Blank Sailing
Blank sailing
What is blank sailing?
A Blank Sailing, sometimes referred to as Void or Cancelled Sailing, happens when an ocean line service operator decides to cancel a call or skip a particular port, region, or possibly an entire leg on the scheduled route.
There are several reasons why blank sailings occur, and upholding schedule integrity is one of the more common reasons. A liner service follows a constant route on a fixed schedule, meaning it must complete the full rotation within a set time frame. If inclement weather causes delays, or if port congestion limits the availability of vessel birth and unload cargo, it can become difficult for a ship to reach every port on the route while adhering to the agreed-upon schedule. In these instances, the steamship line will announce a blank sailing and skip whichever portion of the route is necessary to make up for any delays.
Other incidents which may lead to blank sailings include port closers or major delays caused by strikes, and vessel issues which require repairs that can only be done at particular locations.
Intentional, planned blank sailings are used to control demand based on capacity and market conditions.
Container lines are blanking around one-quarter of sailings on the Asia — US West Coast trade as port congestion and delays force result in short notice capacity adjustments, according to analysts Sea-Intelligence.
Blank sailings are normally used bylines for capacity management when demand drops, as was done very effectively in the first half of 2020 when the pandemic hit. However, an increase in blank sailings in 2021 has been driven by short-term capacity adjustments as lines drop port calls due to port congestion and delays.
Sea-Intel reported an increasing trend in blank sailings on the Asia — US West Coast trade which hit 28.4% in week 44. The analyst noted that this could not be attributed to China’s Golden Week as the number of blank sailings actually fell in this period.
Queues at the key US West Coast gateway ports of Los Angeles and Long Beach continue to worsen, even if a new queuing system has pushed vessels further out into the Pacific.
On Monday and Tuesday this week the Marine Exchange of Southern California reported that 101 containerships were waiting to berth at the two ports with 30 ships waiting within 40 miles, and a further 71 slow steaming or loitering up to 1,000 miles away from the ports.
Blank sailing happens more frequently than you think. And the rate at which it’s occurring now is highly impacting the logistics chain. Understand the meaning of blank sailing, the challenges it poses, and ways to counter the effects right here in this piece.
If you’re in the shipping business, this is a term you’ll hear very often. What you need to know is, what blank sailing stands for, and why it happens. Understanding this will help you be more prepared the next time. So, let’s dive in.
It’s nothing new that carriers announce blank sailings from time to time. However, what’s new is the number of blank sailings since the Coronavirus hit the world. It put a halt to many containers and vessels shipped around the globe.
Carriers and shipping lines work with sailing schedules. They’ve got a fixed number of days to complete the schedule and get back to the base. These schedules give them published dates of arrival at the destination ports. Each port has a specific number of days to discharge and load the vessel.
These timelines are necessary at every stop. Let’s say the final destination on the route is Singapore. Singapore is the key port for the shipping line, and the vessel should arrive on time. Otherwise, many containers will be compromised.
But keeping up with the route schedule isn’t always possible. A vessel may run late at a previous port for various reasons such as weather conditions or port congestion. To avoid more wait time and avoid delays to reach Singapore, the shipping line, in this case, has to announce a blank sailing.
What happens to the containers meant to be loaded or unloaded at the now-cancelled port?
Well, they’ve to wait at the pick-up port until the next vessel with the same destination arrives.
If you’re wondering about freight rates, yes, this impacts the rates. Moreover, blank sailing makes container shipping expensive for users with rising demurrage and detention charges.
There are many reasons for blank sailing, especially when shipping lines want to reduce capacity to keep freight rates steady or increase them. You’ll read more about the other common reasons further in the piece.
Before we jump to that, let’s delve a little more into understanding blank sailing with an example.
Understanding blank sailing with an example
Let’s say your cargo is in vessel ABC. The vessel has a schedule to sail from Port of Hamburg, Germany, to Jeddah Port, Saudi Arabia. The timeline is as follows:
- Ship sails from Hamburg on 31st October
- Arrives at Rotterdam on 1st November, and sails out on 2 November.
