What you will learn in this article:
What’s happening in shipping right now and why
What experts are saying about the current situation
What the predictions for the next months are
How you can assure your logistics are running smoothly
21st December, 2020
2020 has experienced huge swings in international trade, from lockdowns to contain the COVID-19 pandemic slowing down operations across businesses in spring, to a growing container demand driven by drastic changes in consumer behaviour in the second part of the year. As a result of the higher demand, we have seen less vessel capacity and availability of empty containers in specific locations, such as China, driving freight rates upwards. Looking ahead, it is expected demand will persist, but the situation can change quickly. Supply chains are complex and designed to be cost-effective, so assessing demand and planning shipments in advance will be essential to be better prepared for the next months ahead.
What has happened over the last few months?
COVID-19 has not only made an impact on our social lives and health precautions around the world. It has also caused disruption in the global economy – including shipping and transportation markets. During the global lockdown in the first half of 2020, physical shops closed, and global demand dropped. In response, the container shipping industry cut capacity and reduced the number of containers being shipped in order to sustain their own business models.
However, global lockdowns also meant that the demand for services such as holidays and flights declined. Since June, demand in consumer goods has seen a huge increase, especially in the Western World – which was boosted by fiscal stimulations in many countries. Therefore, sales of FMCG products, Electronics, Textiles, Personal Protective Equipment (PPE) and Home Improvement products such as Do-It-Yourself tools increased.
As Richard Bingham, Global Sales Director at Maersk, describes, COVID-19 has highlighted the challenges for global manufacturing and sourcing. As “many companies were taken by surprise in the COVID pandemic with insufficient stock”, they wanted to “avoid a loss in sale” and therefore increased their stock levels. Additionally, while consumers were asking for other products, companies needed to rush and produce different products to avoid losing business
"This is being coupled with the demise of the high street retail setup in many Western and developed countries as people move more to e-commerce. As people by and large still have incomes and we can’t travel or spend money in the same way on leisure facilities, we are doing more things in and around our houses and garden. These items are typically shipped in containers, so paradoxically as the global pandemic hit, most of the countries where we operate in, are seeing incredible growth in the demand for goods transported in containers."
Most of these goods are being produced in Asia and consumed in Europe as well as the USA. Kathy Li Li Lou, Business Product Owner for Ocean at Maersk, outlines that a lot of these consumer goods are then transported via routes from Asia to the USA, as well as from Asia to Europe. Therefore, exports out of Asia, especially to Europe and the US, grew significantly throughout the year. For instance, the Los Angeles-Long Beach port in California has handled 12% more imports from Asia to the US within the period of June through September, compared to 2019.
With that in mind, our key stakeholder and industry leader Maersk immediately deployed all available capacity, providing more containers and alternative modes of transport to move more goods on these routes. But given the current infrastructure and COVID restrictions, this demand could not be met within such a short ramp-up period.
What is the Status Quo in the shipping industry?
It has been a challenging year for the transport sector. During the closure in spring, it seemed like consumer demand in goods would decrease - today the challenge is different: shipping capacity is under pressure and freight prices are rising.
On top of that, vessels do not reach ports when scheduled, as they face longer waiting times to unload at the ports. This is described as port congestion – meaning that ships arrive at the port and cannot load or unload, as the port capacity is already full. So, they can only queue up and wait for their turn to get a spot at the port. To alleviate this situation, many ocean carriers are implementing new measures - for example by reducing the free time at the destinations, or sometimes missing out ports altogether and making alternative arrangements to deliver customers’ cargos to avoid overall delays.
Lars Mikael Jensen, Senior Vice President and Head of Network at Maersk, states that these delayed operations at many ports around the world are not only seen because of bigger volumes but also because a lot of workers are impacted by COVID – “leading to a reduced workforce in some ports”. With an additional lack of warehouse space and truckers, we can see that “every part of the supply chain is impacted.”
What happens next?
As lockdowns continue, it is expected that shopping behaviours will continue as they have in the last quarter. So, during the next months, capacity constraints will remain. Shortages will run at least until the Chinese New Year in mid-February 2021, until factories in Asia will shut down for the local holidays.
"We expect the rush to continue all the way up to Chinese New Year and may even continue after. But we do think it will resolve itself during the first half of 2021. If that is in March or May - that depends on continued consumer spending."
Richard Bingham adds that governments won’t prolong their economic incentives infinitely, which will likely cause a drop in consumer demand in 2021. The further development will also depend on COVID-restrictions being lifted or not – as well as the vaccination coming globally into circulation. Once this is underway, the situation is expected to normalize again.
What can you do to reduce logistics challenges?
We know that as an SME, you can’t wait forever for your cargo to be shipped. As Richard Bingham points out: “Many of our customers struggle with the delays and high prices they experience.” So, what do you need to do to overcome the current challenges?
We have summarised the most important steps you should take now to keep your cargo flowing:
Get in touch with your suppliers: Talk to them and see if they can deliver your cargo earlier or later than agreed if you are facing time constraints.
Reach out to business partners and customers: It is crucial to inform your business partners and customers about delays. As Martti Leitert, Country Manager DACH at Twill, outlines, you should now be “brave in making decisions”. He further recommends: “Talk to your partners and make them aware the pandemic is changing behaviours. Partners need to stand together in overcoming the transformation to a new consumer behaviour.”
Talk to your logistics service provider: Ask them for alternative routes - they are the experts in their field and will be able to help you out to avoid long waiting times in the next months. Do you want to ship with Twill? Then you can chat with one of our Twillers
now, contact them via email or phone.
Consider an alternative transportation mix: The mode of transportation is an important consideration when planning your shipment – particularly right now. Besides the costs, the urgency of the shipment, the value of the goods being shipped as well as the size and weight of the goods need to be evaluated when determining the form of transportation.
Think ahead: Is your cargo not time-sensitive and does therefore not need to arrive urgently at its destination? Then pre-book your cargo now – with that you can add some buffer to your overall transportation timeline.
Find alternative ports: Check larger ports than the ones where you would normally load your cargo. There it will be easier to find available loading space for your freight.
Choose different container types: You might normally use 40-foot containers to transport your cargo. As the capacity constraints count especially for 40-foot containers, and 20-foot containers are mostly available, this might be another container type to consider for your cargo.
If you have further questions, just get in contact with one of our Twillers. They are here to help and support your business and logistics operations through these unprecedented times – 24/7 no matter where you are.