Episode 53:
What does the future hold for schedule reliability?

Hi there and welcome to another episode of Freight to the Point. I’m Richard Fattal, the host of today’s episode, and today I’m joined by Niels Madsen, Vice President of Product and Operations at Sea-Intelligence.

Today we’re dialing into the topic of schedule reliability, which has been a key talking point in the industry in recent times. Shippers have faced significant challenges in maintaining reliable schedules, leading to disruption in operational planning and execution. Whilst the situation has improved since the onset of COVID-19, many are left wondering whether schedule reliability will return to pre-pandemic levels. So who better to discuss this topic with me than Niels.

Welcome, Niels. Do you want to give the audience a quick intro of yourself?

Yes, and thank you very much for having me here today. As mentioned, my name is Niels Madsen. I am at the Sea-Intelligence. I’ve been with Sea-Intelligence for the last two and a half years.

Before that I have about 30 years behind me in Maersk and MSC doing mainly operation but also inland operation, inland setup, doing terminals and terminal operation. So quite a wide variety within the terminal and the operations area.

So Niels, when we talk to customers and we try to help them define their carrier strategy, their contracting strategy and the way in which they think about the regularity of their shipments from Far East into Europe, from the Far East into the US in particular, we often talk to some of the reliability data that Sea-Intelligence publish and we look at historical variations in schedule reliability. Can you give us a sense of the way in which you define reliability and how you compare carriers and how you measure their schedule reliability?

So basically what happens is that the carriers are providing us with the scheduled data every week, and what we do is we compare that week actual data to the schedule that they have previously given us. So then you can argue that they are changing their schedules every week, so wouldn’t they always be on time then? But what we do is that two weeks before the estimated time of arrival, we put a lock on the schedule that they’re providing to us and then the following two weeks they will continue to upload their actual data and once the vessel has arrived, we will compare it to the schedule that they provided us two weeks earlier. So we have this lockdown period of two weeks where we have the schedule for two weeks earlier and the actual arrival that then happened on the day.

When that happened, we look at the actual arrival, is it plus minus one day, and that’s 24 hours basically, one day to the scheduled arrival that we were provided two weeks earlier. If it’s late, one day late, it’s off schedule, and if it’s one day early it will actually be counted as unscheduled. So that’s sort of how it’s measured.

Excellent. So really it gives shippers an indication of the extent to which they can rely on that carrier, on that lane, because I’ve seen that the data you provide is very helpful, it’s sort of lane level, as to whether or not that carrier can be relied on for the purposes of I guess operational planning purposes. When you think about putting data into your ERP system, thinking about how much you can plan and what the lead time you can calculate and how much stock you need to order, it’s really to what extent you can rely on the carrier.

I guess one of the challenges there is is that one-day late may not be such a problem for some shippers, they might have more problem with five days late versus eight days late, but I guess you have to draw a line on the sand somewhere.

Two measurements in our schedule liability report. One is the schedule liability itself and then if the vessel is one day late or five days late, it will count as late. So you can say that that’s just counting as one point.

The other measurement we have is how late is late? So you have two measurements in there that says how many vessels are late and of those vessels, how many days are then those vessels late. I don’t know if that makes sense.

But first of all, you count how many late vessels or how many late arrivals and of those late arrivals, how many days are they then late? And then you have that measurement to say, well that carrier is on average seven days late or five days late, well that carrier is on average two days late. So even if as a shipper you don’t really have a choice, you have to choose between bad carriers, you’ll now have a choice between bad and worse carriers.

That’s really helpful. And I think both of those measures in combination can start to help shippers to understand what’s A, the reliability, so the consistency in order to leverage that data, for example for planning purposes, but also what does the delta look like between the schedule and the actual realised schedule.

So maybe Niels you can give some context on the historical evolution of reliability over the last couple of years and maybe where it sits now compared to where it’s been. Maybe at just a macro level, if we talk about the main trades, so like Asia, Europe channel specific, how has it changed?

I mean if we start globally, because we have what we call the global measurements, which is very overall, but that’s sort of the measurement that we have out there very quickly. Normal pre-pandemic levels of global low reliability was somewhere between 70 to 90% amongst all carriers basically. What we saw then by mid-2020 and going into 2021, 22, was a significant drop and so far down as the 2021 we saw down to 30% on a global level.