- Arrives at port Felixstowe on 3rd November and sails out on 4th November
- Arrives at port Le Havre on 5th November and sails out on 6th November
- Arrives at port Valencia on 10th November, and sails out on 12th November.
- Arrives at Port Said on 20th November
- Arrives at Jeddah port on 30th November
However, with port congestion at Le Havre, and severe labour problems at Valencia, the vessel decides to skip both these ports and sail directly to Port Said. It’s to avoid delays and be on schedule for the rest of the voyage.
So, the Port of Le Havre and the Port of Valencia are marked as “blank sailings”.
So, the cargos at these ports now have to wait for the next ship to these destinations. This process is time-consuming and can take weeks (of course, depending on the sailing schedule).
Low demand for container space on a vessel
Blank sailing largely depends on the demand for space on a vessel. If the demand is low for a specific string, shipping lines issue a blank sailing or cancel an entire voyage of a scheduled sailing route.
Low demand allows carriers to consolidate shipments from multiple vessels as it turns out to be cost-effective for them. Additionally, it increases the efficiency of shipments. It’s mostly planned at a short notice to meet such uncertainties.
In 2020, blank sailing was heavily prevalent among several trans-pacific and Asian shipping lines because of low cargo space demand due to the pandemic.
Shipping lines reduce capacity to push up freight rates
Shipping lines resort to blank sailing mainly to optimize their operation and other services. However, they also use this as an opportunity to either stabilize or push up their freight rates by cancelling previously scheduled sailings.
Carriers want to keep rates up by omitting the number of sailings even though the demand for space is low. It’s seen right after holiday seasons such as Chinese New Year and Golden Week.
Port congestion
One of the other common reasons for blank sailing is when ports are congested. This may lead to unexpected delays in the scheduled routine. Thus, shipping lines find it easier to skip a certain port.
Mechanical problems in the ship
Sometimes vessels encounter mechanical issues and require urgent repairs that can be done only at particular locations/ports. This hinders the originally scheduled sailing. In such cases, a carrier can skip a port to keep up with the rest of the schedule or choose a more urgent route.
Port strikes and labour unrest
Just like port congestion, port strikes due to labour strife contributes to blank sailing. Such situations can take a long time to settle down and often delays vessel berthing and other services at ports.
Weather is another contributing factor to blank sailing. Weather warnings such as tropical storms at some locations require ships to play safe. This is done by cancelling their trip to these regions. Sometimes, they also “wait out” until berthing and sailing are considered safe again. This may delay the schedule too.
Blank sailing can impact you in a big way if things go unplanned and there’s no plan B to the rescue. It affects the supply chain and leads to a longer waiting time. Vessels run behind schedule and containers get stuck at ports. This attracts additional charges for your shipment as you’ve to end up paying large bills of demurrage and detention. This is where SOC containers come to your rescue.
Also known as shipper owned containers, SOC gives you more flexibility and control of your shipment. Thus, you can avoid unexpected demurrage and detention costs from the carrier.
Want to know more about SOC and how it can help you avoid demurrage and detention? Click the banner below and find these containers easily on xChange.
Challenges caused by blank sailing
Blank sailing poses a challenge for you and affects the ocean carriers too. Frequent blank sailing can impact their market standing and relation with their clients. Especially, when it’s about increasing cargo demand and increased freight rates.
It also affects the storage space available to you. And end up leasing space from a third-party service provider to accommodate the overstocked cargo after blank sailing.
Since you didn’t receive the cargo on time, as planned, this may force you to use your buffer stock. Eventually, the production may be affected too.
Blank sailing can also lead to confusion in the market. When your customer doesn’t receive goods on time, there’s definite chaos and a negative impact on them. Even if you arrange for alternate transportation, the price of the goods will ultimately be higher than what was expected.
