The COVID-19 pandemic and its continuing effects on trade have only aggravated recent challenges for us in an ever-changing ocean freight landscape. While the reasons for rising costs are numerous, the current situation boils down to the simple reality of growing demand and tightened supply.
Massive dislocations have come up in the current scenario in many respects, be it the shipping routes, container market, ports, trucking lines, air cargo, railways, international relocation services, and even warehouses. This has led to several hiccups like:
- Shortages of containers
- Delivery delays
- Routing and clearances backlogs
- Spike in transportation costs
- Skyrocketing of shipping rates
- Congestion and overcrowding at international ports which further spread to inland rail terminals and railroads, further affecting the chassis shortage that had already been in place.
The average price for a Chinese-made standard 40-foot container is close to US$6,000. This is a lot more than double the amount of what it was priced back in 2016.
There has been a rise in demand for shipping containers post lockdown, along with lower container turnover. This situation has led prices to skyrocket. As a result, thousands of containers are still stuck in the wrong place.
The situation is dire and needs to be addressed immediately as its consequences can have a significant impact on the global economy.
Major shipping disruptions
Pandemic-triggered closures in overseas factories, congestion in various ports and shipping container and labour shortages for several months have resulted in shipping disruptions that have caused delays in the movement and transport of various kinds of products.
With the spiralling costs of shipping, some of those costs would be inevitably passed on to consumers, ultimately leading to an increase in prices. Some retailers have been feeling the extended pressure and there are those who have stopped shipping altogether.
This means that some customers might not be getting what they ordered — whether it’s for their everyday or yearly Christmas shopping. Weather conditions, including strong typhoons that can sometimes shut down even the busiest ports, are considered to be another setback in the already-troubled shipping industry.
Some container ships have also suffered temporary closures after workers tested positive for the new coronavirus.
Finding solutions to challenges
It’s on the supply chain drivers to use smart techniques and the right approach to meet long-term challenges that can put an end to everyday nuances.
Analysing the data of the supply chain is a great step when it comes to bringing on improvement initiatives.
On the carrier side, competition has indeed diminished. Since the bankruptcy of the world’s seventh-largest ocean carrier, Hanjin, in 2016, speculations were strong about the next giant to collapse under the stress of rising tides.
In a bid to stay off the financial pressures, many shipping lines formed large global alliances. A few years back, we saw the formation of three major carrier alliances, 2M, THE Alliance and Ocean Alliance.
The three major shipping alliances today are:
- THE Alliance - Hapag-Lloyd, NYK Line, Yang Ming Line, "K" Line and MOL
- Ocean Alliance - Evergreen Line, APL, CMA CGM, OOCL, and China COSCO Shipping
- 2M Alliance - Maersk and MSC
Controlling and dealing with volatile ocean freight costs
To get a better handle on ocean freight costs, it is recommended to:
- Conduct freight cost benchmarking: Better negotiations and analysis of spot rates and long-term contract rates can help with effective benchmarking and budget forecasting.
- Offer consolidation of volumes: This will facilitate negotiation and leverage collective bargaining power and save costs for clients.
- Consider working with a freight forwarder or NVOCCs: Shipping lines like to work with freight forwarders as they commit to guaranteed cargo volumes. They can expand shippers’ ocean carrier base, permitting them significantly more power and leverage.
Ultimately, we need to be creative.
It is important to be decisive, flexible and accommodating to help secure business margins.