A Supply Chain Digest article (January 13, 2011,http://www.scdigest.com/ontarget/11-01-13-1.php?cid=4091) describes discussions between shipping carriers that transport between Asia and the US to slow down speeds and decrease their environmental impact. Slow steaming reduces speed from 25 knots to 18 knots and is reported to save 60 % of fuel consumption, while extra slow steaming reduces speed to 12-16 knots and decreases costs even further. But such discussions between carriers was just approved by the Federal Maritime Commission as part of an initiative to enable carriers to adopt steps to decrease their environmental impact. Will the gains from such discussions across carriers outweigh the potential coordination across competitors ? Will such arrangements be required for supply chains to fully leverage environmental benefits ?
From the article, we know that slow steaming benefits some companies in both economical and eco-friendly way. It allows carriers to save significantly on expensive bunker fuel consumption and the longer voyages due to the slower speeds had the effect of reducing industry capacity. It also effectively reduces the emission of CO2 or other pollution. However, from my point of view I think it is not suitable for every shipper. It depends on the scale of the business and the risk-taking ability. In the long run, it can help company to reduce logistics costs, but it brings out more inventory risk as will.
This article focuses on the ocean carriers, but does not address the expectations of their customers. The voluntary slowdowns may not affect customers who have regular, consistent orders. The risk of these non-binding agreements is that customers who require shorter lead times will lose the ability to order faster shipping. Personally, I believe the gains from the environmental impact can make up for coordination risks, especially as more and more companies set ambitious emissions reduction goals. Hopefully demand pressures can create enough incentive for carriers to utilize slower speeds and reduced emissions.
Government intervention and stipulation of slower speeds could be extremely anticompetitive. Any measure do regulate emissions would need to treat each shipping company equally and should be insulated from the pressures of the carriers to decrease their prices.
Slow steaming, which reduces the load on a ship engine, is one of the many ways for a shipping company to decrease fuel costs and reduce carbon footprint. Global vessel alliance helps the carriers to distribute the load evenly, reducing per vessel capacity, which in turn could impact the increased demand at the shore side. Running the engine at slower speed would definitely reduce the emissions but at the expense of unsatisfying customer demand, delays which would upset the international supply chain.
Although there are different ways of reducing the emissions at ocean, discussed arrangements seem necessary from supply chain point of view to fully leverage environmental benefits. Having said that, this would increase shipper’s costs because of longer transit times since they would need more inventory to satisfy the demand. A study by Rotterdam’s Erasmus University found that ocean carriers can achieve fuel savings of up to $67 million through slow steaming—with $6 million more saved if ships are slowed to 15 knots. The bad news is that even if shipping lines passed on 100 percent of the fuel savings, it would still not counteract shippers’ increased inventory costs. For many manufacturers, retailers, importers, and exporters, supply chain reliability is more important than transit time or rates. Delivering as promised is the basis of most business success—it wins customers and ensures their loyalty.
Coordination between carriers is necessary to leverage environmental benefits because by applying new standards in the industry, they will be able to reduce their fuel cost but also leverage their extra capacity. Indeed, now customers expect to receive their goods in a specific number of days but by reducing the speed to carriers, customers will have to plan ahead of time to receive their shipments and will potentially have to increase the amount ordered. It could impact safety stocks and holding cost for those customers. This increase in cost must be outweighed by the carriers with a reduction in prices. But overall, if all carriers coordinate to apply this new speed standard, it will make the overall supply chain more efficient and greener because it will reduce significantly fuel consumption even though new inventory costs would be created.
It is hard to balance the environmental impact and speed. Sustainability and environmental conscious are more important than before. Every company is now pursuing carbon neutral supply chain. Therefore, any reduction of carbon footprint is beneficial. Meanwhile, speed is still essential in transportation, thus coordination of carriers and FMC is the key. It is difficult to achieve but they need to find the balance between environmental impact and speed. In this era, having a better image of sustainability is more popular.
Based on the current trend, such arrangements should be required for supply chains to fully leverage environmental benefits. Although it might increase the cost of operating the warehouses, companies should not pass the cost to customers. Companies can still find other ways to improve the supply chain but there is no other way to save our planet by reducing CO2 emission. During short-term, it might be hard to achieve, they can do other activities to offset their carbon emission like planting trees, but in the end, sustainability is the key.
