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HOW TO PREPARE FOR THIS YEAR’S CHALLENGES AND OPPORTUNITIES

supply

HOW TO PREPARE FOR THIS YEAR’S CHALLENGES AND OPPORTUNITIES

Twenty twenty-one was a difficult year in global logistics due to ongoing volatility. We worked alongside customers navigating the Suez Canal block, hurricanes and cyclones, port and terminal closures due to COVID-19 outbreaks, customs and trade changes, labor shortages and more.

I’ve been in the industry since 1997 and I have never seen this level of continual disruption across the entire supply chain for this length of time. However, with this year’s volatility, I was also given a front-row seat to a new level of hyper collaboration–including individuals going out of their way to help each other, more strategy sessions between shippers and forwarders, and continually leaning into historical data and current market insights find smarter solutions.

As we begin another potentially volatile year, I wanted to provide key strategies for global shippers to consider.

SEEK CREATIVE SOLUTIONS ACROSS THE ENTIRE SUPPLY CHAIN

At year-end, we typically see a jump in demand as shippers meet quarter-end quotas and prepare for the upcoming Lunar New Year, during which many factories in China shut down. However, in early 2022, shippers are also juggling potential delays from the Winter Olympics in Beijing throughout February. All of this is amid a strained supply chain market, which will take time to ease.

As you prepare for the year ahead, consider what different modes, trade lanes or inland transportation strategies you can implement in your supply chain. For example, while it may not be feasible to transport 100% of your freight via air, air freight continues to be the fastest way to replenish inventory, so prioritizing specific freight can help keep cargo moving. In fact, C.H. Robinson is running on average 15-17 air charters a week globally for customers looking to avoid the congested ocean ports, and we don’t expect that number to decrease in the near future.

Additionally, as demand and rates will likely continue to stay elevated, less-than-container load (LCL) shipping is a strategy to consider. Typically, space for LCL shipments is easier to find especially in a constrained capacity market, since you are only looking for some container space versus an entire empty container. We also continue to see large cost savings with expedited LCL services compared to today’s airfreight environment.

Keep in mind, LCL shipments are not going to bypass congestion at the ports, so inland strategies need to be considered. Currently, many ocean carriers are looking to move more interior point intermodal cargo versus focusing on port-to-port. We were able to help increase the flow of cargo inland for our customers by sending more 53-foot containers so cargo on the smaller 40-foot ocean containers can be efficiently consolidated in the larger ones and loaded onto trucks or trains to be taken to inland destinations more quickly. Overall, this increased our container capacity by 25% in Southern California.

Indeed, looking at only one portion of the supply chain or one mode can only get you so far. It’s important to consider all areas to keep your cargo moving.

UTILIZE DATA AND TECHNOLOGY

Although 2021 rendered a lot of unique situations—and 2022 may do the same—historical data can still help us find solutions. Finding common trends and themes in your cyclical data can give you an information advantage to make smarter decisions for your supply chain.

Additionally, the right technology tools can give you the visibility and predictability you need to adjust. For example, with the ongoing port congestion and delays, C.H. Robinson enhanced the vessel routing and tracking features within our transportation management system, Navisphere, to increase the efficiency and accuracy of port ETAs and automatically send updates if changes were discovered. This is important because ocean shipping is only one piece of the equation. Having visibility to changes in real-time gives our team and customers a chance to react and adjust other tactics down the road.

LOOK TO GLOBAL TRADE OPPORTUNITIES

It’s unclear whether we’ll see a reinstatement of certain Section 301 China duty exclusions. At press time, the House and Senate had yet to reach consensus on the legislative proposals. If passed, it would be effective through the end of this year.

While congestion and shortages continue across transportation modes, one area where you may find opportunities for savings is in your global trade strategy. Since each country’s trade policies are unique and can change, it’s important to have regular meetings with your trade advisor to break through the complexity of your total landed costs, including understanding your costs to import, identifying duty recovery possibilities and reducing your duty exposure via trade agreements.

For example, our team has helped shippers identify thousands to millions of dollars in tariff refunds alone. If you import into the U.S., you can easily check for potential savings and refunds with our online Tariff Search Tool—www.chrobinson.com/en-us/resources/insights-and-advisories/trade-tariff-insights/hts-search/—and, if you’re sourcing from other countries, our team can create a customized sourcing report sharing potential cost savings or avoidance opportunities.