The impact of blank sailing is evident if your cargo had perishable goods such as food items, flowers, or dairy products. Due to its time-sensitive nature, you’ll either have to divert them or label them as “a loss”.
What to do to counter the effects of blank sailing?
Firstly, don’t freak out!
Blank sailing is a part of the shipping business and you have to deal with it. That’s the truth! Though shipping companies inform you in advance, most of the time, it’s too late to take any useful steps.
However, with careful planning and crisis management in place, you can set sail once again (pun intended). An effective forecast and transparent communication strategy can give you a heads-up.
Though most likely, your cargo will be booked onto the next available vessel, we recommend you to keep safety stock in place. Have a backup transportation arrangement, of course, keeping in mind the urgency for the goods and your market commitments.
Demurrage and detention on the rise
With the many blanked sailings more containers get stuck around the world. For example, in the US, many empty containers are stacked at the ports waiting to be shipped to Asia. But due to the blank sailings in the U.S, there are fewer spots open on the vessels that do port of call at the predestined ports.
However, it’s not only the empty containers that are waiting. Also, filled containers are delayed. At ports, terminal operators cancel work shifts because of the lower import. This is sometimes done with such short notice that it isn’t possible to adjust the pick-up schedules. The lack of planning means that the containers will have to wait at ports for a longer period, using their free days.
When the free days have been used, the demurrage and detention charges are added. Charges that can accumulate up to 20 times the value of the container itself.
Waiting costs
Demurrage is charged when a container isn’t picked up and gated from the terminal before the free days’ end. Demurrage charges are usually paid before shipments are picked up.
On the other hand, detention charges occur when the container is out of the port. In case the container isn’t delivered back to the carrier within the free days. Detention charges are added if a container user has picked up a container for loading but hasn’t returned it within the set free days.
Avoid demurrage and detention fees due to blank sailing
Demurrage and detention can cause disarray in your final shipping cost. But, there’s a way to reduce the risk of paying a large sum of demurrage and detention charges. Carriers charge demurrage and detention for their COC containers (carrier owned containers).
As an alternative to these containers, there are SOC containers. With SOC containers you avoid unexpected demurrage and detention costs from the carrier.
The icing on the cake is when you find SOC containers at xChange! You negotiate a per diem charge with the supplier, just in case you exceed the free days. This charge is significantly lower than the demurrage and detention.
Let’s get some more clarity on SOC containers and how they benefit you.
Advantages with SOC containers
With SOC containers, you’re in charge of hiring a carrier and other parties to transport the shipment. These containers give you more flexibility, control, and independence.
One of the main benefits of SOCs is that you can control the costs and avoid the expensive demurrage and detention charges.
You’re also in charge of the supply of containers, giving you the opportunity to source containers on your own. You’re also able to choose what containers you need, in what condition, and whether to lease or buy containers.
The Next Wave of the Supply-Chain Crisis Is Building
Port back-ups, trucker shortages, factory closures, and shortages of raw materials are huge contributors to this current wave of the crisis. But a second wave looms on the horizon. This wave will be harder to identify, and too many companies are focused on just the current crisis without appreciating the risks of what’s coming next.
Viewed broadly, public and private companies across the globe reduced short-term risk during the pandemic by adding cash, and debt, to their balance sheets. Despite taking this step, many took on more risk from a long-term perspective. How does this happen? In these cases, companies’ underlying businesses might improve while the cash lasts, but if they don’t, they must get more liquidity to buy more time. If companies can’t resolve their debt problems, they either fail or begin to cut corners that create unseen problems for their customers.
The financial failure of a supplier is never good, but at least it’s often clear-cut. A supplier’s degradation can be more insidious, creating risks that are harder to see, but that is costly and potentially critically damaging to its customers.
Wave two of the supply-chain crisis will come from suppliers that are profoundly degraded by the challenges of the past 20 months, where operational, reputational, and financial risks are being introduced to their customers downstream. It will happen when companies cease being able to Band-Aid over problems with cheap and historically easy access capital.