This is an interesting concept. As we spoke of in class it is usually a give and take in these situations. Slow steaming can reduce transportation costs for carriers, but the consumer is going to incur a higher in transit inventory cost due to the longer lead times. Who is going to pay for these costs? Will they outweigh the savings? I have no idea. I think this a myopic perspective that focuses solely on the tangible finances. The other side of things in this article are the potential gains the carriers and those utilizing these carriers can achieve from being “green.” Certain green labeling has been shown to increase sales, and this includes ethic sourcing and transport. This may incorporate more gains than expected if marketed correctly.
It’s evident that slow steaming comes with its own trade-offs. There’s no denying that slow steaming has achieved a significant reduction in fuel consumption, the associated reduction in cots, and carbon emissions- environmental benefits. However, one consideration to be made here is that slow steaming would also lead to an increase in transit time, which would lead to shipper’s increased inventory cost and might impact their cash flow. While this is not an issue for some companies, it could be huge for some others. One thing is clear, the upsides and downsides of slow steaming as an option would definitely depend on the flexibility of a company itself. Only by understanding the operations, transportation & logistics cost of an organization, an informed decision can be made to build an efficient supply chain network.
The article suggests the primary reason for slower steaming is actually not environmental but economical. The whole point of slowing steaming is it saves more fuel and the demand for ocean transportation is dropping. So the coordination across the competitors is almost certain because it’s beneficial to the whole industry. This is not a “lose profit to save environment” discussion but a “saving money while the environment gets benefit” situation. The trade off exists which is a longer transit time, but only the customers of those shipping companies can decide if they want a quicker or slower freight. Without much info on customers we can’t predict the outcome on this discussion. However what I believe is that company choose ocean transportation not for speed, but for less cost and larger and steady delivery volume. Considering this, even some companies refuse to follow the guideline the ones who followed would still gain advantage on lower freight rates, thus the whole industry does not need to act as one – choosing to reduce the speed or not will attract different customers, and the market will make the decision.
From the article, the slow steaming can save more than half of the fuel consumption without a doubt. In this point, it is a great step to build a sustainable supply chain which benefits the environment and save logistics cost as well. While, as the shipping cycle increases, more vessels will be needed to coordinate and impact the whole slow steaming practices afterwards. I don’t think it is required action to leverage environment benefits. Since from the shipping carriers’ view, this practice is economical but increase the risk of inventory in the meantime. The tradeoff needs to be decided under specific situation. Also, as the article mentioned, there are some alternatives to be used to benefit the environment.
As we can know from the article, although this agreement is nominally based on environmental protection considerations, in fact it is more from the perspective of reducing logistics costs. Overcapacity in the shipping industry has become a very prominent problem. I think the establishment of such an agreement can relieve the pressure on logistics costs to a certain extent, but at the same time the risks cannot be ignored. For example, when the economic situation is eased and logistics demand increases, can such an agreement be maintained? At the same time, it is difficult for this agreement to be uniformly implemented by all enterprises and organizations in the industry. Under such circumstances, when the market changes, a game theory dilemma may be formed. If one party in the agreement unilaterally increases the shipping speed, it is likely to bring a lot of economic benefits, and as long as there is any benefit from the illegal agreement, the agreement is likely to exist in name only.
On my opinion, the arrangements between carriers can decrease the competitiveness of global supply chains if not properly regulated. As mentioned in the article, any shortage of capacity can decrease service and increase prices. Hence, such unregulated coordination can affect global trade beyond the environmental benefits of using slow steaming. There are benefits in the coordination arrangements between carriers that can eliminate inefficiencies in the supply chain, but such arrangements should be overlook by external regulators so as to ensure that the environmental benefits do not come with unintended consequences.
The purpose of slow steaming practice is to reduce the cruising speed of cargo ships which would eventually save up to 60% of fuel consumption and reduce emissions. Additionally, we learned that shippers and importers prefer longer shipping cycles and more inventory risks to reduce the costs of logistics caused by slow steaming practice. However, this practice would increase the transit time, which causes customers to need to plan ahead to be prepared for the increased lead time and reduced flexibility. While building a sustainable and economical supply chain, suppliers and customers also need to weigh the risks brought by this practice.
