The problem with measuring vessel utilisation - and how to improve it
A vessel utilisation rate is one of the most important operational figures in the cargo industry. If a common way to measure it was available, we could track and compare industry efficiency with apples-with-apples principle. We are not there yet - today apples are still measured against any other fruit. And what about making those apples more sustainable?
My colleagues have been actively pointing the lack of standardisation throughout the whole cargo flow, which is a subject that also touches vessel utilisation rate. In fact, there is significant variance in how the figure is measured in different reports. One might use vessel nominal capacity, but rarely we see other numbers than "rounded" nominal capacities - 14,000 TEU for example, when the nominal can actually be something like 14,318. Many seem to use the nominal capacity reduced by a certain percentage, as they have seen in the past that the nominal capacity is very difficult to reach.
This leads to a situation where, even if the nominal capacity would be an accurate number, it can be far from the vessel’s actual capacity. A ship’s nominal capacity is determined by the amount of available slots on the vessel - and efficiency derives from how effectively those slots are utilised. The cargo system should be designed based on to the cargo mix, as containers come in different sizes, weights and types. Therefore the number of filled slots does not automatically equal to efficiency. As an example, two 14,000 TEU vessels may have a 10 percent difference in their actual capacity due to a different cargo system design, even with identical cargos.
Agreeing on common measurements would help track and compare utilisation rates in the future. This could be done by creating a standard cargo mix for each trade and then determine actual capacity with it. I think we could even move to measuring figures like "emissions per TEU". Vessels could be compared easier - but on the other hand, it would not create accurate utilisation numbers as different carriers do carry different cargo mixes as they have different customers.
Bigger ships may improve utilisation rate - to a point
Once we can measure utilisation in a standardised way, how can it be improved? One interesting development to track with utilisation rate would be the recent trend of larger vessels; i.e. mega ships. The idea is logical: by increasing ship size, efficiency can be improved as there are less port calls and nautical miles spent per container. With incremental increases to vessel sizes, this has proven to work in practice - but only up to a point.
In a recent article by JOC Transport, it was suggested that actually port productivity is decreasing with mega vessels as the TEU movements are increasing. How can that be? There have been discussions that the root cause is that ports are struggling to cope with cargo peaks during operation, as connections to hinterland are so much slower. The majority of ports have not been originally designed to handle ships of this capacity and many brownfield terminals are struggling with attempts to increase capacity.
Time will tell if vessel sizes will continue to grow with ports adapting to changing requirements. In any case, the current situation is a good reminder that the whole cargo flow should be developed as an end-to-end operation in order to reap the benefits of efficiency for all.
Stronger alliances enable smarter planning
If we leave the technical development of vessels and ports aside, there are also plenty of other avenues to increase utilisation rate even with current technologies. One that is especially interesting to me would be closer cooperation within and between carrier alliances. This could help carriers increase average utilisation rate if network and tactical planning could be made visible within the alliance. Vessels could call less ports because of improved cooperation in dividing shipments across the network and thus achieve higher utilisation of their capacity especially during low seasons.
If taken a step further, this development could also be effectively driven from shipper side. Shipper alliances could check which port pairs they have in common and then negotiate with a willing party to make specific calls for them. It would also bring the increased transparency across the network. Vessel timing would be simpler and there would be more specific information about the cargo being loaded (volume without no shows and container types and possibly even weights) from which also terminals themselves would benefit from. With this information, it would be possible to make stowage plans earlier (by carrier) and different parties would know where a specific container is situated in the vessel that is arriving to the port. I think this would work on many trade routes, but it does not fit to all shipments.
I believe our industry needs to do everything we can to increase efficiency. This means both taking the benefits that new technology and larger capacity operations can bring us, but also find new and smarter ways to create value throughout the whole chain of cargo transport.
What are your thoughts?
What do you think, is the industry ready for more powerful alliances on the carrier or shipper side, and when will we see the full potential of mega ships taken into use? Join the discussion and share your thoughts using the hashtag #smarterbettertogether.