The trends is actually very equal to what happens on the individual trade lanes, transpacific, Asia, Europe, transatlantic and so forth. It’s only a matter of the level. We have seen Asia Europe went down to below 20% at some time in 2021. Transpacific, as you know, with all the vessels stuck up outside of Los Angeles and Long Beach and later on also outside of the East coast. The schedule liability was horrific and we went at some point down to 10% due to all these congestions that we had.

But what we see since the last 4, 5, 6 months is that the liabilities is an upward going trend. We are not near the pre-pandemic levels, but we are getting there. We are looking at some 40, 50 going slightly above 55% now. So we are getting up to that level again. And now we also see that it’s very different from trade to trade. So it’s not all trades. All trades are following the trend that it’s upgoing, but not all trades are following that it’s closing in on the pre-pandemic. So there’s a different level of speediness with which we are seeing the recovery.

No, that’s a really good kind of macro picture. And I think one of the things that struck me as interesting was that obviously during the pandemic and more recently in response to both the challenges in the market that were more external, but also as a result of let’s say internal decisions within the shipping lines, there have been various periods with significant port emissions, with significant blank sailing programs taken on by the carriers. And often those port emissions and those blank sailing programs happen very close to the time of, they happen a little bit at the last minute and have a dramatic impact on schedule reliability.

One of the things that struck me as interesting was that sometimes it’s a bit confusing in the schedule reliability numbers because some carriers will adopt, when they need to reduce capacity or there are issues around their ability to service the lanes, they’ll adopt let’s say a blanking program, so they’ll take the entire service out, whilst others will emit ports, which might mean that there’s still a service from nearby ports but not available from the port that you might expect cargo to move from.

Can you maybe just talk to that for a minute because I think that can be, I guess that kind of rationalisation of services can have an impact on customer decisions as we move forward.

Well you have to bear in mind what I said earlier that we have this two week lockdown period from schedule to the actual arrival. So if the carriers have actually announced all their blank sailings and their capacity to withdraw or even service withdrawal, prior to two weeks then it will actually not impact the schedule liability. It will impact the capacity that has been deployed in the trade, it will impact the blank sailing counter which we’re also tracking separately, but the schedule liability will actually not be impacted if they have announced all of this in due time.

The problem comes when they have these last minute cancellations and last minute capacity ruled, then it will have a heavy impact on the schedule reliability basically that… Well the vessel’s not showing up, so it’ll have the impact of one late vessel on the schedule reliability part, but on the late vessel arrival measurement it’ll have a significant impact but now it not showing up at all.

As long as they announce the capacity program or capacity withdrawal program in due time it will not have a significant impact on the schedule liability number. It will have an impact on the experience of the customer of course, of the shipper.

So that’s why we have this separate blank sailing tracking program going on. And the blank sailing tracking we can definitely see where the pandemic hit and when it didn’t hit, there was a huge increase in blank sailings and capacity withdrawals in 2021, 22.

And I guess I think the point that you’re making is really interesting because if shippers can understand the extent to which capacity has been removed ahead of time, then they can plan around that capacity reduction and they can plan their supply chain appropriately. I think it’s when this changes happen really at the last minute that it starts to impact their ability to manage their supply chain.

If a carrier can say that, okay, four weeks, five weeks up ahead, I will not have a… It’s actually going back to pre-pandemic levels as well. In that period, if you have a dry dock maintenance that you need to do five weeks in advance, you plan your way around it. You say to the customer, I will not have a shipment in that week, I will not have capacity in that week. Nothing is different than that.

So even in the pandemic you had these areas or these timings where the carriers are saying, you know what guys, I mean six weeks, five weeks, four weeks from now, I will cancel this sailing, you guys plan around it, we will have other sailing. We will have more capacity in on this port or that terminal.

As you say, correctly so, the problem comes on this last minute cancellation, this last minute capacity withdrawal or we’ve even seen last minute service withdrawals that the development in the trade is just so strong that the carriers impossible for them to forecast it. And then you have the problem for the shipper that they can’t plan their way out of it in their supply chain.

Well I think the pandemic did two things from what I can see, and you can see this reflected in the reliability data. One, it highlighted the extent to which supply chains are very fragile when it comes to things outside of the shipping line’s control. So whether that’s the impact on the pandemic and how it had extreme impacts on demand and supply or the extent to which the infrastructure meant that port congestion was really having an impact on scheduled reliability, to things like the incident in the Suez Canal, which was really very much outside of anyone’s control. Really impacted I guess the fragility of let’s say the supply side of shipping lines and their schedules.

