Ports pivot as ship lines “blank” sailings to control capacity, shave costs, prop up rates
The coronavirus pandemic shook the maritime industry to its core. Ports and vessel operators moved aggressively to adapt. Where’s the light at the end of the Covid-19 tunnel for ocean shippers?
Gary Frantz is a contributing editor for DC Velocity and its sister publication CSCMP's Supply Chain Quarterly, and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
The coronavirus pandemic has roiled the maritime industry unlike any economic or natural disaster event before it. Blank, or canceled, sailings have hit record levels. Operators are laying up vessels, some never to return to service. Seafarers have been stranded on ships for months at a time, well past their contract expirations, essentially quarantined at sea. Slow-steaming and other cost-cutting tactics have been deployed, new ship orders and cap-ex plans slashed.
The ripple effect on the nation’s ports has been dramatic. They’ve reset operations to cope with fewer ship calls, adjusted to having office staff work from home, and for those longshoremen, stevedores, truckers, and other essential workers still on the dock, acquired protective equipment and instituted new procedures to protect their health and safety.
And while many maritime and port executives are encouraged by a slow reawakening of the economy and a modest recovery in import volumes, uncertainty abounds, and a full recovery remains elusive—at least for this year.
FINDING DISCIPLINE (FINALLY)
Containership lines have seen demand contract with unprecedented speed and scope across all trade lanes and, in response, have canceled hundreds of sailings, says Lars Jensen, CEO of SeaIntelligence Consulting. “Carriers have been extremely diligent in removing capacity [such that] freight rates in many cases have gone up,” he adds. The reining-in of capacity has been so tight, Jensen says, that “[carriers] will likely be more profitable in the second quarter than the first” of this year.
Industry consolidation, Jensen notes, “is finally taking hold. The market needed to get to a point where there were sufficiently fewer players such that the others could be disciplined with capacity management.”
Copenhagen, Denmark-based A.P. Møller Maersk, which operates some 700 container vessels, has kept its nominal fleet capacity flat at around 4 million twenty-foot equivalent units (TEUs) since 2018, says spokesperson Tom Boyd. Capital expenditure discipline remains key. “We have no plans for new orders of large vessels,” he adds. The carrier’s strategy for weathering depressed volumes has been maintaining a tight balance between capacity and demand, and “as a logistics operator with assets, to stay agile to respond to market fluctuations quickly and mitigate costs while responding to customers,” he says.
Global containership operator Hapag-Lloyd “will refrain from ordering any new ships, and even if new orders become strategically necessary … we will only make them when the market environment is right again,” says company spokesman Tim Seifert. The Hamburg, Germany-based ship line has “adapted our service network to align with lower demand, and we have screened all cost categories,” he adds.
And vessel operator Mitsui O.S.K. Lines (MOL), Japan’s biggest shipping line, is shrinking its fleet of 800 ships by 5% over the next three years in response to what it expects to be a significant decline in global trade volumes driven by the coronavirus pandemic.
AS VOLUMES DROP, PORTS ADJUST
Like their ocean carrier clients, port operators are scrambling to adapt to the new reality. “With [the number of] blank sailings … we see a double-digit downturn [in activity] through the summer,” says John Reinhart, executive director of the Virginia Port Authority (VPA). The port was notified of 79 blank sailings, or canceled ship calls, starting in April and extending through the end of August, equaling a loss of some 109,000 containers. In response, the port idled one of its facilities, reduced gate hours during the week, and suspended Saturday gate hours.
Successfully navigating the pandemic’s challenges, Reinhart says, has required “understanding your data, [adjusting] your infrastructure [and resources], and making intelligent decisions to deliver exceptional service” while being fiscally responsible. And, he stresses, taking early and aggressive steps to protect the port’s employees, all of whom are considered essential workers.
At the outset, the port established a Covid-19 planning task force, which initially met three times a week. Among its decisions: Those who could were instructed to work from home. Workers still in offices were separated for appropriate social distancing. Touchless temperature scanners and hand-sanitizer stations were installed. Extra sanitizing steps were implemented for public spaces. A “no visitor” policy was put in place. Personal protective gear was acquired and provided. And technology was leveraged, using cameras and remote sensors to control container movement and limit people in container yards physically monitoring equipment. “We really put in best-in-class practices and collaborated with many [port constituencies] to keep the port operating and critical cargo moving safely,” Reinhart notes.
Virginia’s strategy was emulated by many other ports, including Los Angeles, Houston, and Oakland, California, all of which moved aggressively to protect workers and adjust for fewer ship calls and lower volumes.