OCEAN FREIGHT UPDATE: GLOBAL

Forecasting remains essential. For this new year, we strongly encourage forecasting six to eight weeks minimum as a best practice. Considerations for staying consistent include:

-Prioritization

-Variability in SKUs/parts

-Smoothing volumes week-to-week

It’s important to be flexible in all facets of a shipment life cycle including:

-Carriers

-Equipment

-Modes

-Routing

OCEAN FREIGHT UPDATE: NORTH AMERICA

-Port congestion continues to strand vessels and equipment. In Los Angeles/Long Beach (LALB) there are more than 90 vessels with an average 18-30-day dwell. Seattle and Tacoma are experiencing an average of 12 days to berth, while Savannah still has more than 20 vessels waiting at anchor.

-South East Asia transshipment hub ports are also impacted, causing heavy delays on non-direct services via Asia.

-Overall capacity is affected by ongoing port congestion in many trade lanes. Vessels are oftentimes delayed back to their origin, missing scheduled port calls to unload empty equipment, and pick up new laden exports to the United States.

-Schedule reliability and operational constraints are forecasted to continue.

OCEAN FREIGHT UPDATE: OCEANIA

-The supply chain in Oceania continues to be negatively impacted by the global supply chain disruption. Terminal congestion and suspension of pro forma berthing windows are having an impact on shipping schedules.

-Our teams are exploring diverse options in moving longstanding containers to help customers mitigate significant delays.

-The impact of port delays around the world is likely to keep freight costs high on all outbound trades.

FINAL THOUGHTS

While there is no one-size-fits-all approach, the above options provide shippers with strategies to help mitigate delays and identify potential savings as we begin another potentially unpredictable year.

Shippers have had to become increasingly nimble and informed over the past year, and now in 2022, it’s critical to remain agile, be open to alternative solutions and stay informed on the latest market insights. 

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Mike Short is president of global forwarding at C.H. Robinson. The Eden Prairie, Minnesota-based company solves logistics problems for companies across the globe and across industries, from the simple to the most complex. With nearly $20 billion in freight under management and 18 million shipments annually, C.H. Robinson is one of the world’s largest logistics platforms. Their global suite of services accelerates trade to seamlessly deliver the products and goods that drive the world’s economy. With the combination of our multimodal transportation management system and expertise, they parlay an information advantage to deliver smarter solutions for more than 119,000 customers and 78,000 contract carriers. Learn more at www.chrobinson.com. 

air

AIR PLAN MODE: REACT, ADAPT AND COLLABORATE TO MOVE FREIGHT BY PLANE

When we think of the “future” in terms of the global supply chain, advanced technology and new forms of disruption are usually among the things international shippers are most concerned about. With 2021 at its end, the “future” is right around the corner. Meaning, what supply chain players do now (and what has been done thus far) will inevitably impact 2022 and beyond, and the more one understands this market’s evolving patterns, the more successful they will be in managing what is to come. 

Throughout the past year, the air freight market has seen various shifts, particularly with global capacity constraints, remnants from pandemic-driven disruptions, and an overall increase in demand. To fully understand the future of air freight, we must look at the big picture. To do this, BDP International’s VP of Global Airfreight, Patrick Olyhoeck, shares what global shippers can do to navigate 2022. 

The first shift is perspective. 

“Industry players can be more proactive by learning to fully understand industry challenges from a customer’s perspective to help them collaboratively overcome challenges,” Olyhoeck says. “The industry is impacted by factors including COVID-19 recoveries… and fundamentally, proactivity can only come from understanding key market challenges, thinking forward and engaging across stakeholders to find future solutions.”

He shares the following shifts are among the most significant currently being felt across the market:

-Impacts on capacity due to lower passenger numbers

-Impacts from the re-balancing of trade relations

-Impacts from the knock-on effect of capacity needs from ocean to air 

-National level challenges including HGV drivers in the UK impacting final the distribution of air cargo

Despite these shifts, in addition to the ones not yet seen or felt by the market, it is quite clear that some challenges are here to stay–pandemic or no pandemic.

“The basics of the market did not change,” Olyhoeck says. “Compare it with a soccer game, two decades ago. The speed of today’s game is enormous with real athletes on the pitch but still, you need to score to win the game–this is equal to our industry. Although regulations and customer needs are changing, we still move air cargo from A to B. The nature of air cargo remains focused on speed and safety to justify the choice.”