In the short term, such arrangements should be required for supply chains to leverage environmental benefits. There have been several ways and some new technologies to reduce ocean shipping emissions, the slow steaming practice seems to be the most feasible and the easiest way to achieve sustainability despite some minor downsides. Companies remain the right to adopt this practice or not, and customers could choose their preferred shipping option according to their needs.
The gains from the slow steaming practice is significant, as it reduces the load on the environment and more importantly, reduces the cost of shipping by reducing fuel used. However, it would also imply longer voyages, which offsets the savings by increasing cost in labor, management and depreciation of assets. Moreover, it would lower the competitiveness of the flexibility side of the supply chain.
Most supply chains serve a capital market, where every action is profit driven, therefore, sadly, it is required to show financial benefits for entities to take action to leverage environmental benefits. It is more common to see companies trying to raise their brand value by advertising their environmental friendly actions, I hope the public will be more and more willing to recognize these values and push businesses to aim for the same goals.
From the article, I think it is good that Ocean Carrier Alliances are collectively working together to reduce environmental impact and excess industry capacity. There is also high optimism that fuel consumption will be reduced by upto 60% through speed reduction.
This dual effect will surely affect lead times and eventually, safety stock and ordering practices. Additionally, during the said recession, if such practices can improve the financial stability of shipping companies then more discussions between industry and FMC are needed. A good solution could be to keep a check on fuel prices, capacity and logistics costs for the entire supply chain to allay concerns regarding collusion.
The gains from such discussions definitely outweigh potential coordination since only after understanding the pros and cons will the industry partners take a decision on this. The dual advantages of cheaper logistics cost and benefit to the environment cannot be ignored. The trade off between higher holding costs and higher investments in inventory buffer v/s costs of not operating at slow steaming needs to be answered to take a decision on this. At the end of the day, it is always easy for the industry to take a decision if customers support it. If all stakeholders come together and accept higher lead times, higher costs on inventory buffers and holding and slow steaming, the industry standards would change and everybody will adapt.
The Federal Maritime Commission’s concern regarding slow steaming is that it is putting unnecessary constraints on the supply chain. From the TSA consortium’ perspective, not only does slow steaming present environmental benefits, but it also saves costs on fuel and decreases the excess capacity currently present in the industry. When discussions between the 2 groups occur, both groups should emphasize their goals and look at ways to achieve both sides. The FMC is concerned about unnecessary constrains, but the TSA currently faces excess capacity. A potential solution might include an agreement which bases shipping speeds on the capacity utilization. When there is more demand for shipping services, carriers see reason to speed up ships as the increased fuel cost will be outweighed by the increased freight. When there is less demand and FMC does not need to be concerned with constraints, TSA slows down the ships and there is benefit to the environment. Agreements like this will be necessary to address both groups concerns.
This is a new way of thinking in supply chain management. However, although it is eco-friendly to the environment, the longer shipping cycles and lead time can affect customer satisfaction. Because of longer lead time, the inventory needs to maintain higher than usual. The extra landfill and electricity and lighting in the warehouse can produce more pollution as well. Thus, it should think of a bigger picture of the whole supply chain system from manufacturing in factories, transportation, and inventory management in retailer.
The gains from slow steaming are significant. Protecting the environment is not a choice anymore. It is very important that we understand the impact we are having on the environment individually and at organisational level as well. The article says that the carriers can save as much as 60% of fuel by slow downing. In the short-run this change would definitely cause disturbance to the safety stock. The lead times will change causing to various disturbances in production lines. The supply chain of every company dependent on ocean shipments will be affected. Organisations would need to re-align and adjust their ordering cycles, forecasting. But that being said, since organisations are trying to reduce carbon footprints as much as possible, I believe everything would fall into place eventually. It is really important for government to see to that they extend support to such steps and protect the carriers. Though a lot of further efforts are needed we can all agree that the revolution to protect and save our environment has begun. Consumers are definitely having preference for companies which are environmentally friendly and conscious.
