POOR schedule reliability, where 70 per cent of ships arrive late, has led to billions of dollars lost in the Covid crisis, a new study from Copenhagen-based Sea-Intelligence shows.
The record delays caused by vessels not arriving on time led to having to hold inventory longer than usual. Holding inventory for a longer period is equivalent to a financial loss, and a model created by Sea-Intelligence based on the actual delays of cargo at sea shows a loss of some US$5 billion to $10 billion.
To carry out the study, Sea-Intelligence took the underlying detailed reliability measurements at a trade lane level and combined this with the detailed regional volume flows from Container Trade Statistics (CTS). The analysis only focused on deepsea cargo and not intra-regional cargo.
The next step was to use the underlying data to calculate the number of TEU days lost due to late arrivals. While the pre-pandemic baseline saw an average of 8 million TEU days lost each month, this spiked dramatically during the Covid scare, hitting a peak in January this year of 70 million TEU days. The most recent statistics available – for March – show there was still a remarkable 57 million TEU days lost.
To place this measure into a context, Sea-Intelligence argued that the loss of 31 TEU days in January is the same as having an inventory of one TEU of cargo just standing idle for the full month.
Pre-pandemic the average permanent inventory stood at 260,000 TEU globally, due to cargo delays. This has spiked due to the supply chain delays and the present level is 1.8 million TEU, the study shows.
‘Having an inventory equals additional supply chain costs. The cost of inventory depends on the value of the cargo in the container, as well as the interest rate (IRR) a company assigns to their inventory value,’ Sea-Intelligence explained in its latest weekly report.
The consulting firm estimated that a reasonable global standard benchmark is $40,000 per TEU. A reasonable IRR is more difficult to assess, as this is highly dependent on the context a company operates in. As a result, Sea-Intelligence made two calculations, one for an IRR of five per cent and one for an IRR of 10 per cent.
All of these calculations reveal a financial loss for the shippers globally of roughly $5 billion to $10 million thus far.
The study is based purely on the time delays associated with the deepsea vessels being late. It does not include additional delays related, for example, to missed feeder connections or extensive waiting times in ports to get cargo released or picked up.