But the other thing it highlighted was the extent to which carriers really don’t have a lot of visibility over demand and how last minute changes in demand are quite difficult to adapt to as a shipping line, as a carrier. And that lack of visibility then has a knock on effect to the customer because of the decisions that the carriers will make at the last minute.

And I maybe want to just roll that conversation forward and say obviously now we’re in an environment where reliability is a bit better, but we still have this fragility of demand and lack of understanding necessarily of changes in demand. We’re potentially going into a restocking environment at one point later in the year, but we don’t really know when and that will have an impact on capacity.

But we also have an environment where carriers are more used to actively managing capacity, so the extent to which they make changes in services is more frequent and they’re making those changes in services in the context of let’s say a fragile carrier alliance set up.

So maybe we’ll come to the point on the alliances in a second, but maybe just you can talk to the extent to which you anticipate, let’s say more changes schedules on a go forward basis, because carriers more actively manage capacity than maybe they have in the past.

And that’s actually a very interesting question because you are absolutely right, that would be… In a normal environment if the demand goes down, they should be withdrawing their capacity to match the demand in the market. We are seeing the quite opposite. And that’s also a little bit of the explanation, actually a lot of the explanations behind the crazy drop in freight rates that we’ve seen in the last four or five months.

So what we are seeing is we have a heavy lack of demand if you want to call it, I don’t know if you can call it a decrease, but the demand is not as big as people thought it would be by far. Normally they would have to withdraw the capacity, they don’t. When we’ve been talking to carriers and we say, well, why are you not withdrawing your capacity? Like, oh we are ready for price war. That’s stupid. But they seem to be more willing now to take a hit on the freight rates. Because I mean, let’s not beat the bush about it, they have a lot of cash stocked around and it seems like they’re willing to spend some of that on keeping the capacity running rather than to withdraw it, which would’ve been a normal case.

So actually right now the carriers are not reacting the way that you would expect them to in a scenario where you have a low demand and a lot of capacity. We are having currently somewhere between 12 and 15% over capacity on the major trades. And on top of that, in 2023 you have another 9% of new building capacity coming online. In 2024, there’s another 9% of new building capacity coming on. So it’s not like we’re going to lack capacity in the coming month, it’s going to be worse.

So either the freight rates will take a drop even more than it has been already, or they will simply be forced to start taking out capacity and by now it would not even be enough to remove capacity the way that they did in pandemic. They literally have to close services and lay off vessels in order for them to match the demand that we’ve seen.

Do you think that the foray of the carriers into end-to-end logistics means that it’s actually positive for the shipper from a freight rate perspective? Because if a carrier needs to maintain a direct relationship with a shipper, they need to offer a weekly service because they want the end shipper to maintain kind of cargo moving on their service and therefore they can’t just think about their capacity as a blended capacity across the market, they have to think about maintaining a direct relationship with the end customer and that actually leads to over capacity in the market.

Well, it’s a difficult question because the carriers are taking very individual routes in terms of what is their strategy or do they really want to be end-to-end care? Not all of them, right? Maersk has taken one extreme end-to-end strategy, MSC less so, Hapag-Lloyd even not. I mean they literally went out and said we don’t want to be end-to-end care. So it’s a very different strategy that we’ve seen.

In terms of the carriers that do have this end-to-end desire, I do believe that we will see them being ready to eat into their profit on the ocean going in order to keep the customers on the end-to-end trails. There is more money on land-based transport than there is an ocean-based transport, that’s for sure. There’s also a lot more work and trouble with it and a lot more risk associated with it, so no wonder.

But as an example, if Maersk wants to take the end-to-end, to take the pre-carriage and the on-carriage part of it, well maybe they need to offer a lower rate on the ocean part of it. That’s going to hurt a carrier like Hapag who does not want to have the pre-carriage and on-carriage part of it.

So yeah, they have different strategies. Will it be easier for a shipper? I don’t know. Some shippers will enjoy it for sure. Some shippers will not enjoy to have the end-to-end, and I think we’re also going to see a bit of an uproar from some of the bigger forwarders from whom these carriers are literally taking business away.