Environmental benefits are benefits that not all would consider rewarding and so even if one competitor doesnt not honour it is a benefit then all the other companies have to disregard the benefit as they would be losing business to the competitor. However, just because there are financially tangible benefits of 60% there still lies a chance that all companies would collaborate. Considering the fact that there is a catch 22 situation where companies would have to measure the pros and cons of slow streaming, governments of different countries must form a strong coalition and pass an international law so that the environment is protected for our next generations. I strongly believe that such collaborative arrangements are mandatory so that the slow streaming benefits can be reaped to protect the environment in whatever way possible.
I think it is a gain. By applying slow steaming, significantly fuel consumption could be seen, and thus reduce carbon dioxide emission and other pollution. According to the article, shippers and importers are willing to incur longer shipping cycles and more inventory risk to reduce logistics costs. Slow steaming has obvious benefits, for example eco-friendly, maximize efficiency and reduction of costs.
It seems global efficiency improvement, however, it could complex and anticompetitive operational as well. The shortage of space in a trade lane could lead to an unreasonable decrease in service and upward pressure on rates as mentioned in the article. Also, slow steaming means long lead time, who will pay for the inventory cost due to longer lead time is a question. Therefore, whether such arrangements could fully leverage environment benefit depends on company itself, for example whether they fully understand and obey the rules, whether the reduction of logistic cost would be more than increased inventory cost.
The supply chain digest article clearly mentions that slow steaming is beneficial to both save costs and be environmentally friendly. I believe slow steaming practices will be the future of supply chains to reap complete environmental benefits, but this requires massive coordination among all the ocean carriers to increase the number of vessel sharing arrangements to jointly move volume in order to cater to the slower steaming.
Furthermore, slow steaming should only be fully practiced once it is reviewed and approved by the Federal Maritime Commission. Since once the impact on supply chain costs, capacities , rates fuel charges are quantitatively measured will it be a more informed decision as slow steaming may lead to reduced logistics costs, but also puts the inventory at a risk/delay.
Hence, slow steaming comes with its trade-offs.
One of the main benefits of Slow steaming is that it reduces the shipping rates. According to me, lesser impact on the environment is an additional benefit. Low shipping rates means the customers will have to pay less for the products. However, slow stemming cannot be applied to all kind of products. The time for transportation increases considerably and products that need to be in the market as soon as possible cannot afford the extra time taken.
Coordination among carriers is essential in order to keep up the inventory at stores. Lack of inventory can offset the profits made by increase in sales due to lower prices. It is also important to achieve the right balance between the impact on environment and the speed at which goods can be transported. Any delay can disrupt the entire supply chain and hence should be handled with due diligence. Increase in lead times is another factor that should be considered. However, effective coordination between carriers can educe lead times considerably.
Slow steaming practices came into existence as a lucrative solution to deal with the temporary market conditions due to the financial crisis at the time. Indeed, environmental benefits are an added advantage but they never were and I believe, they are still not the paramount drivers of the decisions concerning the slow steaming practices (Ideally, they should play a major role). Slow steaming practices increase pipeline inventory costs and lead times, therefore requiring companies to also maintain a higher level of safety stocks and more accurate forecasts. If the speed reduction, leading to fuel savings, and reduced C02 emissions counteract the increased cost, then the practice can be considered viable for those certain cases. But there is always inconsistency in the priorities of different industries and expectations from various markets, therefore, it is difficult to generalize whether slow steaming is, in general, a viable method or not. It makes more sense to take case to case basis decisions regarding the adoption of this mode of transportation. But in cases, where the profit margin is there, but not so significant, from not adopting slow steaming, companies can still choose slow steaming and give up that unremunerative profit, owing to its responsibility towards the environment.
Certainly, the impact on the environment will be reduced, if slow steaming is used when transporting goods across the ocean. However, this initiative also has negative aspects.
Firstly, the impact on supply chains will be enormous. The lead time of delivery will increase, which will affect the optimal order quantities. Companies will buy less often but large batches, and maintain large stocks of goods in their warehouses. All this costs money.
Secondly, it is possible that during the high demand season, carriers will not have enough capacity. Companies will be forced to order some goods through air carriers. Ultimately, the end customers will have to pay more money for the item. And certain demand will not be satisfied.
If these environmental measures are strengthened, carriers will have to invest financial resources to develop faster, cheaper and greener technologies to meet customer demand. In the long term, this can have a positive effect on the entire supply chain.