In addition to the evergreen nature of regulations and customer needs, Olyhoeck stated that global capacity constraints are expected to be felt for at least another season, and the key to managing this can be found in verticalization strategies. Limiting transport methods not only hurts your business but can be felt by your customer base as well. Maintaining reliable, transparent customer relationships is more critical now than ever before to remain competitive.

“Verticalization is the way to move forward where expertise and experience meet,” Olyhoeck says. “Digitalization will play a significant role. It is necessary to control your capacity to meet your customer expectations throughout the supply chain and therefore not limited to the airport-to-airport move only. From a company view, we need to stay resilient, embrace technology and keep pace with innovations in close relations with our customers.”

Streamlining information with the help of technology is a considerable factor that separates the good from the great. We live in a world where having the latest technology no longer cuts it. A shipper’s competitive advantage is not found in the kind of technology used for customer needs but more of what data is provided through technology to better understand, predict and manage customer needs. 

“We need not only to embrace technology but also accelerate the exchange of data as the impact is significant,” Olyhoeck adds. “Currently, too many stakeholders operate different systems with diverse needs. The use of digital pricing and booking platforms will help to increase efficiency and improve turnaround time, and it does get the attention from the shipper playing field to serve them with their best interest in mind.”

Collaboration is key and gathering the right data will further streamline processes to success. BDP manages its customer needs through the utilization of technology platforms that provide relevant, timely, and critical information. Combining the best of both technical capabilities and data, customers can rely on this approach to share the information needed to overcome market shifts. 

“BDP technology forms a fundamental part of how we manage complex, high care, dynamic supply-chains through both normal and abnormal market conditions,” Olyhoeck says. “We invest in platforms to provide insight into data integration and aggregation, platforms which support communication and exception management, and platforms that automate and simplify processes to help manage complexity and streamline our communications with customers. Our customers and partners are kept informed every step of the way in critical journeys.”

Even more significant is the need for more attention to budgeting and forecasting in the air cargo sector. According to Statista, 2021 will end with an expected 63.1 million tons of freight carried globally.

“Unfortunately, forecasting is underexposed,” Olyhoeck shares. “As in various industries, the budget and forecast for shipping pure air cargo is zero, but shippers still end up shipping millions of kilograms by air each year.” 

So, is there such a thing as a formula shippers can rely on for the future of the industry? Simply put, yes. But without key components of communication, technology and data, customer relationships and operations are projected for complications. 

“Energized teams supported by the latest technologies plugged in and managing global networks is not new to the industry,” Olyhoeck notes. “The chaos brought on from the pandemic, within the ocean markets impacting air, shows that having teams that can react, adapt, collaborate and solve using insight and intellect many times outstrips the technical component of competition.”

Simply put, modern market relationships and collaborations cannot be compromised. As Bob Hooey once said, “If you are not taking care of your customers, your competitor will.”

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Patrick Olyhoeck has more than 20 years of experience in the logistics sector. Having joined BDP in 2009, he filled local and regional positions before recently being promoted to vice president, Global Airfreight. In this role, he is responsible for one of the strategic key contacts for the international airline industry and the evolvement of offering premium global supply chain transportation service to a wide range of valued customers through the designed Global Consolidation Model. He can be reached at patrick.olyhoeck@bdpint.com.

airfreight

Airfreight Prices Reach New Heights Ahead of the Holidays

Numerous analysts agree that the upcoming holiday season could bring numerous supply chain challenges resulting in sold-out products, delayed replenishments and disappointed customers. Airfreight cost rises are already emerging as an obstacle in the mix.

Capacity Shortages and Rising Demand

Insights from airfreight logistics professionals and other people in the know suggest that reduced capacity on flights coupled with surging demands are two factors contributing to the current conditions.

An analysis of air cargo rates for September 2021 illuminates how all regions could experience the effects of more logistics professionals availing of air cargo services when they can. The push to secure spaces has pushed some major brands to invest in their own planes. However, smaller retailers are often left out because they lack the resources to cope with higher rates, let alone dedicated aircraft.

Global demand levels were up by 9.1% compared to figures collected for September 2019. Unfortunately, available capacity is 8.9% below pre-COVID-19 levels. However, other sources clarified that although volumes are up, not all planes are full.

When the report drilled down into regional situations, it revealed that Asia-Pacific airlines saw international cargo volumes rise by 4.5% compared to September 2019 figures. European carriers saw a similar 5.3% volume increase, and demand went up by 6.9% for the North Atlantic trade lane.

