Ocean freight has skyrocketed recently. Some routes have increased by 20 times. Increasing by 20 times is a bit extreme, but we could say that ocean freight for the last couple of years has been too low.
In previous years, some shipping lines merged with another company, and one big shipping line went bankrupt. In last few years, many shipping lines were running in the red. Then container shortages occurred.
Even with the increased cost for ocean freight, there are still many customers who need to transport their cargo. Due to the increased demand, the shipping lines do not need to reduce their ocean freight as they did previously.
This means, once the Covid-19 situation has been brought under control, and there are enough containers in the market, they will still control container volumes. If so, ocean freight will not be cheap like it was previously.
This will result the following issues:
- Business with small profit margins will be unable to continue.
- Businesses will unable to make profit unless they deal with high valued items.
- Some products will have more advantages to be procured domestically.
- Even if there’s less profit, companies who can get volume to make profit will have the advantage.
Sea shipment is the infrastructure of the world. Ocean freight being so expensive is a problem. But being too cheap will cause more problems. Shipping lines will go bankrupt and the infrastructure will become unstable.
If there are fewer competitors resulting in fewer vessels for other countries, we won’t be able to ship cargos on time. Also, it might affect the quality of shipping line services. Maintaining the balance is very important.
In addition to this, as there are limited amount of containers available, freight forwarders who cannot get containers will struggle to survive. There have been companies who are unable to find containers resulting in no business, and companies which have containers, are busy looking for new job opportunities.
Shippers need to send their cargo on time. If their freight forwarder cannot find containers, then they will choose another freight forwarder who can. Since they are unable to get containers and ocean freight has skyrocketed, there are shippers who request to use alternative methods to sea shipment, such as air shipment and LCL shipment.
Port congestion in many countries are causing problems hence why alternative viable methods are being used. Importers are now maintaining high stock levels and they sometimes request warehouse facilities. It is important for a sales person for a freight forwarder to be able to provide suitable warehouse for importers.
So freight forwarders need to have full skill sets in providing total wholesome logistics services and experiences to customers.
A freight forwarder business can be started with few members. In the past, they were able to arrange logistics as they could get containers from shipping lines even with small volumes.
However, at present, if there is not enough volume, we cannot get containers. There is limited manpower for shipping lines, so they prioritize freight forwarders with more volume.
In summary, due to container shortages since late 2020, logistics industry have experienced a new normal. We are not going to have the same container supply and ocean freight levels as we have experienced previously. It might not be the new normal but more like returning back to old days.
For shippers, business models with total logistics services will become more important. For freight forwarders, experience and sales proposal skills will become more important. At the moment, the impact of Covid-19 is still increasing therefore its important to be flexible to the market situation.