I think that coordination across competitors here is the most important advantage for any carrier to have, however the environmental benefits that could be reached in the reduction of carbon footprints in logistics is detrimental to the longevity of our environment as well as aiding in positive marketing to customers for their decrease in their carbon footprint.
It seems to be a win-lose situation regardless of the chosen outcome. On one hand the carriers working together to coordinate amongst themselves has benefits of building stronger relationships between carriers that can be used advantageously in the future whereas on the the other hand, requiring these arrangements for the more streamlined use of either slow steaming or extra slow steaming will decrease the environmental impact of logistics for these carriers significantly.
In an ideal situation, required arrangements between supply chains and their carriers if properly executed in a compromising way where coordination allows for all carriers to take part in slow steaming for the positive outcome of lesser carbon emissions/environmental impact would be a win-win for both sides if all carriers are willing to sacrifice speed and compromise arrangements for lower impact on the environment.
There are both advantages and disadvantages for applying slow steaming. On one hand, slow steaming reduces carbon dioxide emission and other pollution, decreases logistics costs. However, it leads to longer time during the whole process of sales which slow down the business and payment collections for the companies at the same time. And the healthy cash flow rely on the collections which is one of the key performance indicators in sales. Thus, we could not sacrifice business in order to save logistics costs. However, we need to maximize the benefits so that makes sense for applying slowing steaming.
The article suggests that slow steaming, while portrayed as an environmental conservation practice, is actually a practice to save on fuel costs and improve carrier efficiencies. The discussions aim to find avenues to continue practicing slow and extra slow steaming on the pretext of environmental protection. While slow steaming saves money for the carriers, it puts a strain on the supply chains that depend on the carriers for their inventory. This will force companies to revise their inventory stocking policies to compensate for the longer lead times and higher inventories.
From experience, I’m aware that large companies use ocean freight only for products with lesser value and those that can be stocked in large quantities. Given these parameters, it will not be a difficult adjustment for most companies. However, the carriers run the risk of losing customers, that are unwilling to compromise on the lead times, to other modes of transport such as air freight. Also, alliances can remove the competition between carriers tipping the scale toward the carriers which can lead to pseudo capacity shortages or exorbitant shipping pricing.
On the flip side, slow steaming depends on the fuel prices and a drop in the fuel prices below the threshold will lead to unnecessarily long lead times and may cause shipping companies to abandon the practice of slow steaming (as environmental protection is just a guise to these shipping consortia). Personally, as long as the carrier companies declare their actual motives for slow steaming and describe environmental protection as the consequent benefit, I believe that long lead time is a small price supply chains have to pay for the greater good.
This article is focused on how shipping companies can reduce costs from fuel by slowing the speed of this ships. Not only does this save on fuel costs, but it reduces the impact CO2 and other emissions have on the environment. By slowing the speed of the ships and increasing the cycle time of shipments coming overseas, the companies will actually reduce the amount of inventory holding costs as well, since it takes longer to get the products. The only problem I see with this is a lack of inventory flowing through due to slow cycle times. In order to improve the cycle times, the shipping companies would probably have to build more ships, which would in turn use more fuel and almost negate the slow steaming process. By looking at the numbers we were given, just by reducing speed from 25 knots to 18 knots it is reported they can save about 60% in fuel. 60% in fuel by only reducing speed by 25% offers a great opportunity to increase the number of ships operating while still offering environmental sustainability and cost reduction. Clearly the new ships would incur a cost, but eventually the cost of investing in the new equipment will break even overtime compared with current operations.
Based on the interesting article below two factors need to be considered along with their arguments.
1) Cost Angle :While it is true that slow steaming reduces the costs for the carriers due to lesser consumption and they in turn can transfer some of this cost to the customer (companies), due to reduction in vessel speed the products will arrive at a later time and also the congestion in shipping lanes will increase due to more number of ships being present at a given time on account to lesser speed. This will in turn increase the freight cost and create issues for customers in inventory planning as goods in transit will be on a higher side.
2) Environment Angle: Reduction in fuel consumption will surely lead to reduction in emissions, however alternate ways should be arrived in order to reduce carbon emissions rather than slow steaming. This involves a) usage of more eco-friendly fuels which causes less pollution b) usage of efficient ships and engines which consume less fuel.
