The Flip Side to Climate Change (Good News for the Ocean Freight Industry)

Spend Matters welcomes another guest post from Lisa Leung of GEP.

As climate change warms the world’s oceans, climatologists have closely monitored the percentage of Arctic Ocean that stays frozen during summers. In 2012, scientists took sophisticated simulations using satellite observations to estimate that Arctic summers may become ice free by 2020. Seven years from now, we will no longer have a large portion of the world surrounded by that unforgiving icy terrain. So what does this mean for you and your ocean freight carrier?

For a global manufacturing firm, ocean freight can contribute to a significant portion of its bottom line spend. The Northern Sea Route and the Northwest Passage have been identified as two possible primary routes by 2020. These routes are expected to cut maritime journeys from an average of 22,500 km (13,981 miles) to 13,200 km (8,202 miles), translating to a decrease of 10-15 days of transit time.

Shorter routes can result in more frequent shipping schedules, thereby increasing the freight volume and shipping frequency for potential users. Conversely, suppliers can choose to optimize fuel consumption through slower trips (a 40% drop in a ship’s speed can actually double its fuel efficiency). As an ocean freight category manager, it helps to better understand the potential opportunities available to optimize the category spend:

  • Determine when you need your products. Will you be able to revise your warehousing needs to receive more freight during the summer months when Arctic sea lanes are open?
  • Work to maintain similar shipping timelines at potentially lower cost. Are your plants willing to take advantage of lower fuel costs through slower trips but shorter routes?
  • Regularly monitor Arctic sea routes. When is the best time to go to market to take advantage of newly opened sea lanes?

The work doesn’t only fall on the ocean freight category manager. With the ability to utilize far shorter northern routes, the ocean freight carrier will be able to contribute to its customers’ TCO in an “ice-breaking” way. Leading ocean freight suppliers can perform due diligence on a number of fronts to stay ahead of the game when an Arctic summer looks more sunny yellow than icy white:

  • Monitor international treaties and agreements to understand potential volatility between countries’ sea rights that encompass these new sea lanes.
  • Better understand utilization rates of new shipping lanes to determine the optimal number and length of trips, based on customers’ needs.
  • Consider the introduction or addition of icebreakers into existing fleet.
  • Determine viability to optimize point-to-point services since shipping lanes along the Arctic route do not currently allow transshipment hubs.

For more interesting thinking on procurement, visit the GEP Knowledge Portal.

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