The shipping industry has experienced one heck of year since IMO 2020 took effect. Looking back, it is reasonable to state that ocean shippers were focused solely on ensuring compliance was achieved to meet the new standards in combating the emissions footprint. Outlined in our article from last year, the issue of cleaning bunker fuels for the first time paired with the contractual challenges presented by the regulation posed new sets of challenges to be met–and quickly.
Fast-forward to mid-2020, and shippers found themselves in a completely overturned economic situation due to the pandemic. Capacity restraints, shutdowns and cost fluctuations were beyond what any industry could have predicted for 2020. When the impact of the pandemic was truly felt for shippers in mid-March, IMO 2020 compliance quickly became a backburner concern, due in part to proactive preparations in meeting regulations and identifying how the industry would overcome the new disruption. This “new normal” forced changes in forecasting and management on a new level.
Global Trade Magazine talked with Carmen Gerace, BDP International’s chief transportation officer, about the state of the ocean shipping sector and how IMO 2020 in conjunction with the pandemic shifted operations. BDP International is one of the world’s leading, privately held freight logistics and transportation management firms.
“Most of our clients, at this stage, have really done a superb job at meeting compliance standards for IMO 2020 and reducing the carbon footprint,” Gerace says. “Interestingly enough, IMO 2020 got pushed back to mid-March at the onset of the pandemic with everything shutting down. Our clients had a year to prepare for IMO 2020 and they prepared well and were ready to go. Places like Freight 4 did not contribute to the current chaos of the ocean situation we have today. Industry players were prepared and ready, then everything else hit, and it went from there. That’s where we sit today.”
Aside from COVID-19, reducing emissions has been a success for most of the industry, according to Gerace. Despite setbacks and delays, shippers were responsive to the call of IMO 2020, contributing to the overall reduction in emissions output and preparing vessels accordingly.
“The risk of non-compliance simply could not be afforded by ocean line providers,” Gerace says. “New builds, scrubbers, retrofitting and the undertaking that they had to put forth to achieve this had to be pushed back; however, it has been a success thus far. Additionally, the threat of ships being restricted to berthing into ports pushed compliance efforts even more. Ocean carriers simply could not afford that risk.”
For 2021, the industry will have COVID disruptions to manage. From ensuring the safety of employees to accurate forecasting, it is critical for ocean liners to predict market fluctuations to keep costs and operations at optimal levels. With April just a couple of months away, shippers will have new rates to consider, as the expiration for current rates is on the horizon with the potential spike in air freight to transport the COVID vaccine. How these fluctuations are handled is a matter of timely forecasting and proactive measures now to ensure success for the next year and beyond.
“COVID recovery remains the largest challenge for shippers currently,” Gerace says. “This, paired with the potential increased concentration of the air freight markets due to the demand in transporting the vaccine, will undoubtedly present problems. As we anticipate an influx in vaccine transportation demand, it is important to remember that air-cargo capacity has its limitations, and this could create an attractive opportunity for ocean shipping.
“The downside to this is increasing capacity on the ocean side, becoming more backed up than it already is. Once that occurs, costs are at the top of mind. Costs are up roughly 170 percent compared to where things were this time last year. This will not go down within the first four months of 2021 and quite frankly, it will never go back to where it was. It is going to come down again at some point, but the question is, when? Some predict May, some predict June.”
Gerace notes that the industry relies heavily on the transpacific eastbound market, and all those rates expire by the end of April.
“It is critical for the industry to get freight ready for 2021 and the beginning of 2022,” he says. “Cargo carriers, BCOs, etc. must work on their budgets and operations anticipating this. The question is, how much have they taken into play that the first four months of 2021 could very well be as bad as all of 2020 from the cost perspective?”
At this point, maintaining compliance efforts and efficiencies are on the backburner for industry players. What is more of a concern comes in the form of accurate predictions, cost management and proactive preparations based on these forecasts–predicting market challenges related to COVID, and how that will trickle down to shippers’ bottom lines. BDP takes these factors into account for their clients, encouraging forecasting to ensure the timely allocation of resources, space and equipment, which Gerace characterizes as critical in these times. The more a customer can forecast out, he says, the better off BDP can align with partners to quickly and effectively reserve resources needed for success.
“BDP has different options for customers from LCL cargo to sea-air, air freight, chartering and more,” he explains. “We look at anything else our customers’ ask us to do. Operations come at a cost and sometimes sticker shock is a challenge, which we understand. Our goal is to continue to provide weekly options and provide information on port capacity, which ports are running on time, where there is an equipment surplus, and where deficits are a concern, so customers can plan how long of a delay to expect. This all goes back to forecasting. Forecasting is key for everybody, especially in the current market. The further out the shipper can forecast, the better. This is critical because space and rates are at premiums and will remain this way in the future. Everybody is backed up.”
The industry has survived one of the most intense years for disruption. With compliance a non-issue, shippers will be tested on a new level in preparing for the future. As we enter 2021, partner relationships will be critical in maintaining to ensure the best options for continued operations are available. The hope from the COVID vaccine will present its own set of challenges, but with the right partner they can be managed.
As BDP International’s chief transportation officer, Carmen Gerace oversees all aspects of global transportation, including the implementation of new transport solutions and product offerings while also developing future transport strategy. Throughout his 25-year+ career in the industry, he has held varying managerial and executive positions at BDP. He is based in Philadelphia and can be reached at firstname.lastname@example.org.