PORTS PUSH AHEAD WITH EXPANSION PLANS
The pandemic, however, has not curtailed port capital improvement plans.
The Port of Oakland’s largest terminal will take delivery in September of three 300-foot-tall ship-to-shore cranes. Ordered by terminal operator SSA at a collective cost of $30 million, each crane can reach 125 feet across a ship’s deck and can service the ultra-large “mega” containerships operating today.
Oakland’s volumes for the first half of this year are down 7.8%, noted Business Development Manager Andrew Hwang, who believes the pace of sailing cancellations will decline into the fall. He also sees vessel operators pushing more cargo onto bigger ships with fewer port calls. The largest near-term variable to a recovery: a potential second coronavirus surge, “which may plunge the country back into restrictions.”
The Port of Los Angeles, which saw 40 canceled sailings in the first quarter and 23 in the second, is handling about 80% of the cargo it normally would this time of year. Nevertheless, Los Angeles is pushing ahead with $367 million worth of infrastructure improvement and expansion projects, says Executive Director Gene Seroka. “We feel we are in a really good position to be ready when the American economy recovers,” he notes.
Seroka, who lived in China during the SARS epidemic, has seen firsthand what a virus outbreak can do. Covid-19, he observes, is “10, 20, 30 times worse” than SARS. He believes the recovery will be long and protracted, looking “more like a hockey stick, a really long one from a very tall left wing.”
A sustainable recovery won’t take hold until consumers feel they can safely go out and resume normal activity. Given the risks, “people are saying they just aren’t ready to go out yet,” he notes, adding, “If you open too fast, there are no replacements. You can’t just put the B team of longshoremen in. We have to be really sharp about policies … and listen to the medical experts.”
The Port of Houston recently reached a milestone for its billion-dollar Houston Ship Channel widening project, receiving Army Corps of Engineers sign-off on its plan. Planned modifications to the 50-mile-long commercial waterway include easing bends and widening the bay reach of the channel to 700 feet and the Bayport Ship Channel and Barbours Cut Channel to 455 feet.
“We’re pushing hard to make sure [the widening project] is front and center,” says Port Houston Executive Director Roger Guenther. The port also recently won a nearly $80 million federal grant to renovate wharf and yard space at its Barbours Cut Container Terminal.
Guenther noted that while business was down 12% to 15% in the second quarter, overall, 2020’s first-half volumes were up about 1%. “I never thought I’d say I’d be thrilled [with the second quarter], but it’s about what we expected,” he says. “Houston is in a great spot. We’re in this for the long game.”
The Port of Virginia is sailing ahead with infrastructure improvements as well. It spent $320 million at the Virginia International Gateway, adding 13 container stacks and 10,000 feet of double-stack–capable on-dock rail, and increasing annual throughput to 1.2 million container lifts. Another $375 million went to redevelop the Norfolk International Terminal’s south-side container yard. The last eight new gantry cranes went into service in July, increasing container-handling capacity by some 60% to nearly 2.2 million containers a year.
NO MORE CHASING FREIGHT AT ANY PRICE
Given containership operators’ history of embracing mega-ships and then chasing freight at any price to fill them, that they are able to profit at all during the worst economic contraction since the Great Depression has shocked many industry analysts.
John Urban has spent 30-plus years in the ocean freight business, as an executive with American President Lines and later as co-founder and president of software company GT Nexus, which nearly 20 years ago established the first online “portal” that let shippers book freight with multiple ocean carriers over a common platform. With Infor’s purchase of GT Nexus several years ago, Urban shifted to consulting and now sits on several boards.
Ship lines have evolved, he says. Once driven by a quest for market share and a penchant for running ships at little or no profit, they are finally embracing capacity discipline, Urban observes.
“Ten years ago, to access 80% of sailings, you had to deal with up to 25 ocean lines,” he recalls. “Today, to get access to 90% of capacity, you need only deal with 10 alliances because there’s been so much consolidation.”
The result: a market where rising or falling prices do very little to change volume, Urban notes. “Carriers have bought into discipline and are finally managing the capacity they have for profit.”
Penske said today that its facility in Channahon, Illinois, is now fully operational, and is predominantly powered by an onsite photovoltaic (PV) solar system, expected to generate roughly 80% of the building's energy needs at 200 KW capacity. Next, a Grand Rapids, Michigan, location will be also active in the coming months, and Penske's Linden, New Jersey, location is expected to go online in 2025.