Nowadays the importance of sustainability is becoming more and more popular in the supply chain area, so it’s clear that slow streaming benefits a lot especially from its eco-friendly role. Under the guise of environmentalism, business cares more about how much money can be saved from this change, and this is the real driver. The downsides of slow streaming come from the lower speed, which increases the transit time thus increase the lead time final customers can receive goods. In this situation, everyone in the supply chain needs to schedule a nimbler timetable to move goods on time. I cannot tell whether slow streaming will gain more after considering all the trade-off, but what I’m sure is that more time means more risk especially on the sea. That is to say, companies still need coordination to deal with the potential risk to ensure the practice is not causing ‘unreasonable constraints’ on the supply chain. From the article, it seems like ways such as ‘cold-ironing’ and other technologies have come out to reduce air emissions. With global demand increasing, I think there must be more efficient and profitable ways than slow streaming.
Slowing speed actually has more benefits. This could protect our environment and, on the other hand, could save consumption of fuel and also could reduce inventory because too fast arrival shipment may cause difficultity for inventory to be digested. Therefore, in my opinion, gains from slowing steam action will outweigh potential coordination. In addtion, every members should agree with this pratice so that the effect of the practice could be obvious for environmental benefits. After all, in modern world, people care about eco-friendly products and social responsibility. Sometimes we need a law enforcement to get companies to follow the rule. Protecting environment has more benefits than we imagine. It is nice when a company can earn profits and at the same time take responsibility to protect our environment. The question will be to let everyone does something in that way. Now that this practice is formed, members have form consensus to slow down their speed of shipment. It will be a win-win situation for everyone.
Reducing pollution is truly the right idea that should be brought on the table and be implemented along with the growing economy. However, in this situation, there are still many uncertainties need to be addressed and more data should be given. It is true that reducing the shipping speed for the carriers, the amount of emission can be reduced. But how much pollution can be eliminated in this specific case. It might fall into the situation that longer cruise route becomes a better economic solution with a title of saving the Earth but it not. Especially more and more companies are making ambitious but ambiguity emissions reduction goals. More disciplines and rules should be given in this act. Also, if all the companies decided to adapt this action, more supply chain managements should be done. Since the slower the ships are, the longer lead time will be required. In the current fast pace business world, everyone wants to receive their goods in a fast time manner. If those companies can’t fulfil that timing goal, they are most likely going to loss their customers. In the meantime, I think it might be a good idea to keep looking for those alternative solutions to benefit both the environment and supply chain.
This article raises an interesting point of looking at slow steaming to reduce carbon emissions. In addition to the risks involved with the coordination to minimize the impact on the time it would take for the customer to receive their delivery, I think the environmental impact of having more ships at sea should be examined. New ships would also need to be constructed in the future to maintain the larger shipping fleet necessary for slow streaming to happen. While a 60% reduction in fuel consumption is a good outcome, that needs to be weighed against all environmental impact of the changes throughout the entire supply chain is going to make to adjust to the slow streaming to see if it is an overall net environmental benefit that companies are looking for. It may turn into a good idea on paper but just shifts the environmental emissions from one stage of the supply chain to another.
Climate change is now more commonly known than it ever was, and along with that brought focus on environmental impacts and sustainable, ethical practices of industries. Slow steaming can decrease fuel costs and reduce carbon footprint, and the trade-off comes with customer expectations and how tolerable these new longer waiting times are. If customers are willing to wait longer times, this may not be as big an issue, The inventory costs and lead times will increase. This could lead to reduction of competition and affect the coordination between those competitors and ultimately affect global trade. However, such arrangements are required for supply chains to fully leverage the environmental benefits. If all the shipping carriers coordinate and regulate and standardize aptly, and are treated equally under the new speed regulations, it could lead to less pressure on their supply chains and have a common goal of achieving sustainability and reduced environmental impact.
With the development of the supply chain, people are putting more and more emphasis on the sustainability of the supply chain instead of just the profit or the capacity. In this article, people want to reduce the emission of CO2 and the cost of transportation by slow steaming. Meanwhile, with the reduction of the speed, the longer voyages reduce the industry capacity. In my opinion, this proposal do reduce the impact on the environment, but maybe not all of the carriers want to do it because their business is different and reducing environment impact is not mandatory. Some of them may want to deliver faster according to the customer demand at the cost of fuel, not to mention the emission. So, a more comprehensive rule should be carried out to implement this proposal.