A supplier that cuts corners in IT spending may create cybersecurity risks for its customers. One that delays products or reduces R&D spending is less innovative and responsive to a customer’s own product development and agility. A supplier that cuts corners in health, safety, or manufacturing-equipment upgrades introduce sustainability, quality-control and delivery-timing problems, which lead to challenges with reputational risk, business continuity, revenue disruption, inventory management, and working capital efficiency.
Since March 2020, we’ve seen companies across industries raise capital to stave off business failure or to address operational damage caused by Covid-19 and the first wave of the supply-chain crisis.
While government interventions such as the Paycheck Protection Program helped, the environment of liquidity and low rates sustained by the Federal Reserve Bank since the 2007–2009 financial crisis has created a market dynamic where almost all companies can raise debt capital. As a result, pension funds and other asset managers have spent the last 12 years searching for yield in this low-rate environment, stretching down the credit spectrum to buy exposure to riskier companies in order to hit their benchmark returns. At the same time, more providers of debt capital have emerged, creating a largely unregulated and untested asset class of alternative credit providers. These two forces have propped up companies and provided affordable capital all the way down to the smallest of private companies in a typical supply chain.
Companies across industries — from autos to leisure to retail — have borrowed more, increased cash to current liabilities and bridged themselves through an incredibly hard operating environment. In the meantime, many subsegments within these industries have become increasingly risky, but for the temporary boost of capital.
There are signs of stress even in industries that have done well operationally, such as semiconductors and microelectronics, which have had tremendous pricing power through wave one of the crisis. Rapid Ratings’ Core Health Score measures companies’ longer-term strengths and weaknesses. Among companies at or under $50 million in revenue in the semiconductor industry, the average score now sits at 40 on our 0–100 point scale, one point above our high-risk category. Over 90% of companies that have failed in the past 20 years were rated at 40 or below. All that said, this subcategory of companies has an average Financial Health Rating — which measures short-term default risk — of almost 60, giving it the largest delta between short-term default risk and long-term core quality in the industry.
In our experience rating public and private companies from 150 countries, regardless of industry, private companies make up 75% of the average Fortune 1000 company’s supply chain. As private companies’ access to capital goes, so does the resilience of the chain.
At some point in the not-too-distant future, these and other companies that are facing a mountain of debt will need financing (or refinancing, as the case may be), and many will be unable to raise liquidity at affordable rates, if at all.
Cracks in the credit market are already starting to emerge. The distress of Chinese property developer Evergrande is sending shockwaves around Asia. The Fed’s decision to begin tapering has put bond market investors on edge. Those issues add to a lengthy list of concerns: PPP funding has long since run out. Inflation now appears sustained rather than transitory. There is significant volatility in risk assets, including High Yield Bond Index cash outflows, cryptocurrency swings, and quick shifts in more equity markets. All that plus unease about the Omicron variant means a perfect storm will catch many suppliers that have been underperforming materially, if not failing outright.
Fortunately, one of the biggest trends in supply-chain risk has been supplier collaboration. Private-company suppliers recognize the commercial value in transparency and are more open to disclosing financials; intellectual property; information security; environmental, social, and governance initiatives; and other sensitive material. Supply-chain risk professionals who engage with those suppliers to understand their financial health are best positioned to help mitigate problems and build the most resilient supply chains possible — creating value for both customer and supplier, and helping the investor-relations professionals and chief financial officers of the world communicate trustworthy narratives hinged on true resiliency.
Despite all this, there is more work to be done. Many of these professionals will need more support and resources. In 2022, there will be intense scrutiny from shareholders on those controlling the narrative of their companies’ supply-chain risk-management strategies. That magnifying glass will also focus heavily on how they are preparing for the next set of risks. While risks, in and of themselves, can’t be eliminated — they can be managed. Especially as a second wave approaches, knowing what these risks are is key. To be clear, the sky isn’t falling today. That said, supply chain risk managers need to be looking upwards.