5 Leading Impacts to Know About IMO 2020: Risk and Uncertainty in Ocean Shipping from New Emissions Rules – Part Two
In last week’s blog, we covered the first three major impacts of IMO 2020. This week, we cover the remaining two leading impacts and examine steps organizations can take to prepare for the mandate’s implementation.
4. Impact from slowing down ships
Reducing the average speed of an ocean vessel also reduces fuel consumption and is a wide-spread cargo industry tactic to deal with unusual fuel cost spikes in previous market cycles. If shippers strongly resist absorbing higher fuel costs in their ocean carrier contracts from the IMO mandate, cargo carriers will likely resort to “super slow steaming.”
Slow steaming adds days or weeks to already lengthy ocean journeys and will impact supply chain planning upstream and downstream. Both carriers and shippers will need to adjust schedules and plans while reconsidering their service levels. Modifying freight allocations and fleet sizes can help compensate for the extra time at sea. Port schedules established for normal vessel transit times will face adjustment, and delays and congestion are possible until the shipping industry finds new equilibrium.
5. Magnified Uncertainty
In combination with new tariff exposure in China and soon in Europe, the low-sulfur mandate and accompanying increase in ocean freight costs will have some shippers reexamining supplier networks, possibly shifting sourcing locations and experimenting with alternate freight modes. As in 2018, traditional peak shipping seasons may start earlier in the year and extend longer.
Cargo that will spend more time at sea will also negatively impact inventory carrying costs and customer service levels.
Moving forward to minimize the damage
Shippers will have to factor in the uncertainty and risk to pricing and capacity presented by IMO 2020. Many have already prepared their organizations for higher ocean freight costs by emphasizing the extraordinary commitment to sustainability and air pollution reduction underlying the low-sulfur mandate, as well as reiterating how it aligns with their own corporate sustainability initiatives.
Still, the relentless downward pressure on enterprise supply chain costs means that practical strategies to offset increases while continuing to improve service levels will be more challenging than ever. Visibility takes on increased importance—if that is even possible—as shippers and their trading partners ask, “When will goods be arriving at this port or that DC?” “How do I plan labor and resources for maximum efficiency?” And, "What changes can help assure supply and meet increasing customer expectations?”
Practical steps like re-positioning empty containers for more efficient street turns or the use of scenario modeling to simulate the impact of various decisions on both customer service levels and costs can bring some relief.
The impact of IMO 2020 may turn out to be rapidly absorbed by the industry, as the Verified Gross Mass (VERMAS) changes were, but the global exposure for supply chains only emphasizes the need for increased agility driven by access to data and more operational transparency. The imperative for greater visibility extends beyond transportation cost and execution to inventory intelligence from end-to-end so that global disruptions and cost impacts can be dealt with swiftly to avoid negative effects on the customer experience and company profitability.
The ocean shipping industry has run out of preparation time for IMO 2020. Will your organization be ready?
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