© Luigi Rosa

Point of View

Inter-dependence and fragmentation: an outlook on today’s maritime supply chain

By the International Federation of Freight Forwarders Associations – FIATA

FIATA, through our Working Group Sea Transport, provides crucial input to shape international policy discussions on maritime and Customs issues, working closely with international and regional organizations. Through our Customs Affairs Institute, we liaise regularly with the WCO to provide crucial private sector input on the challenges presented by the disrupted maritime supply chain and to promote trade facilitation. In this article, we would like to present some of the challenges freight forwarders are facing and to provide an outlook on how governments and industry players can move forward.

Today’s maritime supply chain is disrupted. Challenges existing prior to 2020 have exacerbated since the COVID-19 outbreak. Reliability, in terms of transit and frequency, is at an all-time low – impacting predictability and making any planning extremely difficult. Without planning certainty, managing the supply chain has become mission impossible.

Freight forwarders, those firms specializing in arranging storage and shipping of merchandise on behalf of its shippers, live from hand to mouth, facing new and unexpected issues on a daily basis. Frequent changes of ship arrivals at short notice and limited timeframes for the delivery of export containers lead to long waiting times, frequent postponements/rescheduling, and – consequently – unused modes of transport

The increased administrative work on the part of service providers, combined with a surge of empty container repositioning expenses, also have a significant impact on the inland cost structure. Shippers have emphasized that they do not have access to empty containers for exports and face blank sailings[1], as well as high freight rates.

Last but not least, the current imbalances in the maritime supply chain have become counterproductive to the efforts of freight forwarders in shifting inland transport to more environmentally friendly modes of transport (modal shift).

Ensuring a level playing field

While there are several reasons that may explain the shortage in containers and ship supply capacity, including the disruptive nature of the pandemic and associated restrictions, it is important to ensure that national authorities and international policymakers monitor developments to ensure a level playing field, in the interests of ensuring the fluidity of international trade.

It is particularly important to ensure that policies protect shippers of all sizes, and that care is taken to ensure that small and medium-sized shippers are not at a disadvantage. This includes, for example, ensuring that the latter are given the same value when combining volumes through Non Vessel Operating Common Carriers, in terms of price and space protection, as compared to the big Beneficial Cargo Owners, those shippers bringing in enough freight to negotiate contracts directly with a Vessel Operating Common Carrier.

More facilitation is needed

Policymakers must continue to strengthen regulatory oversight in maritime transport. Customs authorities should cooperate and ensure that they work along strict risk assessment policies, focusing on the adoption of digital means for the exchange of digital information rather than relying on paper or physical checks. The interface to move goods into the markets must be as smooth as possible for traders and importers that handle goods professionally and in good faith. Freight forwarders and Customs brokers of all sizes should have meaningful access to Authorized Economic Operator (AEO) programmes in which they can receive tangible benefits that facilitate trade without putting extra burden on them. This should not occur in national siloes, but should take place in a harmonized manner that encourages the adoption of mutual recognition agreements (MRAs).

The problem with the recent Suez Canal incident, for example, was not the blockage on its own, but rather the combination with the timing. The maritime supply chain is vulnerable and the blockage happened at the worst possible time. This combination led to an extremely high impact of the blockage of the MV Ever Given on the maritime supply chain, and ultimately on international trade, affecting the supply chain’s fluidity and evoking long-term consequences related to congestions, lead times, and predictability. The fear is also that effects will not only be limited to Europe and North America to/from the Far East and Oceania trade lanes, because domino effects cannot be avoided. In the long run, there will unfortunately only be losers, as it will be economies and above all the consumers who will pay the price.

As with the COVID-19 pandemic, the situation demonstrates the importance of all stakeholders working together to harness best practices and mutual synergies for a stronger and more resilient supply chain. As ‘Architects of Transport’, freight forwarders play a critical role to organize their customers’ transportation needs through their know-how and ability to find tailored solutions using the various modes of transport. In addition, freight forwarders possess knowledge and access to organize appropriate insurance policies which cover losses, and to support shippers with insurance cover requirements and claim handling procedures. Such skills can be important, especially when shipowners declare “General Average[2]” as the MV Ever Given’s owner did.

Way forward

Overall, there is much room for improvement. The maritime supply chain is fragmented, which leads to inefficiencies that represent costs to one or more of the stakeholders in the chain. Resolving these inefficiencies through smoother interfaces between the different stakeholders of the maritime supply chain requires collaboration – be it ships, port facilities, freight forwarders, Customs administrations – which often does not take place. Establishing this collaboration is essential to increase the performance of the whole maritime supply chain and its constituent parts. Digitalization will play an important role to facilitate this.

The sectors in the supply chain are inter-dependent: their performance depends on the behaviour of the other sectors within the chain. Dealing with this inter-dependency requires coordination, alignment, and collaboration among the participant stakeholders along the maritime supply chain. The ability for each actor in the supply chain to communicate and exchange data in a timely and accurate manner is crucial, not just between industry and government, but within the industry itself. If digital communication systems are to play an important role in this area, more needs to be done to ensure that all actors of all sizes have the access and means to such platforms. The existence of such communication and data exchange would have played a pivotal role in coordinating ships entering and leaving the Suez Canal after the MV Ever Given was freed, thus decreasing congestion and allowing for better planning as to arrival times.

More information
www.fiata.com

FIATA would like to thank Jens Roemer, Working Group Sea Transport Chair, for his contribution to this article.

[1] Due to various reasons, a liner service operator might decide to cancel the call of a vessel at a certain port or certain region to keep up with its sailing schedules. With a blank sailing, containers that are meant to be discharged at the now-canceled port will have to wait at the pick-up port until the next vessel with the same destinations arrives.

[2] “General Average is a legal principle of maritime law and requires that all cargo owners on a vessel to contribute to the costs of any loss, even if their cargo is not damaged. Once the vessel owner declares General Average, appointed General Average adjusters will assess each shipment’s value on board and apply a formula that determines the financial contribution of each cargo owner. Cargo owners will then need to post a General Average guarantee to recover their cargo”. Source: Ever Given vessel owner declares general average, Will Waters, 6 April 2021 https://www.lloydsloadinglist.com