The pandemic has triggered a worldwide shipping crisis, extensively impacting global supply chains. The disruptions started in early 2020 at the beginning stages of the pandemic when factories in China, South Korea, Taiwan, and Southeast Asian countries were shut down or reduced production capacities. Also, shipping companies amended their schedules in anticipation of reduced demand and the closure of international borders. On the contrary, consumer demand soared as people were confined within their houses and spent money on household goods to make their lives better in lockdown.
Maritime transport accounts for over 90% of the world trade volume and is the backbone of the global economy. Global supply chains create a complex network of trade flows. The structure of this network impacts the socio-economic development of the concerned regions & their ecosystems. When the cargo weighs more than 100 kgs as a general rule of thumb, they are transported in containers via ocean to their destination ports and then in trucks, rails, or barges for the last leg.
UNCTAD (United Nations Conference on Trade and Development) predicted the seaborne trade hit an all-time low in 2020, the COVID-19 pandemic and lockdown measures had widespread impact.
With the disruption to global logistics and supply chains remaining widespread, port congestion has become a growing concern across many parts of the world, including the US. The US ports of Los Angeles and Long Beach have been experiencing a massive backlog of containers waiting to berth outside the respective ports. As per ClarkSea Index critical congestion “hotspots” across the container network include China and the US West Coast (where capacity at port touched 0.87m TEU on Oct. 21, almost three times the 2016-19 average of 0.32m TEU). As of October 21st, 2021, Chinese ports, containership capacity at port reached 2.6m TEU, up more than 50% from the 2016-19 average of 1.7m TEU, while at the US West Coast capacity at port touched 0.87m TEU, almost three times the 2016-19 average of 0.32m TEU.
Various factors contributing to the Global Supply Chain Crisis
A massive container shortage has wreaked havoc on the global supply chain industry. The cost of shipping goods from China hit record highs, driven by a critical shortage of empty containers during the pandemic. Containers got stuck in various parts of the world trying to cater to the surge in demand for various goods like protective gear, masks, critical hospital goods, etc., in places like West Africa and South Asia.
With empty containers piling up in distant ports, Chinese factories continued producing goods for North American and European markets, leading to a steep rise in container shipping prices. Before Covid, shipping a container from Shanghai to Los Angeles cost around $2,000. By late 2021, the same shipping cost skyrocketed to over $20,000. Furthermore, disruptions like the Suez Canal Blockage added to the woes of container shipping. The following graph shows the steep rise in container shipping prices over the period.
Meanwhile, ports worked around the clock to unload these container laden ships, but since the workforce was limited and trucks for inland transportation were scarce, the port productivity fell. Many companies responded to initial shortages by ordering extra, adding to the constrained capacity at ports, and filling up warehouses.
According to the Marine Exchange of South California, the Los Angeles/Long Beach port complex had a record of 101 ships waiting in a queue on Dec. 14 to berth at the twin ports. Los Angeles and Long Beach are the primary gateways for Asian imports and the busiest container ports in the US.
These are record numbers since the pandemic, and the situation seems to worsen each day. Along with the current backlog of vessels waiting to berth and unload, there is a mounting rise in the number of empty containers at these ports, while Chinese shippers are in absolute shortage of empty containers.
As the industry struggles with the current bottlenecks in the physical supply chains, there is an ardent need for intelligent solutions to tackle these challenges and other requirements of complex routing networks, and the importance of recording details both on the sea and at the port.
SAP has introduced an add-on called Container Shipping Line, which, when used with a transport management module, gives a holistic solution to ocean liner companies and freight forwarders. CSL is an add-on which is a network definition and planning system that eases the complex processes of sea freight. It helps a pricing expert define a sea freight contract and thus helps a booking agent create bookings for customers.
For example, for a company with more than 1 million containers laying across the world in ports and half of this fleet consisting of empty containers that need to be moved, CSL can be of great use. In such a scenario, a planner can make routes for empty container repositioning and make them available for stuffing and transporting all in one booking, while notifying all relevant parties. Apart from this, CSL offers a wide range of functionalities, from detailed schedule definitions and shipping contracts to port monitoring dashboards.
SAP TM with add-on CSL will give Ocean liner companies better planning and execution functionalities.
These functionalities will equip Line managers, pricing managers, and booking agents to forecast and plan the movement of empty containers and reduce costs efficiently with replanning, reuse, and reconciliation.
