Transportation News

3 International Transportation Trends Impacting Shippers in the First Half of 2018

When it comes to international transportation service providers - oftentimes the “service” aspect of the service provider is lost in the shuffle of price competitiveness and transactional management of daily shipments.

The first 3 months of 2018 have been somewhat predictable on the international transportation front.

Ocean freight prices have looked much the same as they did last year while capacity remains relatively accessible, unlike what is going on domestically with over-the-road truck availability.

We appear to be in the middle of a normalization of the international transportation market, however, we also see 3 significant trends taking shape that will impact shippers for the remainder of 2018.

1. eCommerce Demand is Creating More Pressure on Air Freight Capacity

Air freight capacity has been consistently tightening through the beginning of 2018 coming off a strong 2017.

As eComm consumers continue to demand shorter and less costly product availability, along with faster new product launches and design updates – importers are seeking to mitigate inventory carrying costs by any means necessary.

Air freight inbound volume has been on a steady rise, 2018 appears to be trending unfavorably for shippers seeking readily-available capacity as in years past.

What Can Shippers Do?... Proactively protecting space with both carriers and freight forwarders is becoming more of a best practice for mid-size and even smaller shippers.

As is the case with ocean freight, communicating air freight capacity requirements to service providers on a quarterly basis, and then building in a monthly or even weekly update rhythm will help mitigate upcoming airfreight capacity challenges shippers will be faced with this year.

2. 2018 Ocean Rates Will Be More Volatile Than in 2017

2018 promises significant ocean carrier rate volatility as growth in capacity outpaces growth in demand.

If we look at Trans-Pacific Eastbound lanes, current forecasts show 8-9% growth mostly due to an influx of larger modern vessels coming online. Meanwhile, freight volume is steadily growing although “only” at a 5-6% clip.

This usually signals carriers will attempt to create artificial capacity shortages throughout the year to push prices up. Very soon, we can expect carriers to begin ramping their efforts on a monthly or even bi-weekly basis through GRI, PSS, and holding back some vessel space. Although this scenario typically only creates temporary price hikes, as structurally softer “real” demand will pull rates back down – the rate volatility will be felt by shippers.

What Can Shippers Do?... We can never stress enough the need for shippers to create flexibility within their transportation operation, there are 2 common ways to do this:

  1. Flexibility thru freight commitments: offset annual contracted cargo volume with a healthy amount of freight reserved for the spot market. A blend of fixed & variable pricing volume will help mitigate some risk, but also allow shippers to take advantage of price peaks and valleys that will come as the year progresses.
  2. Flexibility via carrier network: small & mid-size importers should work closely with their forwarders, and larger importers should consider bringing in forwarders as alternate shipping options. Maintaining options in the supply chain is crucial when capacity becomes tight, especially in peak season, and helps provide transparency to market rate fluctuations.

3. Transportation Visibility Is Better, however, Predictability Remains Elusive

Visibility to cargo location continues to improve in the supply chain. Shippers and service providers have good visibility from origin to destination, while improvements at ocean ports and container yards have helped alleviate some congestion issues that have plagued them in the past. And of course, the rapid advancement of tracking technology and analytics tools continue to provide more and more transportation information.

However, once shipments arrive, an overarching lack of predictability of next status continues to present a challenge.

There are several factors at play, including significant over-the-road truck capacity shortages, and an imbalance of chassis availability as shippers continue to push for more free time to buffer delivery windows. The chassis situation has created a major strain on inland US ports like Chicago, where the industry has been seeing a significant gridlock at container rail ramps. Some estimates put Q1 chassis utilization for Chicago ramps down significantly to just over 60%.

The impact of electronic logging devices (ELDs) has also impacted capacity, pushing some drivers away from the rail ramps to over-the-road loads. In addition train delays and weather contribute to gridlock. With a premium placed on reduction of in-transit inventory and tighter delivery window requirements, lack of predictability in transportation has become top of mind for folks in logistics.

What Can Shippers Do?... to mitigate gaps in visibility and predictability, foster a strategic partnership with your logistics provider. By involving provider(s) not only in shipment execution activities, but also upfront in planning - a shipper will create higher levels of predictability within their supply chain, and ultimately reduce risk and control costs.

When it comes to international transportation service providers, service is more than simply moving freight from point A to point B. Oftentimes the “service” aspect of a service provider is lost in the shuffle of price competitiveness and transactional management of daily shipments.

The following graphic outlines four cornerstones upon which shippers can evaluate the level of service received from logistics providers and freight forwarders.

Enlarge Forwarder Service Scale

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Article Topics
Trends   Transportation   Transportation Management   Freight Transportation   International Freight   Shippers   All topics

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