Prof. Lalith Edirisinghe,PhD CINEC

 

Demand forecasting for Container Shipping Lines

Demand forecasting for Container Shipping Lines

Shipping is a derived demand of the international trade, thus the type of commodities or the number of containers that a country imports and exports will vary from time to time. It is very difficult to predict either. Therefore it is essential to frequently update the forecast taking the trends of country’s external trade into consideration. The figure below illustrates that how different types of forecasts can be used in a sequential process. This helps to minimize potential risk of substantial gap between the original forecast and actual container stocks.

 The process of forecasting system of the container shipping firm

Initially there is an annual budget. This usually prepared in the month of August of the previous year considering market factors that could be foreseen at that time. For an example the countries’ general prediction on the common PESTEL factors should be considered. Thus Political, Economical, Social, Technological, Environmental, and Legal factors will be taken into consideration at this level. Therefore it is more of a mathematical approach. The firm usually considers GDP growth rates, previous year actual loading/discharging of containers and calculate the export volume for the following year. As these factors periodically change there will be another forecast prepared every three months to supplement those subsequent changes. In above model the firm may accommodate all subsequent changes in the market place and adjusts their expected volume for the next three months.

There is another forecast should be prepared to accommodate most current market conditions and its reflection of company’s next month volume. And finally a weekly forecast for the next week which is most accurate and realistic. But as the figure shows the usefulness is gradually declining when the time period is shortened. This is because the shipping line cannot take any precautionary measures to minimize any repercussion arising out of the latest container position.

The derived demand factor create a substantial problems for any shipping line to develop an accurate forecast.

Each port agent is supposed to prepare a budget pertaining to that port clearly identifying no of containers they intend to export including its breakdown under type of containers, expected revenue from each container. Once every port agent compiles this report each trade office will consolidate all such individual budgets into a trade area budget. This will then amalgamated into one final report that comprises all ports in the world where the particular line has its agents. Following criteria are used when preparing the budget primarily shipping being a derived demand of the international trade.

Container forecasting methods

Shipping lines usually consider seasonal variations at planning stage. They carefully analyse the country’s external trade pattern when preparing the annual budget. For an example the figure that appears below illustrates the export and import container pattern in Sri Lanka for the year 2010. The seasonal variations could be taken into consideration in preparing the next year budget rather than forecasting on mere hypothesis.

Containerized Export and Import in Sri Lanka- 2010.

 

 

However, irrespective of any such methods it is anyway impossible to totally eliminate the variations between forecasts and actual loading given the volatile market conditions in any country. Therefore Shipping Lines usually accepts (+ or -) 5-10 % variation of each port’s forecast.

Conclusion

 

Container shipping business obviousely contains more of "servicees" charactieristics than a tangible product. Therefore the "Perishability" factor create many challenges to container carriers. therefore more realistic forecasting method play a vital role in the liner shipping industry.

 

NOTE

This article refers to a study  conducted in Sri Lanka based on SCOR Model which comprises five distinct management processes: Plan, Source, Make, Deliver, and Return. The Plan component refers to the processes that balance aggregate demand and supply to develop a course of action which best meets sourcing, production, and delivery requirements.

If each company had demand information from the other companies in its supply chain, it would help everyone to make the best decisions about how much manufacturing capacity to build and how much inventory to hold. Companies need to see demand information from their immediate customers and also from the end customers that the supply chain ultimately supports. (Hugos, 2003)