Slow Steaming and the Effects on the Global Supply Chain
I read an interesting article on Bloomberg.com about some of the current changes in the container shipping industry. We are all aware of the current challenges with oil prices, but some of the effects on industry, and more importantly the global supply chain, have been fascinating. In an attempt to reduce the effect of increasing fuel costs, since 2008 most shipping lines have reduced the operating speed of their vessels. This approach is called “slow steaming.” If speed is reduced by 20% on a ship, this correlates to a 40% fuel saving. According to an article in the Guardian newspaper, the world's largest cargo ships are travelling at lower speeds today than sailing clippers such as the Cutty Sark did more than 130 years ago.
What does this mean in terms of the supply chain? The slower speeds are:
- Reducing capacity in the container shipping market as ships are not making as many journeys as they used to.
- There are fewer containers available as the containers are spending more time aboard ships, leading to shortages.
- Supply chain delivery times are lengthening driving inventory levels up in the supply chain.
- With capacity reduced in the market, container ship rates will climb.
- Longer lead times mean that supply chains are less responsive as orders will be placed further and further away from the actual demand signal.
How will this change future supply chains? Air freight may be required for more shipments to cope with sudden changes in demand. Postponement strategies may need to be implemented where the final configuration is performed closer to market. Planning rules in many companies will have to be recalibrated to take into account the new lead times.
Have you been affected by slow steaming in your business?