Ocean freight: Staying afloat in rough market conditions
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In the increasingly globalised economy, ocean freight is the main logistical channel for transporting physical goods around the world.
E-commerce in particular has increased the availability of products to consumers, and created expectations for faster delivery, putting pressure on seaborne logistics operators to move products quickly at low cost.
Responding to this pressure, the industry is driving advances in propulsion, data, analytics and shipbuilding, coupled with increasing skills in the workforce to build better vessels.
These developments are allowing ocean freight operators to approach the increasing volumes they are being required to handle more efficiently. Progress is also being fast-tracked by policies focused on reducing the environmental impact of shipping.
The Global Marine Technology Trends 2030 report identifies ship design and ship operation as the two biggest markets for development in ocean freight.
Constraints in supply chains have also driven advances in technology, as ship owners and freighting companies seek to overcome the challenges of increased demand, higher volumes and tighter deadlines.
Turning the tide with technology
As in the wider logistics sector, developments in technology have helped the shipping industry manage the impact of supply chain squeezes observed since the onset of Covid-19 in 2020, the 2021 Suez canal obstruction and other disruption to international trade routes.
Through developments in analytics and data, ship charterers and owners can provide minute-by-minute updates on the location and ETA of vessels. This technology can reduce bottle-necking at ports and increase the efficiency of loading and unloading vessels by allowing crews to prepare more effectively for arrivals.
Increased automation has changed the way orders are packaged, loaded and delivered. The implementation of electronic systems in ports such as New York, Rotterdam, Singapore and Hamburg has helped minimise wasted time.
The advent of collapsible container vessels also promises to enable shippers to increase capacity when returning containers from countries that import more than they export (loss of capacity caused in this way is estimated to cost the industry approximately $20 billion per year).
Common data sets, improvements in analytics, and greater reliance on cloud-based technology to improve information sharing is further boosting the efficiency of cargo transport and the monitoring of vessel efficiency.
By sharing data, ship charterers, owners and ports are able to ensure vessels are loaded efficiently with minimal wasted space, helping to manage volumes and respond to fluctuations in demand.
Better communication is also facilitating smarter cargo handling and shorter waiting and transit times for vessels.
Bring on blockchain
Initiatives to implement blockchain to provide, for example, accurate real time updates on hazards and greater security of documentation through de-centralised networks are already well underway.
By using blockchain networks, companies can have greater faith that documents are held and deliverable at the right time, reducing risks of being unable to claim cargo, or penalties/problems incurred from incorrect documentation.
This is particularly apparent in multi-party contracts of carriage and when goods have been sold on to other companies in new jurisdictions. The use of blockchain will allow companies to evidence possession without the risk of documents being fraudulently edited or changed.
Blockchain can also allow for specific requirements and documents to be held by the network before instructions to ship the goods are received. This approach gives companies certainty that they have the necessary documents for each transaction and that those documents will be automatically delivered to the other party as required.
With both public and closed networks available, companies do not need to worry about sensitive information being recorded across multiple systems and giving blanket access to documentation.
Cutting costs
Several factors have applied cost pressures to the global shipping industry in the past decade.
New regulations on fuel composition (e.g. "IMO 2020", which limits the sulphur in the fuel oil used by ships operating outside designated emission control areas) and fluctuations in the price of fuel have been among the industry's main long-term concerns.
More recently, disruption caused by major unforeseen events have been very costly for the industry.
The Covid-19 pandemic led to a sudden sharp decline in demand for freight as lockdowns were imposed across the world from March 2020. This was followed by dramatic surges in demand as economies reopened later that year, leaving an industry short of ready staff and ships scrambling to respond.
The stranding of the Ever Given in the Suez Canal in March 2021 also caused huge congestion in the freight market and prompted a wave of claims for missed deliveries.
In 2022, the Russian invasion of Ukraine, which (due to sanctions and safety risks respectively) has restricted imports and exports to and from Russian and Ukrainian ports, has also complicated supply chains. The restrictions on Russian ports and the lack of freight entering Ukraine has resulted in a backlog of ships in origin ports, pushing up costs for using these ports.
Oil prices, the volatility of which have been problematic for the shipping industry, have also been driven up drastically by the Ukraine conflict.
The shipping industry has made efforts to reduce costs through combining loads, with containers sharing multiple shipper's goods to be dealt with in the destination port. However, this is logistically difficult and issues arise when claiming and taking responsibility for goods.
Automation is helping to bring down overheads, however the continued shortage of global electronic components has stunted efforts to automate to the extent that might have been hoped.
Outsourcing, meanwhile, has helped create more efficient supply chains, reducing the final cost of products to the consumer.
Sailing towards a more sustainable future
Alongside cleaner fuel regulations and the development of more environmentally friendly shipping technologies, there has also been a push to reduce the environmental impact of shipping containers.
Traditionally, all shipping containers utilised tropical wood flooring or steel. The rising price of steel has meant the use of tropical wood flooring has increased as a consequence. In line with concerns about deforestation, there is now a drive to use more recycled woods, or bamboo flooring in containers, in place of tropical wood.
Further sustainability will be achieved through the recycling of used and redundant containers, including repurposing containers for building materials.
What next for the shipping industry?
The main concern in the shipping industry in 2022 is the management of soaring freight costs and the impact and affordability of freight shipping.
Margin pressure is already acute and passing on costs to consumers threatens to reduce demand in the context of high inflation and a wider cost of living crisis, which could send container shipping into decline.
However, there are promising signs that the industry is ready to avert a deep crisis. In addition to the various technological and sustainability advances that are helping deliver cleaner, cheaper, more efficient shipping, several companies have announced new supply lines intended to rival the delivery speed of air freight. These new services will hopefully speed up the overall process and ultimately ease the burden on the freight industry.
This article was authored by Andrew Sanderson, dispute resolution partner and maritime law specialist at Fieldfisher.