And over the coming year, the Pennsylvania-based company will add seven more sites under its power purchase agreement with Sunrock Distributed Generation, retrofitting them with new PV solar systems which are expected to yield a total of roughly 600 KW of renewable energy. Those additional sites are all in California: Fresno, Hayward, La Mirada, National City, Riverside, San Diego, and San Leandro.
On average, four solar panel-powered Penske Truck Leasing facilities will generate an estimated 1-million-kilowatt hours (kWh) of renewable energy annually and will result in an emissions avoidance of 442 metric tons (MT) CO2e, which is equal to powering nearly 90 homes for one year.
"The initiative to install solar systems at our locations is a part of our company's LEED-certified facilities process," Ivet Taneva, Penske’s vice president of environmental affairs, said in a release. "Investing in solar has considerable economic impacts for our operations as well as the environmental benefits of further reducing emissions related to electricity use."
Overall, Penske Truck Leasing operates and maintains more than 437,000 vehicles and serves its customers from nearly 1,000 maintenance facilities and more than 2,500 truck rental locations across North America.
That challenge is one of the reasons that fewer shoppers overall are satisfied with their shopping experiences lately, Lincolnshire, Illinois-based Zebra said in its “17th Annual Global Shopper Study.”th Annual Global Shopper Study.” While 85% of shoppers last year were satisfied with both the in-store and online experiences, only 81% in 2024 are satisfied with the in-store experience and just 79% with online shopping.
In response, most retailers (78%) say they are investing in technology tools that can help both frontline workers and those watching operations from behind the scenes to minimize theft and loss, Zebra said.
Just 38% of retailers currently use AI-based prescriptive analytics for loss prevention, but a much larger 50% say they plan to use it in the next 1-3 years. That was followed by self-checkout cameras and sensors (45%), computer vision (46%), and RFID tags and readers (42%) that are planned for use within the next three years, specifically for loss prevention.
Those strategies could help improve the brick and mortar shopping experience, since 78% of shoppers say it’s annoying when products are locked up or secured within cases. Adding to that frustration is that it’s hard to find an associate while shopping in stores these days, according to 70% of consumers. In response, some just walk out; one in five shoppers has left a store without getting what they needed because a retail associate wasn’t available to help, an increase over the past two years.
The survey also identified additional frustrations faced by retailers and associates:
challenges with offering easy options for click-and-collect or returns, despite high shopper demand for them
the struggle to confirm current inventory and pricing
lingering labor shortages and increasing loss incidents, even as shoppers return to stores
“Many retailers are laying the groundwork to build a modern store experience,” Matt Guiste, Global Retail Technology Strategist, Zebra Technologies, said in a release. “They are investing in mobile and intelligent automation technologies to help inform operational decisions and enable associates to do the things that keep shoppers happy.”
The survey was administered online by Azure Knowledge Corporation and included 4,200 adult shoppers (age 18+), decision-makers, and associates, who replied to questions about the topics of shopper experience, device and technology usage, and delivery and fulfillment in store and online.
Supply chains are poised for accelerated adoption of mobile robots and drones as those technologies mature and companies focus on implementing artificial intelligence (AI) and automation across their logistics operations.
That’s according to data from Gartner’s Hype Cycle for Mobile Robots and Drones, released this week. The report shows that several mobile robotics technologies will mature over the next two to five years, and also identifies breakthrough and rising technologies set to have an impact further out.
Gartner’s Hype Cycle is a graphical depiction of a common pattern that arises with each new technology or innovation through five phases of maturity and adoption. Chief supply chain officers can use the research to find robotic solutions that meet their needs, according to Gartner.
Gartner, Inc.
The mobile robotic technologies set to mature over the next two to five years are: collaborative in-aisle picking robots, light-cargo delivery robots, autonomous mobile robots (AMRs) for transport, mobile robotic goods-to-person systems, and robotic cube storage systems.
“As organizations look to further improve logistic operations, support automation and augment humans in various jobs, supply chain leaders have turned to mobile robots to support their strategy,” Dwight Klappich, VP analyst and Gartner fellow with the Gartner Supply Chain practice, said in a statement announcing the findings. “Mobile robots are continuing to evolve, becoming more powerful and practical, thus paving the way for continued technology innovation.”
Technologies that are on the rise include autonomous data collection and inspection technologies, which are expected to deliver benefits over the next five to 10 years. These include solutions like indoor-flying drones, which utilize AI-enabled vision or RFID to help with time-consuming inventory management, inspection, and surveillance tasks. The technology can also alleviate safety concerns that arise in warehouses, such as workers counting inventory in hard-to-reach places.