Container Shipping Liner consists of three main components, which are the heart and soul of shipping goods in a global supply chain.
Network and operations cover the schedule definition point of view and all the functions that happen once a customer confirms a booking, including:
Schedule Management in CSL extends the existing functionality of schedules in Transportation Management (TM). It enables the user to create voyages that include port call activities, segmentation, capacity, bunker, and cost information.
Users will have the flexibility to enter information from the port call sequence and use pre-defined vessel master data for the schedule. One of the major freight costs for any ocean liner company is fuel or bunker. A vessel scheduled to cross numerous seas and call more than 10 -15 ports needs massive amounts of a bunker. Thus, CSL provides a bunkering tab, where the line manager can create orders for bunker purchases and estimate cost implications.
Adding to this, once the schedule is defined and all the costs have been calculated, the schedule document can be sent for approval. During the voyage execution, Line managers can use a simulation dashboard: Schedule Monitor to omit or add ports from the port call sequence and review the cost impact.
When the voyages are generated based on the user-specific frequency and port call sequence, they already have a set capacity that can be utilized via partnership agreements and allocated to different buckets at the port, segments, bookings, brands, agents, and customers. Capacity, allocation, and utilization management features of CSL are designed to help the network planners manage the available capacity and achieve the optimal utilization of the vessel.
The Capacity objective of the capacity management process is to achieve the optimal utilization of vessel space. It helps establish a capacity model of the network by capturing vessel capacity information on specific executable schedules.
Allocation management features help maintain allocations that divide the actual capacity assigned to a line into a hierarchy with multiple levels.
Utilization management helps monitor the usage of capacity and allocations for partnership agreements, voyage capacity, port of loading (POL), and port of discharge (POD) pairs.
Port Call operations provide a dashboard to send and receive loading and discharge lists. This helps record and monitor all other activities that happen in the port.
Trip Plan ensures that the containers are continuously tracked and traced, and the logistics manager can have overall visibility of connected containers and their milestones.
The Trip Plan visualization app provides a dashboard that helps users track container events/milestones end-to-end. This dashboard includes timelines and category-based tracking for operations, finance, and documentation.
The Trip Plan overview shows all the container lifecycle tracking events, from the container being stuffed at a shipper location to proof of delivery.
The map functionality enables the user to visualize the Trip Plan on an embedded map, giving an overall view of cargo movement.
Lead to Agreement helps define shipping tariffs, quotations, and agreements and is integrated with network and operations and order to cash.
A forwarding agreement quotation (FWAQ) is an individual business document that a carrier or logistics service provider (LSP) proactively sends to a shipper or another LSP to bid for the provision of future transportation services in one or more trade lanes for a defined period.
Forwarding agreements (FWAs) in the container shipping liners solution contain the exception information, which is applied to rates in addition to the standard tariff.
One can also use an FWAQ to respond to a quotation request (from a shipper or LSP) with the rates for transportation services.
Both documents can be created manually or from set templates and upload functionalities. The basic format or structure of these two documents is the same and as follows:
The system supports different booking scenarios, including empty provisioning and empty return scenarios, which can be used for the current non-availability of shipping containers at Chinese ports. Agents use the Voyage Suggestion Framework to generate suitable route proposals for empty and full containers during the booking process.
Container Shipping Liner allows the user to create built-in shipping scenarios transportation requests:
Out of the numerous functionalities of Order to Cash, booking agents can generate most of the documents from the booking output management, including shipping instructions, bill of lading, and perform all the validation checks relating to dangerous goods.
With the above three components of CSL, any ocean shipping liner company can have complete control over their containers, commodities, and vessels, which will reduce costs and increase profit. One of the essential tools that any shipping line company needs is a simulation dashboard which allows the pricing and line managers to simulate different routes and check the potential cost impacts. This vital feature is present in CSL as the Schedule Monitor, where the line managers or pricing team can add or delete ports change vessels on an existing line and see its cost impacts.
SAP TM Container Shipping Liner is the future of IT tools for shipping liners. Companies and their workforces are adapting to the new normal that demands new tools that can cope with the ever-changing industry.
Novigo specializes in well-defined implementation methodologies and end-to-end client support to navigate supply chain challenges effectively. We focus on leveraging SAP’s advanced solutions to build more resilient and agile supply chains. To further explore the right supply chain solutions for your business, please reach out for a complimentary consultation session with a Novigo expert.