Get ready for risk if you want new routes

Shipping lines and service providers in the ocean forwarding business need to exploit the current crisis in world trade to consolidate volumes and offer carmakers new trade routes according to Volkswagen. But without shared risk, shipping lines are more likely to consolidate routes not volumes, and concentrate on reducing unit costs by increasing the size of their ships. Could consolidating containers with automotive ro-ro be an answer?

 

Speaking at this year’s biannual RoRo 2010 conference in Bremen, Germany, Andrea Eck, general manager of outbound logistics for Volkswagen, said the carmaker has certain trade routes with low volumes but at the same time is seeking higher frequency of transport for its finished vehicles, including weekly services.

 

Eck told shipping lines and ro-ro service providers to grab the double-edged opportunity offered by the global downturn and the rise of new global markets to offer “new and sophisticated concepts”.

 

“The customer side is open but we can’t start,” she told delegates gathered to discuss ro-ro integration into the supply chain. “We need to have some input from your side because the shipping lines and logistics providers have the overview, they can consolidate the volumes.”

 

But responding to her comments, Nick Pank, business development director at P&O Holdings pointed out that new routes are a product of the spare capacity that has plagued the shipping industry and is a loss making venture if the risk isn’t shared.

 

“We are asked to set up a new service, take all the financial pain and in return we get a handshake and a gentlemen’s agreement. So where does that leave us today?” he asked. “We would rather expand our megahub and lower our cost per unit by increasing the size of ships rather than going to new ventures with partners.”

 

Until those partners, whether shipping line or carmaker, are prepared to take a risk Pank said VW, amongst other OEMs, could expect to find more route consolidation and fewer routes being offered: “This is the sign for the next few years, the large will get larger. That means fewer routes for the manufacturers and customers.”

 

The seeming impasse on volume consolidation, or the recognition that risk needs to be understood across the length of the supply chain to overcome it, will depend on more open dialogue among all those involved according to Rhenus Port Logistics’ director for sales and business development, Oliver Fuhljahn, something he admitted was often a Sisyphean feat.

 

“Every single part of the chain should fit and match the interests of the others in order to meet the customer interests,” he said, reminding service providers that at the end of the day “it is the customer that finally decides, will I go this way or this way” (though it seems in VW’s case the rate with which it can go in either direction is frustratingly limited).

 

On the wider question of whether ro-ro providers were better placed to move goods than container providers in terms of linking with other logistics modes in the country of distribution, Fuhljahn said the issue included establishing what was available to build reliable handling and onward carriage.

 

He said for Rhenus the decision was cost driven and if no suitable possibilities exist new developments are considered, with cost and time dedicated to the decision.

 

In the context of a discussion that centered on combining ro-ro and container as just such a burgeoning development the message from VW was that its established demands had to be met and that decisions had yet to be made on where the priorities for shipping different cargos lay.

“What happens if there is an overbooking on the vessel?” she asked. “Which parts will be preferred for transport? Should the customer’s cars be transported or the parts for production? We are concerned with how this will be managed on a daily basis.”

 

Eck also raised concerns about the possible conflict of interest between cost, quality and lead times and that, on an operational basis, a split on a certain trade between the modes of transport on a container vessel and con-ro would not be manageable for VW. “We would have additional handling costs and additional administration costs, and this we will not accept.”