“Automating labor-intensive tasks can provide notable benefits,” Klappich said. “With AI capabilities increasingly embedded in mobile robots and drones, the potential to function unaided and adapt to environments will make it possible to support a growing number of use cases.”
Humanoid robots—which resemble the human body in shape—are among the technologies in the breakthrough stage, meaning that they are expected to have a transformational effect on supply chains, but their mainstream adoption could take 10 years or more.
“For supply chains with high-volume and predictable processes, humanoid robots have the potential to enhance or supplement the supply chain workforce,” Klappich also said. “However, while the pace of innovation is encouraging, the industry is years away from general-purpose humanoid robots being used in more complex retail and industrial environments.”
An eight-year veteran of the Georgia company, Hakala will begin his new role on January 1, when the current CEO, Tero Peltomäki, will retire after a long and noteworthy career, continuing as a member of the board of directors, Cimcorp said.
According to Hakala, automation is an inevitable course in Cimcorp’s core sectors, and the company’s end-to-end capabilities will be crucial for clients’ success. In the past, both the tire and grocery retail industries have automated individual machines and parts of their operations. In recent years, automation has spread throughout the facilities, as companies want to be able to see their entire operation with one look, utilize analytics, optimize processes, and lead with data.
“Cimcorp has always grown by starting small in the new business segments. We’ve created one solution first, and as we’ve gained more knowledge of our clients’ challenges, we have been able to expand,” Hakala said in a release. “In every phase, we aim to bring our experience to the table and even challenge the client’s initial perspective. We are interested in what our client does and how it could be done better and more efficiently.”
Although many shoppers will
return to physical stores this holiday season, online shopping remains a driving force behind peak-season shipping challenges, especially when it comes to the last mile. Consumers still want fast, free shipping if they can get it—without any delays or disruptions to their holiday deliveries.
One disruptor that gets a lot of headlines this time of year is package theft—committed by so-called “porch pirates.” These are thieves who snatch parcels from front stairs, side porches, and driveways in neighborhoods across the country. The problem adds up to billions of dollars in stolen merchandise each year—not to mention headaches for shippers, parcel delivery companies, and, of course, consumers.
Given the scope of the problem, it’s no wonder online shoppers are worried about it—especially during holiday season. In its annual report on package theft trends, released in October, the
security-focused research and product review firm Security.org found that:
17% of Americans had a package stolen in the past three months, with the typical stolen parcel worth about $50. Some 44% said they’d had a package taken at some point in their life.
Package thieves poached more than $8 billion in merchandise over the past year.
18% of adults said they’d had a package stolen that contained a gift for someone else.
Ahead of the holiday season, 88% of adults said they were worried about theft of online purchases, with more than a quarter saying they were “extremely” or “very” concerned.
But it doesn’t have to be that way. There are some low-tech steps consumers can take to help guard against porch piracy along with some high-tech logistics-focused innovations in the pipeline that can protect deliveries in the last mile. First, some common-sense advice on avoiding package theft from the Security.org research:
Install a doorbell camera, which is a relatively low-cost deterrent.
Bring packages inside promptly or arrange to have them delivered to a secure location if no one will be at home.
Consider using click-and-collect options when possible.
If the retailer allows you to specify delivery-time windows, consider doing so to avoid having packages sit outside for extended periods.
These steps may sound basic, but they are by no means a given: Fewer than half of Americans consider the timing of deliveries, less than a third have a doorbell camera, and nearly one-fifth take no precautions to prevent package theft, according to the research.
Tech vendors are stepping up to help. One example is
Arrive AI, which develops smart mailboxes for last-mile delivery and pickup. The company says its Mailbox-as-a-Service (MaaS) platform will revolutionize the last mile by building a network of parcel-storage boxes that can be accessed by people, drones, or robots. In a nutshell: Packages are placed into a weatherproof box via drone, robot, driverless carrier, or traditional delivery method—and no one other than the rightful owner can access it.
Although the platform is still in development, the company already offers solutions for business clients looking to secure high-value deliveries and sensitive shipments. The health-care industry is one example: Arrive AI offers secure drone delivery of medical supplies, prescriptions, lab samples, and the like to hospitals and other health-care facilities. The platform provides real-time tracking, chain-of-custody controls, and theft-prevention features. Arrive is conducting short-term deployments between logistics companies and health-care partners now, according to a company spokesperson.
The MaaS solution has a pretty high cool factor. And the common-sense best practices just seem like solid advice. Maybe combining both is the key to a more secure last mile—during peak shipping season and throughout the year as well.