percentage points.
This background and the numerous port workers’ Covid-19 infections resulted in severe port congestion levels not seen before, which are currently taking place. For example, on 13 January 2021, Costas Paris claimed that more than 40 cargo ships with tens of thousands of containers on board anchored off the ports of Los Angeles and Long Beach (which handle a third of all import containers), waiting for a berth to be served, causing severe delays on the imported cargo due to a reduction in staff related to the Covid-19 Pandemic. A similar situation occurred more recently in Yantian Port and nearby ports due to a wave of Covid outbreaks in the Guangzhou province resulting in numerous shipping companies’ blank sailings. Overall, a complete logistics nightmare if the median time spent in port by containerships worldwide is considered. According to Statista, in 2019, the average time spent by containerships in port during a port call accounted for about 0.69 days, where the least (0.35 days) and the longest (1.18 days) time occurred at Japanese and Australian ports, respectively. As of 21 July 2021, according to the Seaexplorer container shipping platform created by Kuehne+Nagel, the number of containerships queuing to be served amounted to 328 ships and 116 ports reported challenging issues such as congestion. As the situation stands, these delays will still occur; many terminal yards and inland terminals are at full capacity, problems related to the repositioning of equipment exist, and the emergence of new viral variants prevails.
The analysis of both cases highlights the seriousness of the problems associated with the repositioning of equipment. While in the first case, we witness the impossibility of moving containers out of Los Angeles and Long Beach ports to their destination, in the second case, we have a situation of empty containers shortage. Although they differ in context, both situations increase containers’ turnaround time from the moment they are loaded until they are repositioned to be loaded with the next cargo, making their management very difficult. The movement of containers is a complex transport problem in freight distribution whose turnaround time is affected by numerous factors even though the inventory container capacity per ship depends on 1) the ship nominal capacity, 2) her trade route and voyage rotation, and 3) the number of ships employed in the same trade route and voyage rotation. In general terms, these factors include 1) the time taken to stuff the container at origin, 2) the availability of surface modes to move the container between the origin and loading port, 3) the time waiting to be loaded onboard, 4) the distance travelled by sea and the number of expected transhipments, 5) the time taken to be cleared at discharging port, 6) the availability of surface modes to move the container between the discharging port and the final destination, 7) the time taken to strip the container at the destination, and 8) the route (distance and time) travelled by the empty container until the reposition point.
As the situation became critical, some supply chains executives advocated using a just-in-case inventory strategy instead of a just-in-time one, requiring predictable and accurate forecasting. A just-in-case inventory strategy implies companies keeping large inventories on hand since it minimises the probability of selling out of stock. However, even with the existing delays, adopting a just-in-case inventory strategy is still challenging, if not a mission impossible. As per John Wagner, in the American market, the number of shipments outstand the number of lorries available to haul them, whose situation is expected to increase the haulage rates.
To avoid extreme delays due to increasing port congestion levels, shipping companies opted for blank sailings, as was the case of the Yantian port congestion. Between 1-15 June 2021 project44 analysts estimated that container shipping companies blanked 298 sailings globally, even though some of these blank sailings were not originated only by the problems at Yantian International Container Terminal. From a strategic perspective, blank sailings can be seen as a short-term operational strategy to overcome a spot situation not to endanger service reliability, which has decreased considerably over the last months. In May 2021, according to Sea-Intelligence’s, the schedule reliability accounted for 38.8%, which from a year-on-year perspective represents a massive decrease of 36.0 percentage points with ships arrivals delays up to 5.86 days on average. However, blank sailings are not the desired solution.
