Just when you think you’ve mapped your global supply chain plan for 2024, the Red Sea crisis throws a curveball, while alliances like Gemini Cooperation reshape the chessboard. Nowadays, staying well-informed and up-to-date is the critical first step to not only optimize efficiency but also effectively mitigate potential supply chain risks.
In the latest episode of The Freight Buyers’ Club, sponsored by Dimerco Express Group, host Mike King engages in a comprehensive conversation with Bjorn Vang Jensen, Executive Director for International Transport at Cummins. Together, they explore fresh perspectives on current geopolitical obstacles, strategic alliances, supply chain risks, and discuss key recommendations.
Discover strategic recommendations and industry trends below.
Gemini Cooperation Reshapes Global Shipping
The Gemini Cooperation, a strategic alliance between Hapag-Lloyd and Maersk, is on the verge of reshaping the shipping landscape. Boasting nearly 300 vessels and a capacity exceeding 3.4 million TEU, this collaboration aims to capture a substantial 20% of the market share. With a commitment to providing 26 Mainline Services, the alliance emphasizes establishing a well-connected shipping network, aligned with shared cultural values between the two companies. The partnership is scheduled to commence operations in February 2025.
Expectations and Industry Impact
- The Gemini Cooperation is setting ambitious targets, notably aiming for schedule reliability exceeding 90%. Supported by a strategic framework featuring a hub-and-spoke model and meticulous control over terminals, this approach stands to redefine prevailing industry standards.
- The exit of Hapag-Lloyd from THE Alliance triggers thoughtful considerations about the future of remaining partners like Yang Ming and HMM. These companies will need to navigate within strict regulatory constraints, adding complexity to their strategic decisions.
Navigating the Suez Canal Closure
In handling the aftermath of the Suez Canal closure, planners often resort to air freight for quicker delivery compared to ocean freight. However, a more prudent approach involves exploring alternative options like rail, sea-air, or deferred air before opting for the costlier air freight solution. This process is actively promoted to ensure a well-orchestrated global response.
Chinese New Year Disruptions & Container Shortages
As the Chinese New Year approaches, disruptions in the Red Sea are causing slot and equipment shortages in Chinese feeder ports. An estimated 800,000 TEU won’t return to Asia in time for the Chinese New Year rush, despite a global surplus of containers. This shortage will impact various trades, influencing carriers’ yield management strategies. Even routes distant from the Red Sea, like those in the Middle East, could be affected by the broader implications of the container shortage.
US West Coast Industry Shifts
As the shipping industry grapples with longer transit times prompted by challenges like the Suez Canal and Panama Canal water levels, shippers are reassessing shipments to the East Coast in the US market. This has led to a significant shift towards the West Coast, even with the potential for additional costs. However, concerns have surfaced regarding potential bottlenecks at West Coast terminals, with a specific focus on the readiness of inland infrastructure to effectively manage the surge in shipments.
Vessel Oversupply: Navigating Short-Term Gains
Carriers are currently benefiting from the surplus vessel situation. Yet, these benefits will be short-lived. While offering relief, the enduring issue of excess capacity remains unresolved. The reopening of the Suez Canal will likely prompt a return to previous routes, reigniting the challenge of surplus vessels. The current situation delays the issue but doesn’t resolve the underlying problem.
Globalization vs. Regionalization
Globalization is facing a shift towards regionalization due to geopolitical risks and a preference for near-shoring. Despite this, no two regions can entirely fulfill each other’s needs in raw materials, components, and goods and services––therefore there is always a perpetual element of globalization. This shift prompts a reconsideration of the extensive purchase of large vessels in recent years as the industry moves towards smaller sizes. However, considering the ongoing global economic growth, larger vessels might still have a role in the future.
Insights and Strategies from Bjorn Vang Jensen on Planning Global Supply Chains
- Globalize Logistics Activities: Globalize logistics, aligning with the shipper-of-choice paradigm, ensuring consistency, and transparent communication with service providers.
- Tighten Planning Processes: In response to challenges, Cummins enhances planning processes, focusing on refined forecasting, improved communication, and a global approach to data management.
- Integrate Procurement and Operations: Cummins emphasizes the importance of integrating procurement and operations globally to streamline processes and enhance collaboration with service providers.
- Balance Forwarders and Carriers: Based on volume considerations, Bjorn discusses finding the right balance between direct engagement with carriers and leveraging the services of freight forwarders.
- Consider Contract Duration: Cummins is deliberating a hybrid approach for contract duration, potentially committing some volumes to long-term rates and leaving room for flexibility based on market dynamics.
- Strategic Tendering: Despite challenges, Cummins recommends engaging in tenders, particularly during the slack season, and advises setting aside diversion costs and crisis-related charges as separate adjustments.
The landscape is constantly evolving, with new alliances emerging, established ones dissolving, and new obstacles popping up unexpectedly. To navigate this complex landscape, adaptability and agility are crucial, especially in addressing supply chain risks. The insights from Bjorn Vang Jensen and the discussions on the Gemini Cooperation, Suez Canal closure, and US West Coast shifts offer valuable strategies for shippers to plan their global supply chains effectively.
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