Steel Buyers Basics: Supply Chain Risk - Overseas Freight

My company had purchased several thousand tons of steel, much of which was on its way from Asia, when the bulk freight company handling the steel stopped paying its bills and declared bankruptcy.  The Panama Canal would not allow their ships to pass nor would US docks let these ships unload.  No one would accept these ships without getting paid up front and of course the ship owner’s funds were locked up with its creditors in a messy international bankruptcy free-for-all with all their debtors trying to be first in line claim assets.

Our steel was held hostage to this situation and we had no idea when it would arrive.  Fortunately for us, our steel supplier, who had a great deal of steel on board these vessels, found a way to pay the fees required.  Although it was late, and we went through plenty of panic, in the end we eventually received our steel.

There were a number of things I learned during this situation.  First, when you import steel from overseas you must meticulously keep track of your orders.  What I mean by this is that each order should be tracked from its scheduled production, through delivery to the export dock and loading of the ship, to the position of the ship as it travels and then through unloading into a warehouse in the US.

You may think all this work is the responsibility of the importer, and it is, but when something goes wrong, and it will, then a buyer is going to need to have all this tracking information to deal with the situation.  When I first was involved with setting up such a tracking system I figured it would be a straightforward thing to do – but it was not.

Mills are often late with production or produce partial orders and we found that old orders are shipped with newer ones.  Having multiple specs on order increases this tracking confusion.  Confusion is further increased by overseas time differences and by the usual problems understanding non-native English speakers.  In my experience it’s easy to lose track of steel shipments especially when they might take up to 6 months to arrive.

If your steel is stuck (or destroyed in an accident), without detailed tracking knowledge of each portion of each order, a buyer will be unable to react properly when the freight link in the supply chain breaks.  Sooner or later every supply chain has a link that will break – the longer the chain the more likely this is to happen and the more trouble this break will cause.

I was fortunate when we had our ocean freight issue.  Working with our supplier we had created an order log, updated each week, that tracked the status and physical location of each order placed to a foreign mill.  Further we dealt with a Mill that had the size and financial clout to finance the movement and unloading of the ships caught up in the bankruptcy.

I was not so fortunate though because I had given no thought to the freight company carrying the steel – I had left all of that up to the Mill.  Most US customers buy steel on an FOB US dock basis and so don’t really care who is shipping the steel.  I think this is a mistake.  In my situation the shipping firm had been nearly bankrupt before my steel shipped.  If I had been paying attention I would have required that the Mill use a different owner.

So, if you are importing material through a long supply chain, pay attention to the freight company carrying the steel and stay on top of the status of each of your orders.  Finally use a reliable supplier that is large enough to handle problems like this bankruptcy.