The situation suggests that the current static ship routing has proven unable to deal with the levels of uncertainty currently faced by the container shipping industry resulting in production losses, poor customer service while keeping cost control of the operations. The current backlogs also suggest that the traditional fixed service routing (static) became obsolete since more flexible planning is needed to accommodate unexpected events. Moreover, according to Drewry, the spot container freight rates have been increasing, close to USD 13,000 per 40-foot container on some routes. Therefore, this question may rest on implementing dynamic route planning, sometimes described as transport modelling. While dynamic routing has been very much used by the road transport sector mainly due to the much needed last-mile flexibility, it can be used by other transport modes such as aeroplanes or ships.
Unlike static routings, which refer to routes and schedules that the different vehicles follow when the requested services are known beforehand, as it happens with liner (container) shipping, dynamic routings refer to last-minute routes design and execution for vehicles en route. From a logistics perspective, dynamic routing implies implementing a flexible planning process that is responsive to changes where routes will be created, considering all the necessary adjustments to be made. Consequently, dynamic routing becomes a more sustainable long-term operational strategy as it is not constrained by fixed territories, sequences of demand assumptions becoming a game-changer for shipping companies. As a result, it increases productivity and, consequently, the overall revenue.
The benefits are various. The most immediate one is route modification; routes can be modified in real-time based on last-minute changes due to weather constraints, port congestion while ensuring that ad hoc requests and cancellations are considered. It improves customer communication and customer satisfaction. It reduces fuel consumption, thus reducing vehicles environmental footprint; a well-planned route helps companies reduce the levels of carbon emissions and other pollutants for the environment. Finally, it contributes to resources optimisation and, therefore, to cost savings. Altogether, these issues are an added value when the shipping industry is facing the decarbonisation challenge. Moreover, dynamic routing allows shipping companies to work with their actual order volumes and delivery times instead of less reliable forecasts used for static routing, which grants a better utilisation of its capacity because of improved fleet visibility. Improved fleet visibility helps to utilise assets and streamline their operations delivery fully and reduce idle time.
The development of dynamic routing requires specific software to create optimised routes. The execution of artificial intelligence and machine learning-based solutions requires using advanced algorithms whose inputs must be changed and/or updated. Critical inputs in a dynamic vehicle routing problem include the nature of service, the locations and the time of services requested, shippers’ historical shipment data and the latest market information about rates and capacity. In addition, specific issues must be considered. First, the input formats must be flexible to reduce the input preparation time; it is acknowledged that how the service requests inputs are performed affect the routing system significantly. Second, fast computation speed and fast online access to the system and databases are necessary. Third, the software system must be easy to operate despite the high degree of interaction between the system and the operators. Finally, a graphic display is a precondition for planners to quickly and visually construct spatial relationships among all the information used. However, even if shipping companies use the most advanced dynamic routing software, their elaboration of complex routes will depend on advanced route planners with the dynamic capability to create accurate and optimised routes. By implementing a dynamic routing strategy, transport companies, including container shipping companies, can meet existing demand for services under an environment where unexpected events prevail.
Agility is ever more vital
Overall, dynamic routing/scheduling implementation forces shipping companies to think about their strategies, tactics, and technological choices. As part of these, agility plays a critical role since it provides transport chains with the needed resilience to accommodate unexpected events and/or impacts. The concept of agility, developed during the 1990s, allows shipping companies to compete more efficiently in highly competitive environments and uncertain ones. The numerous definitions of the concept allow identifying numerous features, of which the most important one is its ability to respond with ease to unexpected and anticipated events. When integrating this feature with the constant outcome of market analysis, shipping companies can redo their overall maritime logistics in advance, including their routes.
To implement agility, shipping companies require several dimensions, namely enriching the customer by being a solution provider, co-operating to enhance competitiveness, organising to master change or maintaining an adaptive organisation, being knowledge-driven, leveraging the impact of information and people to which the establishment of virtual partnerships should be added. When seen from shipping companies’ perspective willing to master their maritime logistics processes, implementing these dimensions allows them to develop and integrate their people, processes, and management into dynamic systems. Moreover, companies have recognised that the provision of customer value is the key determinant for 1) maintaining competitive positions, 2) exploit informatics as an enabling force to meet this end, and 3) sustain the databases containing the inputs to be used in the algorithms that calculate the optimised route solution.