African, Middle Eastern and Latin American carriers felt even more intense pressure during the studied period than in September 2019. African airlines coped with a 34.6% jump in international cargo demand, while those in the Middle East and Latin America had overall upticks of 17.6% and 17.1%, respectively. The capacity shortage was particularly pronounced for Latin American air cargo specialists, with availability down more than 24% on 2019 levels.

Air Cargo Still an Appealing Option

Since goods often travel incredibly long distances to reach their destinations, intermodal transportation is increasingly necessary. It involves using at least two methods, such as a ship and a truck, to get cargo to the right places. However, it’s not always easy to choose the best options. That’s because airfreight is not the only sector saddled with extra demand.

In the United States, March 2021 container volumes for the Long Beach and Los Angeles ports were up 97% on the previous year, resulting in the busiest March recorded so far.  Also, the United States, Europe and Great Britain are among the places dealing with truck driver shortages.

While facing those obstacles, logistics professionals may understandably conclude air cargo carriers are among the best options, provided they’re willing to pay the associated rates. One issue is that many experts believe port backups won’t resolve anytime soon. A proposed solution to keep some United States ports open 24 hours may not be enough to make significant impacts, either.

Those realities have pushed more people to consider air cargo as a possibility. Bruce Chan, a senior analyst at investment bank Stifel, said, “Terminals and container yards are full. Drayage capacity is tight due to structural driver supply issues, as well as compounding disincentives to pick up from ports as a result of the delays.”

He continued, “As such, we believe there is a contingent of inventory that will not arrive in time for the seasonal rush via ocean and that freight may be converted to air.” Numerous logistics professionals have nonetheless warned consumers to expect product shortages this year. Some have recommended that shoppers take pictures of items and put them into holiday cards in case the actual products show up late.

A Few Things to Know Before Considering Airfreight Options

Shipping things by air is often the most desirable method when speed is a priority. Plus, delicate items, such as electronics and designer clothing, are among the products that most commonly travel in planes.

Airfreight cost averages were typically higher than other transportation methods even before these recent rises. Therefore, shipping more expensive items by plane was a popular choice because the hope was that the higher product revenue would justify the expenses.

However, carriers don’t accept goods in all cases. For example, aerosols with an aggregate weight of more than 150 kilograms cannot travel in a passenger aircraft. People should take the time to verify that cargo specialists will accept their products rather than assuming that’s the case. All forms of product transportation require considering things like weight and flammability to ensure safety.

It’s also more complex to prepare products for shipment by air versus sea. The cargo gets loaded onto a pallet in a warehouse, wrapped with plastic, and secured with cords and ropes. Packing the products together as tightly as possible is critical because shifting significantly during a flight could cause the plane to crash.

These details mean that even if someone is prepared to deal with rising airfreight costs, they must take the time to check that plane-based shipments are right for their products and their overall needs.

Passenger Air Travel Increases Could Decrease the Crunch

Even if there are no significant airfreight cost decreases on the horizon, an expected bump in passenger flights could ease the current capacity issues. For example, the United States recently reopened its borders to many international travelers who can show proof of their COVID-19 vaccinations.

The largest cargo holds in passenger planes’ bellies accommodate the equivalent of two 40-foot freight containers. At one time, they carried as much as half of the total air cargo capacity. Many airlines expanded their cargo space during the pandemic, but it still did not compare to levels seen previously.

Part of the reason was that airlines most dedicated to expanding cargo capacity limited the changes made. Representatives worried that demand could dry up in the future, meaning any efforts to expand cargo space might only bring short-term payoffs. However, the anticipated passenger flight boom won’t universally affect available areas.

Logistics professionals expect the most benefits to come from planes carrying people between the United States and Europe. However, the effects will not be as notable for transpacific flights.  For example, many pandemic-related travel restrictions remain in effect for China. Plus, more passengers originating in Europe traveled to the U.S. than to Asian destinations even before the pandemic.

Airfreight Logistics Are Continually Complex

People considering shipping goods by air have many pros and cons to weigh, and that was the case before rates began climbing. Being aware of those aspects will help them conclude whether the cost is worth the money when considering all other factors.

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Emily Newton is an industrial journalist. As Editor-in-Chief of Revolutionized, she regularly covers how technology is changing the industry.