Nearly every business has experienced the effects of today’s global supply chain disruptions over the course of the COVID-19 pandemic, including product delays, shortages and rising costs. Pandemic-related challenges that were expected to be temporary are now predicted to last well into 2022—and potentially beyond.
The ocean freight industry has arguably shared the spotlight the most due to record-breaking prices, port congestion, container shortages and more. The average price worldwide to ship a 40-foot container has more than tripled from the beginning of 2021 and is 10 times pre-pandemic rates. Only a few months ago outside two of the biggest ports in the U.S. near Los Angeles and Long Beach, California (which manage 40% of all cargo containers entering the country), more than 70 vessels waited to dock. Before the pandemic, it was rare to see more than one.
Given today’s complexities, it’s important we examine the key 2021 learnings from the ocean logistics industry to incorporate lessons learned as we prepare to navigate the year ahead.
Lesson 1: Embrace Flexible Shipping Routes
As capacity shrank, container ships experienced record times to dock and labor shortages backlogged the unloading of cargo, 2021 highlighted that flexibility is key to a successful shipping strategy. For 3PLs and freight forwarders, this meant adapting plans in real time to manage limited resources in the most strategic way possible according to each customer’s specific product and goals.
For some large retailers and automotive manufacturers, for instance, we witnessed growing shifts from ocean to air cargo as an alternative. While air freight ensures a faster and more reliant shipment of goods, it is also a much more expensive option. According to Freightos, a $195 ocean shipment can comparatively cost $1,000 via air. Because of these major price discrepancies, we have largely seen the trend of shifting from ocean to air routes among big-box retailers and manufacturers of premium goods that can absorb the higher rates.
However, shifting from ocean to air is not feasible for most brands. Instead, flexibility in 2021 also meant pivoting to different ocean routes. Throughout the pandemic, many countries have closed or limited capacity at key shipping ports for reasons like worker shortages or limiting the spread of the virus. This presented 3PLs and freight forwarders with the opportunity to explore less traditionally traveled sea routes to try to mitigate delays. For example, closures in Australia due to COVID-19 significantly decreased capacity from the United States. As a result, some forwarders successfully rerouted to Singapore and finally to Sydney as a solution.
In 2021, we also increasingly saw shippers embrace a hybrid sea-air model. While transitioning wholly from ocean to air isn’t viable for most, shippers did strategically tap into air to move critical inventory to keep operations running smoothly on an as-needed basis. Ultimately, 2021 taught us that flexible, real-time adjustments to supply chain routes based on the current environment and each customer’s strategic goals is crucial to best navigate backlogs.
Lesson 2: Explore Agile & Visible Solutions
While the ocean freight industry has always experienced unplanned challenges beyond its control, such as severe weather, the impacts of COVID-19 have only exacerbated these preexisting issues. Now, it is more important than ever that shippers explore creative solutions to mitigate the effects of today’s both expected and unexpected challenges.
For example, in 2021, we saw the growing trend of major retailers and 3PLs chartering their own shipping vessels to combat capacity issues. Coca-Cola began chartering vessels typically reserved for raw goods like coal and iron to instead use for finished goods. Retailers such as Walmart explored chartering smaller container ships to dock at smaller ports to help side-step congestion. Also chartering vessels more and more were 3PLs seeking to guarantee capacity for clients in an ultra-tight sea freight market. While in the past this has traditionally been viewed as risky due to cost and capacity, chartering vessels became a creative solution for many this year to supplement carrier agreements.
For other shippers, particularly those unable to charter their own vessels, freight consolidation services became especially vital in 2021. Many brands leveraged Less than Container Load (LCL) services for reasons like the need to ship smaller and less-sensitive products on a more ad-hoc basis to keep up with fluctuating e-commerce demands. Partnerships with 3PLs became even more important thanks to fixed sailing schedules with space across all major routes, steady cargo volume to consolidate orders, and competitive rates and conditions.
This year also reinforced that incorporating sophisticated visibility technology into operations is imperative for maneuvering supply chain challenges. A 24/7 freight management application allows for real-time tracking and tracing and full control over shipments. Incorporating the latest visibility technology provides critical data across every stage of the supply chain—from tracking fluctuating customer demands to updates on freight in transit—to empower real-time, data-driven decisions. Visibility has proven to be particularly important during the pandemic to mitigate unforeseen disruptions by rapidly adjusting resources and strategies.
Lesson 3: Adjust Your Supply Chain with New Resources
The pandemic underscored just how critical it is to partner with supply chain experts amid times of severe disruption. In fact, a recent study predicts strategic relationships between shippers and 3PLs will increase from 28% to 45% over the next five years due to the effects of COVID-19.
There are several reasons behind this shift from transactional to relationship-driven partnerships between 3PLs and customers. First and foremost, a partnership with a skilled 3PL allows shippers to outsource supply chain management so instead, they can focus on their core competencies. Shippers found that working with a 3PL during the pandemic, when business decisions changed daily based on the fast-changing environment, was particularly significant in order to focus on running efficient operations. Deemed an essential service during the pandemic, 3PLs were also able to keep supply chains moving and businesses running.
Additionally, 3PLs are able to offer real-time adjustments to shipping strategies based on the current environment. Utilizing an international network across all modes of transportation, global 3PLs are equipped to provide comprehensive, 360-degree recommendations across the supply chain to source the best possible solution. For many businesses during the pandemic, demand was unpredictable and ever-changing. An advantage of partnering with a 3PL is its ability to quickly and easily scale operations up or down based on demand so customers can run their businesses most efficiently. With a massive network of transportation carriers, including vessels, planes, trucks and rails, 3PLs can tap into their strategic partners to best source capacity even during strained environments.
As we look ahead to 2022, it is important we learn from the ocean logistics challenges of the past year as these issues are not expected to end anytime soon. Because of this, it will be increasingly vital that businesses emphasize flexible and agile shipping strategies and relationship-driven, third-party partnerships to best navigate what is to come.
Joshua Garee is vice president of U.S. Ocean Product at GEODIS in Americas. Previously the vice president of Operations at PAC International Logistics, Garee has a proven record of growing organizational talent and implementing innovative solutions through key leadership, best practice, strategic planning, continuous improvement, financial planning and cost management.