Prof. Howard Weiss is providing Guest Posts while I am travelling abroad.
There have been many articles detailing the supply chain problems at the California coast. In particular, this blog has an article detailing the ship backup at ports and an article detailing the recent unclogging at those ports. There are three main methods for manufacturers to acquire capacity for shipping their goods. They can contract out for space from a shipping company; they can charter an entire vessel; or they can own their own container ships.
Several large companies have recently changed from booking space with a shipper to chartering entire vessels. These include Amazon, Ikea, Walmart, Costco, Target and Home Depot for some of their shipping. For example, chartering accounts for roughly 25% of Costco’s shipping from Asia to North America. Chartering a ship gives these companies control over the sailings because as Target states, “As co-managers of the ship, we can avoid delays from additional stops and steer clear of particularly backed-up ports.” Another possible problem with contracting space is that the shipping company may not honor a contract as OJ Commerce, a furniture distributor, found out
when Hamburg Süd shipping said it had no room on its vessels even though OJ Commerce had a contract with Hamburg Sud.
To gain even more control, some companies, such as Walmart, are chartering smaller ships in order to be able to use smaller ports. The tradeoff to chartering smaller ships is that it increases the shipping costs, which range in the area of $40,000 per day for vessels carrying 3,000 twenty-foot containers. In addition, some of these companies are also purchasing their own containers, which gives the company more flexibility but is costlier.
Others are going a step further than chartering by starting their own shipping line. For example, Lidl, the giant German retailer (with 11,000 stores in 32 countries and more than 200 warehouses in 30 countries), is starting its own shipping line in order to have more control over the transportation of its goods. It decided that this was preferable to other options. The obvious purpose is to reduce shipping delays but the new line should also reduce freight costs and increase shipping consistency and flexibility.
Classroom discussion questions:
1. Use Google to name Lidl’s major competitors.
2. What is a possible downside of chartering or owning your own ship?