How to cope with ocean freight unstability in pandemic time?
Ocean freight services have been and are still strongly obstructed by the COVID-19 crisis. This creates extra strain on logistics or supply chain departments in global organizations that need to juggle with surge in freight rates and surcharges, occurring in tandem with reduced service liability, a key performance indicator for shippers and supply chain managers, If you’re in charge of logistics and ocean freight in a global company, you know that even a minor delivery delay can create havoc for your business. In this uncertain and ever evolving situation, what can be done to mitigate the risks and inflating costs?
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Ocean Freight is still the preferred solution for long distance freight forwarding
Ocean freight remains the most widely used solution for transporting goods around the world. With 170 million TEUs (Twenty-foot Equivalent Unit) transported each year, 90% of the volume of goods shipped worldwide each year travel by sea and it’s still expected to grow as international trade develop.
Indeed, the entire ocean shipping system is designed to be more and more efficient and to meet the ever-increasing demand. For instance, the size of the largest container ships has more than doubled since 2000 and the last decade has seen the coming of a new generation of gigantic ships: the ultra large container vessels (ULCV), which can transport up to 24,000 TEUs.
However, although the development of ULCVs has helped achieve objectives such as cost reduction, optimized fuel consumption and reduced CO2 emissions per container, supply capacity has not grown fast enough to meet demand coupled with constraints for ports to adjust.
Ocean freight amid the pandemic: sailing on rough waters
The efficiency race among ocean freight companies has led to a few major bankruptcies and a new round of consolidation. With 10 carriers controlling 85% of global container capacity and the creation of 3 main operating alliances (2M, Ocean Alliance, The Alliance), the ocean freight offer has been significantly reduced and product differentiation is now very limited (routing, transit time, port of calls, etc.)
This situation of dependance on a limited offer of very large vessels has increased the impact of incidents or delays. And when the sanitary crisis came, provoking major logistics disruptions, it resulted in severe price hikes, continuous delivery delays, misplacements, and container space shortages.
However, if the situation has not yet recovered, it is not totally the ocean freight carriers’ fault. Because of the various lockdowns, global demand is now peaking, and the global sea freight capacity cannot keep up with it. To make the situation worse, about 15% of container carriers are caught in bottlenecks at the ports that have no slots available or not enough workforce.
Does this mean that companies will have to switch to other shipping means in the future? Not necessarily, but as ocean freight is an unpredictable market where shippers have limited leverage, they might need to use some help to reduce expenses, ensure container capacity and service reliability.
Choosing a strong ocean freight partner to cope with an unpredictable market
If you’re handling logistics for a global company, you might have experienced some difficulty to secure container space, contain costs and ensure delivery reliability, especially in the midst of the sanitary crisis.
Ocean freight is a seller’s market, and it requires a lot of legwork if you want to be continuously informed of the prevailing market rates, benchmark the different options, negotiate, forecast, or find alternative solutions or opportunities.
Using a freight forwarder can simplify the logistics sourcing process and improve planning, scheduling and budgeting. As logistics partners, they are able to:
- secure better long-term rates because they have access to market insights through a wide network of partners, they work with many carriers and have access to intelligence and analytics tools,
- increase visibility and monitoring of port calls and liner various schedules through better and global digital tracking, they have access to choose the best route for your cargo, and digital tools to keep you informed in due time.
- offer greater choice and flexibility because of a wider carrier base, port bundling techniques, and access to alternative transportation options
Building a strong relationship with a freight forwarding partner
Building a relation of confidence with a logistic partner is the key to ensuring your goods are delivered where they are expected, when they are expected, even in a difficult market.
In a difficult freight forwarding market, agility and creativity are key.
GEODIS has been able to secure specific bloc space agreements for its customers on main sea lanes, especially on the Asia to Europe route which has been particularly affected by delays due to the COVID crisis and the Suez Canal incident. In addition, when ocean freight is just not an option, GEODIS teams are able to work with alternative solutions such a rail. For example, they have managed to rush about 800 tons of paper from Helsinki, Finland, to Yokohama, Japan, for Tetra Pak. This was the first rail freight from Northern Europe to Japan in 30 years!
As ocean freight prices are expected to remain high until the beginning of next year while the strain on container capacity will endure until new ULCVs are delivered in 2023, you might want to consider working with a strong freight forwarding partner, such as GEODIS, to get you through the ocean freight storm.
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