A year and a half ago, I took aim at a story first reported in the New York Times touting the benefits of the “slow steam initiatives as put in place by leading shippers. “Slow steam refers to the shipping industry initiative designed to slow down ships to create greater fuel savings, as well as reduce greenhouse gas emissions.
A commentator to that original post suggested the initiatives began as a result of EU regulatory oversight and/or increased taxes on fuels used in the shipping industry. In other words, the shipping industry may have suggested the initiative to reduce taxes on fuel. Regardless of motive for the initiative, we suggested back then that manufacturing organizations could expect to receive some of the following “benefits (sarcasm intended):
- Manufacturers will need to adjust (upward) inventory levels to account for the longer lead times
- Manufacturers will run a higher risk of not meeting demand (e.g. fulfilling customer need)
- Finance costs will increase
- Increased WIP (work in process) due to decreased throughput
That original post elicited a comprehensive response from the head of corporate sustainability at Maersk Lines. That response suggested that Maersk makes up for the slow-steam initiative with additional value-added services specifically by finding or offsetting “the additional ocean transit elsewhere either on our side (we can do a lot more to increase efficiencies in connection with port arrivals as an example) or on our customers side, as well as by stressing that customers demand reliability “of equal or greater value than speed. But now a new study published by Centrx, BDP International and St. Joseph’s University measures the specific impact felt by manufacturers as a result of the slow steam initiative.
And the Survey SaysÂ¦
Of all the different potential impacts on businesses (freight rates, inventory levels, cash flow, production scheduling, customer service, competitive position or no impact), inventory levels impacted a majority of companies (52%), followed by customer service (ed. note: fulfilling customer need) (50%) and finally, production scheduling (45%). I failed to note production scheduling in my original hypothesis on the impact of these initiatives.
Other interesting findings include Asian manufacturers citing decreased customer service levels as their No. 1 supply chain impact, while the Europeans have noted greater impact from cash flow challenges when compared to North American and Asian Pacific manufacturers.
In response to “slow-steam, manufacturers have, according to the survey, undertaken a number of initiatives including: increased inventory levels, added technology to improve supply chain visibility and a greater number of strategy decisions (though the study provides no additional information on that last point).
Of course from a sourcing perspective, it should come as no surprise that manufacturing organizations have thought through how ocean carriers ought to use the fuel savings from these initiatives not surprisingly, the vast majority of firms stated that freight rates should decrease, though nearly half in the Americas noted the cost savings could go toward improved customer service on behalf of the steamship lines.
But perhaps the most interesting finding tells us more about how industry views ‘green policies’ in general: “When asked if the economic benefits of slow steaming are worth the cost and inconvenience, 50% of respondents agreed, 40% disagreed, and 10% had no opinion.”