The problem with agility is that its implementation in a shipping environment requires that the maritime logistics processes are streamlined, which can only be achieved with leanness theory. Lean production theory offers numerous benefits, namely reduced customer lead times, steady or reducing pricing, increased market share, reduced time to launch new services, increased service diversity, productivity and profit. Successful implementations of the concept in disparate economic activities resulted in a reduction of 90% of the cycle times, improvements of on-time shipments, reductions of work in process by 90%, improvements of quality up to 50%, and reduced floor space by 75%.
Even though leanness provides shipping companies with greater flexibility and lower internal and external variability over their maritime logistics processes, it prevents them from developing the extra-flexibility and capacity utilisation they require to exploit the emerging opportunities and unanticipated market events. As a production theory, leanness cannot adapt maritime logistics processes quickly to product development when time-to-market constraints are considered. Leanness is only good with processes it controls. If the environment around the company where such a tool is implemented is uncertain, then leanness has more difficulty coping with such an environment.
However, this comes at a cost for shipping companies. Dynamic route planning will be extremely dependent on 1) well thought land-based logistics embracing infrastructures (arcs) and super-structures (nodes) through which goods (containers) will be channelled to reach the gateway ports and 2) the involvement of committed economic players to adapt and respond effectively when a cargo redirection is necessary. For instance, the location of inland terminals becomes critical as the distances between inland terminals and shippers/receivers locations and inland terminals and gateway ports must be balanced. In this regard, mesh /star configurations network can allow containers to be handled efficiently and effectively as in a cross-docking operation.
Such a decision may even force shipping companies to choose 2nd tier ports, which may be (and certainly are) constrained either by land or maritime accesses but which have available berth capacity and are not so prone to port congestion as 1st tier ports. At the same time, they may have to consider scaling down vessel size to the maximum limit allowed by the smallest 2nd tier port in the network. Naturally that such decisions must be made in advance since it implies retrieving (eventually) those ships from regional trades in opposition to the cascading effects derived from increasing vessel sizes. So the question to be answered would be the ships’ TEU limit to which container shipping companies could scale down their operations to implement dynamic route planning.
While this decision may lead to achieving lower economies of scale, it will undoubtedly prevent new entrants into the market, mainly if they are, or represent, the owners of the goods. This is the case of Home Depot, a large American retailer who chartered a containership, and SEKO Logistics who aims to charter 1-2 1,000 TEUs containerships also for the Trans-Pacific route but calling at smaller ports on the West Coast such as Portland, Oregon, and San Diego to avoid the busy ports of Los Angeles and Long Beach.
The danger of new market entrants is that they focus on continuous market research to identify existing gaps yet to be fulfilled and provide answers relevant to service demand levels, ideal price for service offers, where and to whom to sell the services, how to publicise it and whether customers are satisfied with it or not. As a result, they usually enter the market willingly to offer transport solutions rather than transport services. This means that they 1) can contest the high or low market entry barriers in which they are willing to operate, 2) pay attention to their organisational integration, which involves sharing resources and goals and the creation of an innovative organisational structure and 3) respond effectively to market needs before other existing companies do it at a lower cost. The result is that, in the long term, new entrants will be better positioned to bargain freight rates with the existing containerships companies. The UN Ro-Ro Maritime Service established by the Turkish International Transport Association (UND) in 1987 between Turkish ports and the Italian port of Trieste is an excellent example of how the Turkish haulage industry contested the European and Mediterranean shipping arena. For this, they adopted innovative measures such as transferring lorry drivers by plane, using railway services, and managing the fleet in an unbiased way, not favouring any road hauliers.
At the end of the day, according to Sun Tzu’s Art of War, “The clever combatant imposes his will on the enemy, but does not allow the enemy’s will to be imposed on him”.