Travel & Hospitality Tech Outlook | Monday, February 21, 2022
Shippers should prepare for the outlook that the coming years will see operational performance restored with longer transit times and more blank sailing.
FREMONT, CA: The disruption of the supply chain is a critical concern for every industry. However, there will be new shifts, and the pandemic-induced bottlenecks in the system will work themselves out. As a result, it is critical to consider the nature of the market in the coming years, especially as some shippers negotiate longer-term freight contracts.
There are elements in the market that are temporary and those that lead to permanent changes. With the bottleneck problems globally, shippers should plan based on the previous year's experience, and in the coming years, they must increasingly bring their supply chain back to normal. This normal, from an operational perspective, demands shippers expect schedule reliability to revert back to pre-pandemic levels for vessels arriving on time. However, there are two primary operational elements that must be considered.
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Prospect of Sailing Vessels Slower
Bunker fuel prices for low-sulphur fuel set new records and matched the peak seen for only heavy fuel in the olden days. Earlier, carriers slowed vessels down to reduce the high fuel costs, which will happen in the coming years due to removing bottlenecks. Furthermore, the coming years will witness the introduction of new environmental legislation. This forces shipping lines to improve the fuel efficiency of the individual vessels and will lead to more slow steaming. Thus, shippers will experience that reliability becoming normal, but transit times will take longer than pre-pandemic normality.
Blank Sailings
Today, all blank sailings in the market resulting from a lack of necessary vessels in the carriers to deliver on their planned schedules. Blank sailing becomes a yield management tool for the carriers when the bottlenecks are removed. They were already beginning to perform this earlier, and the industry has seen how they used it greatly, keeping rates stable in the early phase of the pandemic, where demand suddenly dropped sharply. Therefore, shippers should expect blank sailing to be a normal part of the market in the coming years.
A physical shortage of capacity due to bottlenecks dominates the current spot rates. As this increases, spot rates will start dropping, but even in a free-fall scenario, reverting to more normal levels will take more than a year. When the market returns to normal, the rates will drop to a point where many newcomers will no longer be profitable and will have to leave the market again.
As a result, shippers should begin preparing for the possibility that operational performance will be restored in the coming years. However, there will be longer transit times and more blank sailings. Companies should plan robust business models in an environment where rates are permanently at the same levels.
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