JANUARY SETS THE STAGE FOR 2021: SUPPLY CHAIN DISRUPTIONS CONTINUE

January 2021 has started the year full of challenges. These challenges will likely create uncertainty that will shape the rest of the year. We probably won’t experience the staggering disruptions of 2020. Yet, we can expect 2020’s residual disruptions to affect all aspects of logistics.

We are already seeing rising costs of fuel and shipping. We’re also seeing a rise in delays of cargo worldwide coupled with a rise in refused bookings. As a result, we’re seeing a rise in innovation, optimization, and regulation.

Rising Costs. The beginning of the year has ushered in what appears to be a trend of rising costs. The cost of oil and shipping are increasing. We also see surcharges or space premium surcharges (SPCs) in trans-pacific shipping rates. JOC.com reports that Asian importers are paying up to 50% more than rates in the spot market. The cause for these sky-high costs is the high demand and short supply of vessels and equipment.

Rates in January for Asia-North America are approximately $4,000 per FEU to the West Coast. East Coast rates are expectedly higher at $5,000 per FEU. When you apply SPCs for capacity and equipment, the cost rises to about $6,000. If that’s not astonishing on its own, consider this. SPCs that typically guarantee space (and equipment) now are not always honored. With space being scarce, a relief in costs before China’s Lunar New Year is unlikely.

Air cargo rates are also rising due to global demand and a shortage of capacity. Average rates for Shanghai-North America in early January were $8.34 per kg. The last time rates were that high was in May 2020, when Covid-19’s effects peaked. Putting that into perspective, compared to 2019, today’s rates are 157 percent higher. (Source: JOC.com)

Rise in Cargo Delays. As shipping prices increase in Europe, EU shippers are delaying imports for Asia to sidestep these increases. Rates currently are $4,298 per TEU. Today the Shanghai Containerized Freight Index is three times higher than the rates in 2020 for the same period. And rates are four times higher than October 2020’s spot rate. (Source: JOC.com)

The effect of delaying shipments is a growing backup of containers at Chinese ports. This further exacerbates the already tight capacity shortage. As a result, competition for space among freight forwarders is heating up. For example, weekly rates per FEU are reaching incredible levels between $13,000 and $16,000.

Increasing rates will only intensify the rising trend of delayed cargo, creating more uncertainty.

Rise of Refused Bookings. As the effects of the pandemic subsided, we saw pent-up demand pop. Westbound trade is increasing, increasing demand for ships and containers. Also, carriers are compounding this problem by refusing bookings for eastbound trade.

Carriers have refused bookings, so they can ship empty containers to Asia. In many cases, carriers are doing this so they can stock containers with higher paid cargo. This has led the US Federal Maritime Commission to step in and warn carriers to stop this practice. It not only disadvantages U.S. exporters but also leads to greater trade imbalances.

Rise of Innovation and Optimization. Combatting the continued turmoil caused by post-Covid, appears to be an emerging trend. With so many unknowns a reversion to normal operations is unclear.

Thus, we’re beginning to see a rise in innovation and an emphasis on optimization. New conditions demand new solutions. Old ways of doing business won’t work in this increasingly competitive environment.

In particular, capacity shortages seem to be driving innovation and optimization now. Companies are looking for alternative ways to move freight and LCLs is one of them. LCL shipments offer flexibility as well as speed.

Greater use of LCLs can ease the pressure on limited capacity. Moving freight reflects one obvious use of LCLs. Another is the movement of empty containers. Hence, LCLs represent a new strategic asset.

In addition, optimization is also emerging a trend. As competition heats up, businesses are looking for smarter ways to do business. Rising customer expectations and pressures to cut costs further spurs the drive for optimization.

Technology for technology’s sake is a thing of the past. Instead, technology development will likely focus on extracting greater efficiencies. Several areas offer potential savings in time and money.

First, we have more efficient routing. Next comes improved crew communications and training. Third, we have the development of solutions to deal with the effects of regulation. That includes development of biofuels and vessels that burn VLSFOs.

THE YEAR OF RESILIENCE AND STABILIZATION

Last year’s disruptions to supply chains was a year for the history books. Wracked by Covid-19, supply chain reacted, morphed, and adapted. And many transformed more quickly than expected. Surprisingly, many businesses recovered, making resilience more than a buzzword.

The new year, on the other hand, will likely shape up to be a year of resilience and stabilization. The logistics industry’s stakeholders, like you, must continue to adapt to thrive. Refining business processes and developing new technologies will consume your time.

Shippers must operate more effectively and efficiently than ever before. Pressures to build agile and resilient supply chains will dominate 2021.

It’s how you will differentiate your business from your competitors. And that will require greater innovation and optimization.

At Terra Worldwide Logistics, we’ll work closely with you to help you achieve stability and growth.

Contact us to today to find out more about partnering with us.