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Supply Chain Chaos: Symptoms vs Causes

Dear Editor,

Logistics and shipping have been in the news for all the wrong reasons for most of this year, with shipping lines making record-breaking profits for the second year in a row. Yet, its impossible to book space or get a container, and the freight forwarders around the world charge them with acting in bad faith and not ethically.

All around the world, we see problems all aggravating a global problem, from the lockdowns in China to the inability of the American ports to handle volumes and evacuate empties, to the build-up of ships in European ports waiting for berths, nothing seems to be working as it should.

It is easy to get caught up in all the rhetoric and finger-pointing, so I have taken my time and sat back trying to see, ‘what is the cause`?’ Is it just coincidental that all these minor problems are adding up, or is it something more? Perhaps these are just symptoms of a deeper problem or a fundamental flaw in the global transport and trading system.

If you speak to many in the greater shipping and transport industry, most agree that the system has been broken for a long time. How can it be that the sector underlying the entire economic growth structure of the world is not based on efficiency but actually makes enormous profits through inefficiency.

Indeed it was not all that long ago that it was generally accepted that the earnings of many lines and terminals were linked to the demurrage and storage they were able to charge, i.e. how slow cargo load or discharged or how long it remained in port.

We are now entering a new age, catalysed by Corona and followed by a series of seemingly coincidental events that aggravate the imbalances, but the new keyword is the value add. Springing automatically from this would then also be efficient. Be it in cost, transport speed or reliability of service. The focus is now moving not only to end-to-end transport but also to improving the transparency of this end-to-end movement to aid efficiency and planning.

What we are seeing is a highlighting of just how inefficient the system has been in the past. Before Corona and digitalisation, this would have been accepted as standard or swept under the rug. Shipping lines may even have introduced a congestion or peak season surcharge to try and counter how long their vessels were at anchor or to make up for the lack of containers, and few would have even grumbled.

Do not get me wrong, this is a difficult time for the transport sector, but we need to realise that a transition is taking place. As Hapag Lloyd has successfully pointed out, their service is no longer selling freight. That has always been a commodity and at the whim of the markets. What the shipping lines are selling is a service, so while everyone with ships is making heaps of money right now, those with an eye on the future will be looking to convert themselves from selling freight to building relationships based on selling a service offering with freight-rates that fluctuates with the ship and fuel costs.

This means making efficient, transparent services, no matter how much of the supply chain they offer, taking the emphasis off the freight aspect and onto delivering that which was offered to get the cargo safely from point to point as advertised and agreed. I think the customers will begin to appreciate and even pay for that service rather than haggling over freight.

Yours sincerely,

Lars Greiner

Associate Partner at HPC Hamburg Port Consulting GmbH.

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