For the supply chain, I think there’s no need to set a limit in the speed. But there’re other ways to reduce the environment impact. The government could set the limit of emission for the supply chain and penalize them if exceed. Then they will adjust the logistics and transportation internally to fulfill the requirement. Nowadays more and more companies take sustainability into their consideration, but it can’t be done immediately. It’s a long process with the participance of the government, industry and even customers.
I believe ocean shipping is the dominant transportation mode as it plays an essential role in the global supply chain. Slow steaming becomes increasingly attractive in long-haul shipments due to the capability of reducing the operational costs and the friendly environmental impact that leads to a sustainable supply chain; this combination creates a win-win situation. On the other hand, however, we are facing long lead times and any single delay may be catastrophic for a company. For this reason, it’s imperative that stakeholders communicate clearly and leverage concerns regarding delivery reliability. Additionally, by putting pressure of competitors as more and more companies adopt low-steaming, companies can work together to implement legislation to regulate the environmental impact
The article addresses the perpetual problem we face when we have to decide on something, the trade-offs. The trade off here is between an environmental and regulatory entity (FMC) and the industries which rely on shipping via the sea route. It also a question of moving away (or finding new ideas) from conventional methods of shipping, or modifying it, at least; to make shipping more sustainable, overall.
As is natural, there would be some resistance from the industry, but again, they would have to find their way round it, so that they could be more “sustainable”, if they are not already.
-As can be seen from the article, slow steaming allowed carriers to save significantly on expensive bunker fuel consumption (by as much as 60%). But at the same time, it also leads to longer shipping times and higher costs for shippers. As a result, such discussions have the potential to increase efficiency and profitability as well as to be complex and anticompetitive operational agreements. Whether it is good or bad depends on the specific situation of the company.
-For the supply chain, it seems necessary to give full play to environmental benefits and maintain the sustainable development of the supply chain with such arrangements. But whether such arrangements can meet the needs of customers is still a question. If the customer can accept it and the shipper can reduce the cost, then this is definitely a good choice.
The practice of extra slow steam does not only have an economic benefit for the company but also environment friendly by saving fuel consumption as much as 60% and reduce CO2 emissions and other pollutants. If we look at the big picture it will be better than potential coordination across competitors. During the pandemic implement such practice will be eco-friendly and maximize efficiency, but it not suitable in the normal situation which may let to delay of cargo when order increasing and it is not good for the shipping carrier’s reputation.
The practice of slow steaming, which is environmentally sustainable as well as economically viable, has a trade off when it comes to its demand. These benefits come by at the expense of reduced demands for ship freight due to their larger transit times. Naturally the driver of this decision is the cost of inventory in pipeline, product-industry type (for example: changing trends in fashion industry or high rate of obsolescence or life-cycle of products), demand during lead times and uncertainty of the continuation of this practice. Most companies opt for shipping by sea as their main mode of transport compared to air freight, because of their high volumes/high weight of products and the less responsive nature of product demand. The cost saving per weight or volume needs to be compared with the impact on margins due to higher pipeline inventory costs, product unavailability, lead time variations and capacity constraints. However, it fits perfectly with the environmental targets of the industries. If carefully thought push type systems are in place and forecasts (quantity orders, number of orders and reorder levels) adjusted to incorporate slower shipping, it could serve as a great opportunity to establish competitiveness in the market. But it all depends on the dynamics between inventory costs and logistics costs.
It is high time that every company, every industry should start thinking of carbon neutrality to support sustainability but at the same time lead time is one of the critical factors for customer delight. While decreasing the speed of the carrier will increase the ocean lead time, which already is around 1-2 weeks, by 30%. In the freight industry where the lead time is one important parameter to win a customer, I believe that we should look for other avenues of decreasing the carbon footprint first that do not impact customer satisfaction and if we are to decrease the speed, then there must a coordination, where there is the visibility of the orders so that the orders cand be shipped earlier and the increase in the lead time between the shipper and the customer do not impact the expected arrival date.
