Top 10 Trends to watch out in Shipping, SCM, Logistics in 2016

We will look at top 10 trends in Shipping, SCM , Logistics for the year 2016

1. USA will drive the global economy in 2016 :

It means that American logistics companies will continue to do well and prosper both at home and abroad. The stronger dollar will absorb imports from around the world, and will give Asian and European exporters a welcome boost and strengthen transpacific shipping volumes.

However, emerging markets have been forced to increase their interest rates which will have a detrimental effect on struggling economies. China is experiencing tough times in terms of falling economic growth, but it will be supported by the growth of the American economy for exports and its e-commerce market has seen staggering growth despite the economic situation. Also helping the global logistics industry will be a recovery in Europe.

2. Oil price gradually climbs in second half: It is difficult to forecast the price of oil. However, analysts expect the present levels to continue for the next six months and then for the price to increase in the second half of the year.  Any oil price rises will impact on the profits of carriers – particularly shipping lines – where these increases cannot be passed on to the customer due to over-capacity in the market. 

Road freight companies should enjoy the low costs whilst they can as they won’t last forever. The rate of the dollar will also be a key influence on oil prices around the world.

3. More Mega-Mergers and Acquisitions on the anvil : 2015 saw a number of M&A deals as the market continued to consolidate. The same market dynamics (e.g. cheap and available money, fragmented markets, ambitious management teams) exist in 2016, and will result in further consolidation.  Few companies are too big for acquisition, as evidenced by the acquisitions (or pending acquisitions) of Norbert Dentressangle and TNT.  

Sustainability pressures in the shipping market will create a need for further consolidation amongst shipping lines.

4. Frequent natural disasters and calamities: Natural disasters are impossible to predict. However these will become frequent due to a changing climate. Therefore global manufacturers and retailers will need to implement measures to make their supply chains more resilient in such situations.

Logistics companies will have a very important role in such situations and will need to implement strategies that can be enhanced by ‘sense and respond’ technology.  Supply chains must become flexible and adaptable if they are to continue to provide competitive advantage in an uncertain 2016.

5. Innovative / Disruptive technologies:  The global logistics industry will continue to be impacted by new technologies and business models in 2016. Autonomous vehicles, drone technology, 3D printing, sensor technology etc. will continue to influence the way in which the industry evolves. 

Leading logistics companies are still trying to assess impact of disruptive innovations on their businesses.

6. Refugees and security impact on European supply chains: The huge influx of migrants, transiting South East Europe from origins in Syria, East Africa and even Afghanistan, caused many European countries to question the Schengen Agreement (the treaty which allows the free movement of people across mainland European countries).

The security situation in Europe (specifically the terrorist atrocities in Paris) also led administrators to questions whether more border controls should be implemented. If politicians believe it is in their national interests to re-impose border checks, on a temporary or even permanent basis, supply chains across the region will be heavily impacted by delays and inventory strategies re-assessed.

7. E-Commerce continues to transform retail supply chains: The e-retail phenomenon shows no sign of losing momentum, though making money out of it is a different matter.

Retailers will have to adopt omni-channel strategies to survive, but they will have to do so in a way that allows them to make money. This will increasingly involve charging customers for deliveries, whilst at the same time providing a wider range of delivery options. Retailers in 2016 will increasingly push customers towards cheaper click-and-collect or locker delivery options.

8. Forwarders and shippers face more regulation : Regulatory issues could have a major impact on the movement of international freight in 2016 if confusion over the implementation of the International Maritime Organization’s SOLAS (Safety of Life at Sea) measures are not addressed. This new regulation requires the verification of gross mass of containers prior to loading; and although in theory this is the responsibility of shippers, according to one survey by Inttra Inc, 60% of respondents do not think that they will be ready by the time it is implemented in July 2016. 

Other changes will impact forwarders in 2016 such as the EU’s Union Customs Code – an initiative to replace and harmonize existing Customs regimes in Europe. Without the proper implementation and awareness of shippers, carriers and freight forwarders, 2016 could be a confusing and difficult year.

9. Sea freight /air cargo rates remain static:  

Shipping lines have proved that they were unable to reverse the downturn seen in 2015, despite concerted efforts. A combination of over-capacity and stagnating volumes has meant that revenues and profits plunged in the second half of 2015. The increased economies of scale that 18,000+ TEU vessels brought did not make up for their under-utilization. 

It is hard to see the economic upturn in 2016 providing sufficient volumes to address this problem on their own – capacity needs to be taken out of the system before there can be a sustained improvement in rates and profitability.

Air cargo rates also look set to remain static. The uncertain economic environment and the glut of capacity on the market brought about mainly by the introduction of wide bodied passenger aircraft will depress rates.

10. ‘Ethical’ & a green supply chains on the Board Room agenda:  The issue of ethical & green supply chains will increasingly force itself onto the boardroom agenda in the coming year. Thanks to  far more awareness and interest now amongst Western consumers about the conditions in which the goods they purchase are manufactured. 