No, it just strikes me as interesting that the change in the, and maybe we can talk to or we’re going to discuss, a little earlier we can talk to the change in the landscape of the alliances, what the change in the landscape of the alliances can have an impact on overall reliability, because if each of the carers are maintaining their own services, there might be more of an onus on having regular weekly services and therefore maybe it favours let’s say the reliability of niche and specific services, but it could be to the detriment of overall capacity.

My personal conviction is that we will not see too many individual carriers around. We will see a reshuffle of the alliance networks and we will see carriers partnering up with other carriers than they are today. Yes, there will be, and MSC had already been out saying, we want to do it alone. I’m sure they will try to do it alone. Maybe they will be successful, maybe they will not. That being said, I’m also sure that on some of their services they will be more than willing to sell space to other carriers just to fill out their slots, et cetera.

So what is an alliance? Maybe the future will be a more fractured alliance, if you can call it like that, it’ll be not official alliance, but Hapag will buy space on MSC, MSC will buy space on CMA, CMA will buy on Maersk and Maersk on Hapag. I don’t know that. That’s one solution that is out there that you don’t have an alliance on paper, but you just have a lot of small slot charters or maybe even on vessel sharing agreements like we used to have. There will be cooperations. I don’t believe any carrier as such can stand alone.

What can be a solution, and another solution would then be that the carriers that have the same interest, say Maersk CMA, who will both have interest in having an end-to-end, should they be in the same corporation or should they be in two different corporations? Would it be better… They could probably talk better together if they were together, because they have the same interest at hand, but on the other hand they have the same interest at hand. So will they be competing for the same customers?

So that’s something that carriers will have to think about when they enter into a new, let’s call it a new alliance scenario or I don’t know. I don’t think we will have something called alliances, we will have vessel corporations.

Well, I think your point of cooperation and I guess the fluidity of space on shipping lines is very interesting. And I would say maybe one of the things that’s been a historical barrier to let more fluidity in alliances is technology to some extent, because if you need to be able to book space on each other’s ships at the last minute or to understand a live picture of capacity, that’s historically been more of a challenge and so larger, more blocked out agreements between carriers have been the norm.

Whereas as the technology becomes available to be more fluid in the way in which bookings and capacity has managed, but also as the technology improves when it comes to understanding the demand side of the picture and where there might be shortfalls in space, I can definitely see the relationships between the carriers and the ability to sell space on each other’s vessels becoming more fluid, and I think that will be positive for the market in general.

And I think so too. And as you say, with the technology coming available, I would not be surprised. Currently we are having a number of niche carriers around the world, that is what we call third party carriers. Basically they don’t have customers themselves, they sell all their space to other carriers, global carriers for instance. But they’re on a niche area, they’re on regional levels.

I would not be surprised if we saw one or two of them develop into a global third party carrier with no particular shipper or customer themselves, but simply offering the space on certain trade lanes to the global carriers or the carriers who have customers.

And that brings of course also to say, if I’m carrier A, I want to work with carrier B on this trade and carrier C on that trade and carrier D on the third trade. This is the freedom I get without being in an alliance, but rather to be in vessel corporations or vessel sharing agreements or whatever we tend to call them. And I can definitely see some of these third party carriers coming in there just offering space and thus not being actually in competition to their global carriers’ customers, but simply offering a space like a bus.

Well, let’s watch this space as things unfold. And Niels, it’s been an absolute pleasure having you on the show. I think what’s clear is that schedule reliability is ever evolving, that we’re lucky to say that 2023 is a better year for schedule reliability, and it’s one where there will continue to be a lot of fluidity in the market and one where we will certainly learn from what’s coming out of the carriers as it relates to the alliances and what the future picture is going to look like for the shape of the ocean roots and trades. And I look forward to the chance of having you back on in a few months time seeing how things have evolved.

So I just guess without further ado, I’d like to say thank you very, very much for being on the show.

Thank you for having me, and I will look forward to being here a couple of months later to see if I was a dork in my predictions or whether I was right. Let’s see.

Thank you everyone else for being on another episode of Freight to the Point. Don’t forget to and subscribe to our series on Spotify, Apple Podcasts or Google Podcasts if you enjoyed this session, and if you have any questions or feedback, please feel to reach out to us on LinkedIn. We’d absolutely love to hear.