Tight Squeeze
Traditionally August to November sees an increase in imported cargo from Australia's largest sourcing area, China, with a peak season surcharge (PSS) imposed by shipping lines when cargo volumes exceed 100 per cent of available vessel space.
With consumer spending stronger than it has been in years and the curtailing of the export tax concessions by the Chinese Government in May, a dramatic increase in apparel shipments has caused a rush to move cargo out early this season.
With little space on Australian-bound vessels exiting China/Hong Kong, lines have advised that their loadings during June exceeded 100 per cent, hence the introduction of the PSS some two to three months earlier this year than in previous years. Retail sales figures released last month showed almost a third of June's increase in retail spending was on clothing with cold weather prompting sales rise 5.6 per cent due to strong winter transactions.
Bruce Haines, managing director of Melbourne-based logistics firm Dean World Cargo, says as this strong trend for consumer spending continues so do will the number of imports from China.
"Trade revenue figures from Hong Kong to Australia for January to June 2007, show a 25.3 per cent growth over the corresponding period last year and the China figures show the same trend. This seems to confirm the early peak season shipping pattern we are in and also indicates retailers are bringing goods [to Australia] early to feed retail sales.
We forecasted early in the year that this year would be balanced regarding space and demand but so far demand is up. The shipping lines are looking for a big revenue year and from their point of view, they are juggling space very well."
Trying to combat the peak season influx by requesting retailers ship throughout the year, Haines believes shipping lines would like to see a more even flow of cargo over the year but retailers are opposed due to issues such as the cost of storage.
"[These requests have] been happening for a while, but at the same time [shipping lines] make an awful lot of revenue out of the peak season surcharges when they can. Retailers are all about controlling supply chain costs and stock levels and I cannot see that producing early and holding stock would even be on the radar. In fact some retailers are increasing airfreight in order to get stock into the stores faster."
Recommending retailers begin their negotiations with shipping lines in January to ensure acquiring adequate cargo space, Richard Wild, national imports sales manager for Hamburg Süd, says generally, a line will support an importer in peak season who has supported the carrier off peak.
"If an importer is dealing through a forwarder, ask the forwarder which carriers they are dealing with, and if their commodity/named specific account is being taken into account in discussions with the carrier," Wild suggests.
David Ball, corporate accounts manager for the Australian division of Orient Overseas Container Line (OOCL), also feels it is in retailers best interest to have a good relationship with their service providers and vendors.
"Work as partners with your carrier or carriers. It's tempting to take advantage of a short-term price dip in the slower season; however this may trade off for space availability in the peak season. For those who deal direct with the line they have the opportunity to come to a commercial arrangement to cover space and support commitments between themselves and the shipping line. If customers are able to more evenly spread their cargo movements over a wider time span, this will assist carriers to fulfill cargo needs and have imports in warehouse pipelines prior to end user needs. In the end it's the import customer that has to weigh up any additional benefits involved in bringing cargo in early against the benefits of moving in the peak season."
With the opinion that shipping all year round is difficult in a market that is driven by the fickle fashion conscious consumer, Joe Fowler, Australia logistics manager at Eagle Global Logistics (EGL), says it's difficult for fashion retailers to build inventories to avoid peak season charges.
"The fashion vertical is a very competitive market segment, [however] large fashion houses like Zara are reducing their lead times from concept to store [by] driving out inefficiencies in their supply chains. Zara relies heavily on air freight (not sea freight) to move garments. They would pay a premium for this service but may avoid the shipping congestions from China. Zara also manufactures clothing in Europe rather than congested China. Europe may have sufficient infrastructure to deliver goods to Australia all year round, [enabling retailers to] avoid the peak season charges."
If storage is not an issue, postponement is another avenue Fowler suggests retailers could take to combat the tight squeeze on available peak season cargo space.
"Savvy supply chain professionals look to 'postponement', where goods are manufactured in a homogenous form and last minute changes are added to the design that makes it relevant to the consumers demand. A skirt may be manufactured in a form that will sell in winter or summer by adding a different colour. Retailers may import the skirt in the low shipping season and add the dyeing process that makes the skirt relevant to the season it will be sold in."
With increased tonnage put into the China/Australia trade lane, a larger vessel introduction is an important step in combating demand for extra space according to Haines.
"But at this stage the promised bigger vessel introduction has been slower than expected."
Adding there is insufficient infrastructure from China to satisfy demand for China's imported goods, Fowler says it will take some time to build the ships and shipping containers to satisfy the world wide shortage.
Taking steps to address the China/Australia trade lane, OOCL launched its Australian vessel last November in Shanghai. Taking 4,500 teu, OOCL Australia is the largest vessel on route from China to Australia.
Perceiving forecasts of larger volumes in the Australian import trade, OOCL increased its capacity in late 2006 by replacing its main fleet from China/Hong Kong of five 2700 teu vessels with five 4500 teu vessels.
"This has increased our capacity by about 60 per cent from China," says Ball.
"And with the Australian economy being in a robust condition we would expect the import cargo flows to continue."
Mindful that importers are bringing cargo in earlier to avoid the peak space tightness, Wild says volumes of imports are rising yearly, and carriers are seeing a commensurate increase in space pressure.
"Carriers are trying to react to the increased cargo volumes by introducing larger vessels in the lane, as well as to rationalise the ports to ensure a smoother frequency. Bigger ships aren't the only answer, though. Port and inland infrastructure needs to grow to make sure larger volumes are removed from the wharves in the similar time frame."
Commenting that cargo importers should keep good working relationships with critical links in their supply chain, Ball adds that importers should work out good commercial arrangements for service and price.
"Work as partners with suppliers and service providers, give accurate forecasts of supply chain cargo flows and keep reviewed and updated."
By Samantha Docherty