In order to minimize damage to their brands, global manufacturers and retailers will have to dig deeper into their own supply chains in order to root out unethical practices, either societal or environmental. This exercise might create additional costs, however the benefits will be far-reaching, as it will create a more resilient, sustainable and green yet profitable supply chains.


Info source - Logistics.about.com  , koganpage.com

The world's biggest tanker traffic jams!

The world's biggest tanker traffic jams are now a common feature at the ports and also at the seas !

Various ports across world are now struggling to cope with a global oil glut and excess supply, huge queues of supertankers have formed in some of the world's busiest sea lanes, where some 200 million barrels of crude lies waiting to be loaded or delivered. The vessels, filled with oil worth around $7.5 billion at current market prices, would stretch for almost 40 km (25 miles) if formed up in one straight line.

What are the reasons for traffic jams in oceans?

At the heart of the congestion is an unprecedented rise in global oil production (2014 onwards to 2016) coupled with rising consumption.

We will look at the reasons for this supertanker traffic jam

1.      A massive oil supply glut has caused global oil prices to crash from 2014 onwards. Ferocious production from OPEC and near-record U.S. output, higher outputs from Canada, Brazil are adding to sky-high oil inventories around the world.

2.      Not enough buyers  - Maritime congestion had occurred towards end of 2015 in Singapore off China and Arabian Gulf. There appears to be more oil floating in ships with not enough buyers

3.      High inventories - There are massive massive  inventories of crude oil around the world, with global stockpiles sitting at a record 3 billion barrels, according to the International Energy Agency.

a.      A stunning 487 million barrels of crude is sitting in U.S. inventories, levels unseen at this time of the year in the last 80 years, according to the U.S. Energy Information Administration.

4.      Red-hot demand from new entrant refineries in China : Soaring output has pulled down oil prices by as much as 70 percent since 2014. 
   That has helped spur demand from China's independent refiners, freed from government restrictions on imports just last year and gorging on plentiful crude, putting extra pressure on ports.

5.    Port infrastructure in the Middle East and Latin America that is unable to cope with current supply and demand requirements.

6.      Renewable energy & other alternate sources of energy - Customers are turning to renewable sources like wind and solar energy and alternate fuels like gas leading to reduced demand for oil.  

The worst congestion is in the Middle East, as ports struggle to cope with soaring output available for export, and in Asia, where many ports have not been upgraded in time to deal with ravenous demand as consumers take advantage of cheap fuel.

As per Bloomberg's report in March 2016, the queue of ships waiting outside Europe’s biggest port and oil-trading hub of Rotterdam has grown to the longest in seven years as a global supply glut fills storage capacity.  As many as 50 oil tankers, twice as many as normal, are waiting outside Rotterdam because storage sites are almost full, the port’s spokesman Tie Schellekens . 

Consequences of tanker traffic jams?

1.      Missed and messed up Schedules:  Shipping Schedules are going awry. Ship tracking data shows 125 supertankers, with the capacity to carry oil to supply energy-hungry China for three weeks, waiting in line at ports. The combined daily cost is $6.25 million, based on current ship hire rates of around $50,000-a-day. While daily tanker fees are typically borne by the fuel buyer, the port delays have a knock-on affect across the shipping industry. It messes up

port schedules, catering schedules, crew schedules and the schedules of delivering the transported goods," said one shipping logistics manager in Singapore. It also raises the cost for pretty much everyone involved.

2.      Losses for dealers: A month-long delay can turn a profitable trade into a painful loss for the dealers."If you've bought 100,000 barrels of crude at $40 (a barrel) that'll cost you $4 million," said one oil trader. "And if you've calculated another 1.5 million bucks for a month's worth of shipping, but you end up paying double that because your ship is stuck in port congestion, then that can seriously mess up everything from your schedule to your arbitrage profitability."

3.      Bored crews - The oil glut is also causing congestion between the main producer and consumer hubs. Almost all supertankers heading to Asia pass by Singapore or adjacent facilities in southern Malaysia, the world's fuel station for tankers and also a global refinery and ship maintenance hub.  Shipping data shows that some 50 supertankers are currently anchored in or close to Singaporean waters for refueling, maintenance or waiting to deliver crude to refineries or be used as floating storage.

For sailors stuck in a queue of anchored tankers, one of the biggest problems is simply wiling away the time. "Some of the ships are well-equipped for their crews, but many aren't," said a Filipino sailor who left a very large crude carrier (VLCC) in March after a voyage to China.

"On my last one, we had no regular internet ... only an old TV with a couple of old DVD movies. The food is terrible and while waiting to offload we did pretty hard maintenance work. The sort of stuff you can't do when the engine is running."

To summarize.. The excess oil supply might be great for end users/customers who will be smiling as they can fill up their cars with cheaper fuel. However it leads to unsettled and chaotic global markets creating excess supply and consequences like super tanker traffic jams , losses for oil companies and related industries and possibly job cuts. 


Source: CNN , Reuters, Bloomberg