Comment by Chandler Peplinski
From the article, it is hard to say whether such discussions across carriers outweigh the potential coordination across competitors. Decreasing the speed of the carriers helps to save on fuel consumption costs, which is great given the cost of $500 per metric ton, and gives the company a good social image for reducing their environmental impact. However, if the cost of fuel drops below $250 per metric ton, shipping companies may want to run their ships at higher speed to get more loads in and shipping companies would turn to coordination agreements for efficiencies. While reducing the speed of the carriers is environmentally friendly, it might not be feasible in industries where good have short life cycles because the more time they spend on the boat, the less time they spend on the shelf. While the FMC has concern over the anticompetitive nature of the coordination agreements, they are necessary for supply chains to fully leverage environmental benefits because coordination will help ships be loaded closer to full capacity. The fuller every ship is, the less overall trips and therefore less overall environmental impact we will see.
Slow steaming and extra-slow steaming was adopted in response to the collapse in ocean shipping rates and excess industry capacity. Talking about current scenario, the ocean shipping rates have gone up due to shortage of material and demand-supply imbalances. Hence, competitively speaking, companies would not want to focus much on environmental impact through slow steaming but find innovative ways to make their operations more sustainable and environment friendly. Of course, slow steaming can be looked at if the material/product in question is not an essential product right now.
If we only think about the present dilemma faced by supply chain to be more resilient rather than efficient, slow steaming would be counter-productive. Notwithstanding this fact, companies should and are actively modifying their supply chains to be environment friendly and this avenue is certainly a step in that direction.
From the article, we know that the impact on the environment will be reduced if slow steaming is used when transporting goods across the ocean. It seems necessary to give full play to environmental benefits and maintain the sustainable development of the supply chain with such arrangements. If the customer can accept it and the shipper can reduce the cost, then this is definitely a good choice. However, unfortunately, inventory costs and lead times will increase. This could lead to a reduction of competition and affect the coordination between those competitors and ultimately affect global trade.
There are several implications for slowing down ocean carriers. At first, a rough estimate would make think that lead times would be twice as much; generating an increase cost of in-transit inventory. On the other hand, it is true that companies are trying to be more eco-friendly, but only this driver has not been able to drive change. It is also challenging to drive change in a time where the cost of fuels have been decreasing considerably over time and customers expect to receive orders almost immediately.
Regulating the speed could be very damaging to the industry and have a negative impact on final customers. From my personal point of view, incentives to promote innovation in this field could be beneficial. In class, we talked about how introducing automation and route planning could generate meaningful reductions of fuel consumption, leading to a price reduction for shipping. Setting incentives to reward companies that show significant fuel consumption reductions could be a strong motivator for companies to find creative ways to approach the situation and be more willing to have a larger amount of in-transit inventory and can choose and find the right balance between using less fuel and having a fast response to the customer.
I believe that it’s so important to be concern about the impact industry has in the environment, and by reading this article it’s a prove that there are ways to address this, to avoid a higher impact in our environment (as it’s in this case to the ocean), but on the other hand there is a tradeoff that has to be consider, since slow steaming affects directly on the lead time and supply or replenishment of those products being transport. This would mean that businesses would have to adjust reordering points and inventory level, incurring in higher holding cost. Also is important to think that this kind of changes to have a real impact would have to be implemented globally, being necessary the coordination across competitors, but that sounds easier in theory than actually being executed in reality, sadly we live in a world where not everybody is willing to risk and invest towards the benefit the environment, so I still see it as an approach that would not be favorable for some industries, hence they might not be willing to change, unless it becomes a formal mandatory regulation in every country.
I am in favor of measures that contribute to fight climate change and protect the environment. I have some doubts regarding this, not because of the direct impact shippers can have but on the overall supply chain as a whole having to keep higher inventories. I am not sure that the lowering the speed of the ships will totally outweigh that.
Moreover, as stated a few times above, delays can be very costly for all the different companies as well as putting more importance in the fuel price for shippers.
As stated in the article, slow steaming would help to decrease the environmental impact and fuel consumption. It might not bring financial benefit to the company, but it still generates intangible values to the company since environmental protection is a very important part of the social responsibility for companies. In long run, coordination within the industry or competitors would help to reach sustainability. Since the longer lead time would occur, the supply chain would need to make adjustments to guarantee productivity.