11:00pm 29th July 2021
Highest ever sea freight rates, lowest ever service quality. Try explaining that to your boss, says the procurement manager at a major industrial company and container shipping customer.
Sebastian Wagner, Regional Category Buyer for EMEA Procurement at specialist plastics manufacturer Ineos Styrolution, said it is very difficult to have to tell your superiors that despite skyrocketing ocean freight rates, the service quality is only getting worse – echoing other anecdotal feedback from container shipping customers.
“There were a lot of questions in my company from people who do not deal with shipping on a daily basis. The management would say it was crazy – paying a lot of money and the level of reliability was decreasing,” Wagner told a webinar this week on ‘How Ocean Procurement Has Changed’ in the extraordinary global freight markets experienced since last year.
However, it helped that the problems with shipping were becoming more prominent in the mainstream news, and the image of the Ever Given blocking the Suez Canal for six days in March demonstrated the sort of unforeseen incidents that could never be planned for.
“The economy is booming, all trades are booming, and that helped to justify the rates – and helped management to understand the situation,” he noted. “It was the same for every other company.”
Wagner, who worked for a shipping company for 11 years before joining Styrolution, told the Xeneta webinar that although the peak rates are a major issue, it was the “lowest possible reliability levels” which were more difficult in some ways.
Lack of transparency
“The big problem is that a real level of transparency is missing,” he highlighted. “You would expect an increased level of transparency as reliability decreases, but that was not happening and needs to improve. We would expect the carriers to support us more.”
He added: “My management are not that happy that we faced rate increases; but the market, finally, is the market. We just had to accept the increasing market and make the best out of that market.”
When the effects of Covid-19 started to affect world trade, Styrolution had quite different experiences in the various markets it serves. It provides a variety of specialist plastics which have a broad range of applications in the healthcare and diagnostics market, are used in automotive (rear-view mirrors to instrument panels), construction (from bathrooms to patios), the leisure market (snowboards to children’s toys) and electronics (computers to electrical installations).
“During Covid, we have seen the volumes shifting,” he noted. “There was a booming market in healthcare as we produced granulates for the production of face shields. The packaging sector was increasing fast as well, but we have also seen the auto sector decrease.”
His team had to procure vessel space for finished goods as well as for imported raw materials. “In some ways the raw materials are more important as when they do not arrive, production lines stop,” he highlighted.
But overall, even as other markets rose in mid-2020, it was not until November the company saw a significant increase in its business – along with even greater challenges on the shipping side. “We are now in a very new world of shipping,” he noted. “There have been peaks before, but never such a long-lasting peak. It brings a lot of challenges.”
Challenge of blank sailings
Wagner was unhappy that one alliance took a 10,000 TEU vessel off the transatlantic “when it was going crazy” and shifted it to the Mediterranean. “Demand levels have been increasing, but there were still void sailings. Why would you have a void [blank] sailing if demand is high? And you actually see the real effects three months later in the cycle, hitting year-end by then, here in Europe.”
He continued: “That raises a lot of questions. Pulling out whole services on the transatlantic like that ignores the needs of reliable, long-standing shippers. We would expect much more support than there is. Of course, shipping lines need to make money, but customer focus has been missing.”
Exploring alternative sources
Wagner said that as freight rates keep rising, alternative sources of production become more viable.
“At some point, breakeven has been reached and it becomes cheaper to go for local sources than to transport,” he noted. “We have done the exercise in our company and that will apply to other major shippers as well. The supply chain is under ever more pressure, so you look to see how you can improve things.”
One route he looked at was North Europe to North Africa. “Maybe we could use rail to Italy or France and then ship across the Mediterranean,” Wagner noted. “It is especially important for raw materials to consider focusing on local sources. We are looking into the details and asking if this is the future.”
Wagner concluded: “Rate levels are not healthy; though, when you could pay $200 on Europe to Asia, that was not healthy either. But the shipping lines need to look at quality of service as well as the rates. They are definitely not delivering quality at the moment.”
Wagner was speaking at a webinar organised by leading freight rate benchmarking and market analytics platform Xeneta, which claims to have the world’s largest database on shipping rates.
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