Online technology platforms can help reduce the fundamental mismatch between supply and demand and curb volatility in freight rates in global liner shipping, according to a new study by Drewry Maritime Research.
On these online marketplaces, shipping lines and their customers can negotiate forward contracts, helping to improve vessel utilization levels and reduce freight rate volatility, said the joint study conducted by the global shipping consultancy with maritime supply chain technology provider CyberLogitec.
“While the shipping industry has changed dramatically in recent years, the market for ocean freight services remains exposed to the inherently dynamic nature of demand and fixed nature of supply, which results in oscillating vessel load factors and freight rate volatility. This fundamental supply and demand mismatch causes significant structural inefficiency which adversely impacts all market participants,” said Drewry.
“Our study concluded that many of the market’s pain points could be addressed through a capability to flexibly buy or sell ocean freight services in advance, using a neutral, global platform,” said Philippe Salles, head of e-Business, Transport and Supply Chain at Drewry Supply Chain Advisors.
“Volume commitments and capacity guarantees would provide an early visualisation of demand to the market, thereby reducing the supply-demand mismatch and rate volatility, to the benefit of all market participants.”
The study, titled “Using technology to tame freight rate volatility and reduce capacity risks,” identified the end benefits resulting from technical platforms enabling the market.
For shipping lines, forward selling of vessel slots, underpinned by volume commitments, would put them in a stronger position to forecast their revenues, reduce their cost of capital, and provide an effective hedge against freight rate decreases. The early visualization of demand could also be linked to collaborative, dynamic capacity management and increase vessel load factors. The reduced freight rate volatility would help stabilize vessel profit and loss and improve invoice accuracy.
For shippers and forwarders, the reduction in freight rate volatility and the ability to “buy forward” would protect their product margins and provide an effective hedge against freight rate increases. Together with space guarantees, enforced through a deposit scheme and vendor reliability scores, this would result in more stable and elevated service levels of their ocean providers that enable reduction of safety stock levels. Forward buying ocean freight provides procurement teams with an additional ocean freight procurement tool with flexible timings, thereby improving the agility of their logistics management teams.
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