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FULLY ADAPTABLE: MANUFACTURING IN THE AGE OF COVID-19

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3pls, Archives, Global Logistics, Global Trade Daily

FULLY ADAPTABLE: MANUFACTURING IN THE AGE OF COVID-19

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We’ve just about hit the official one-year mark since the onset of the pandemic and the surge of disruption that came along with it. Essentially every sector in the logistics arena was confronted with two primary options when COVID-19 reared its ugly head: adapt or close shop. 

To avoid reiterating the same story all over again (for what probably feels like the thousandth time), we sought to understand where manufacturers stand in the environment notoriously dubbed as the “COVID age.” Painting this picture requires an expert pair of eyes that fully understand the intricacies along with obvious uniformities. We hand-selected BDP’s Global Vice President of Sales Supply Chain Solutions, Randal Holtzapple, to walk us through where manufacturers are now and how they can successfully continue operating amid an environment where seismic pressures and shifts are becoming the standard.

Holtzapple highlights significant shifts and their impact across the supply chain.

“What started with factory shutdowns in China in the first quarter of 2020 has resulted in ocean carriers bypassing major shipping ports,” he says. “Blank sailings have led to equipment imbalances and a lack of ocean shipping equipment at key ports in China and throughout Asia. Manufacturers are focused on getting their ocean containers booked and the container movement out of Asia. This is the first shift we’re seeing within the industry.”

He goes on to explain that the same increase in demand that haunted the ocean transportation sector at the onset of COVID-19 continues to be a major issue for handling capacity. This paired with the seemingly endless equipment shortage has forced some customers to seek alternative partnerships for a solution. 

For BDP, Holtzapple affirmed the company is seeing a pattern where customers with long-standing relationships with ocean carriers are now relying on their business, other 3PLs and freight forwarders to overcome challenges with bookings. 

“The second main shift evident is the request for expedited clearance and movement of cargo upon arrival at U.S. ports, as most containers and air freight shipments are arriving later than planned,” Holtzapple explains. “Many companies’ inventories have been depleted. For now, getting products for materials out of Asia is their lifeline.”

Keeping customer needs as a priority goes beyond measures taken when chaos ruled the logistics world in 2020. What the industry is seeing now is a new approach to operations with international partners, new resources, and new compliance checks and balances.

“The third shift that we’re seeing is the need to have logistics and trade solution partners versus providers that are offering the lowest cost for transportation movement,” he explained. “In the COVID environment, it’s not just about moving product from one port or airport to another, it’s about how these partners can move the product safely from new sourcing locations, compliantly. The most significant element of this shift is the focus is no longer on the lowest-cost provider. Now, it’s focused on the company that can bring the mentioned capabilities and partner with the manufacturer.” 

Thankfully, we live in an age where technology seems to always come sweeping in to save the day, albeit expensively and complexly. The key to optimizing the blend of technology and solutions is found in understanding what the customer needs are and thinking outside of the box. BDP’s experts are no strangers to this. Providing an open line of communication while supplying an array of tools and partner connections creates a resilient network the customer can depend on. If you’re not already doing this, your competitor most likely is. Holtzapple explains that having a trusted logistics partner is key for maintaining a competitive advantage while retaining customer loyalty.

“BDP offers customers several technology platforms for support, especially in the COVID world,” he says. “BDP Smart is our web-based visibility tool where customers can gain instant access to sensitive documents, track their shipments, and inventory, and rely on up-to-date information on their global booking requests and vessel schedules. An application within BDP Smart is Smart Vū, and it serves as an all-inclusive technology solution for vendor management and supplier logistics. The third solution introduced in 2020 is our self-service platform, BDP GO. This technology simplifies, streamlines and allows for digital booking of shipments.” 

The common denominator with BDP’s solutions portfolio is customer support via reliable, accurate innovation. This strategy will continue to separate the weak and the resilient throughout 2021. Beyond the platform solutions and options for data integration, refining high-level business strategies are a must. 

“The challenges caused by COVID have been a catalyst for companies to rethink and energize their global supply chains,” he said. “To remain competitive in today’s marketplace, manufacturers are taking a broader approach to the selection of logistics and transportation providers.”

Holtzapple highlights four major strategies companies are currently implementing to maintain a competitive position within the industry while retaining customers long-term. These measures are proving to be effective, despite the myriad of disruptions felt in the last year alone.

“The first strategy is the diversification of suppliers,” he says. “Companies are looking for providers that can bring solutions and innovation to their global supply chain. While costs will always remain important, companies today are looking for partners that can provide technology and innovative solutions to enhance and bring efficiencies to their supply chain.”

He explains the second strategy is simply found in the revisiting of global sourcing strategies. Regional sourcing has become the new trend, providing nimble options while recreating a dependency on sources beyond China and South Asia. 

“Companies have been crippled due to the challenges of COVID in China and Southeast Asia,” Holtzapple says. “Now more than ever, companies are looking for regional sourcing or near sourcing solutions. When a company can’t get materials out of parts of the world, the impact is significant to their overall bottom line.”

The need for supply chain visibility is the third strategy, he says. “The one thing this pandemic brought forward is the need to continue looking at solutions with technology and transparency. The goal is to break through the barriers and silos that exist and bring visibility across all business functions within an organization. Once you do that, you allow for better planning, collaboration, and optimization.”

Holtzapple cites contingency planning and sustainable business practices for the fourth and final strategy on his list. Manufacturers can no longer afford to not know where vulnerabilities are present. Instead, the need for proactivity is amplified to ensure risk mitigation efforts prove effective. This applies to workforce management just as much as it does to operations. 

BDP’s Global Vice President of Sales Supply Chain Solutions also brings to attention the seemingly foreign concept of flex workers in manufacturing. Many companies are faced with this discussion for the first time. This and other parts of the logistics equation require forward-thinking contingency planning measures to ensure the best outcomes.

“It’s safe to say that nobody’s been immune to the challenges and the impact of COVID on the global supply chain,” Holtzapple says. “Whether companies are looking to better align with strategic partners, reduce dependency on risky sourcing areas and/or re-evaluate their just-in-time inventory strategies, building a more resilient supply chain is the key lesson learned. 

“The other important thing to remember is embracing and a continued commitment in technology investment. Technology can bring transparency and foster collaboration across different business units resulting in more efficient and timely decision-making. This is key.”

____________________________________________________________________

As global vice president of Sales Supply Chain Solutions at BDP International, Randy Holtzapple is responsible for creating diversification and a go-to-market strategy and overseeing a team of sales directors who are focused on selling complex supply chain solutions to large multinational companies, including some of the largest retail, consumer products, chemical and industrial manufacturing businesses in the world. Prior to joining BDP, he held a variety of managerial and sales leadership roles at other large logistics firms. He believes strongly in giving back to local communities and serves on the Board of Directors for Junior Achievement of Central Indiana. He can be reached at randal.holtzapple@bdpint.com. 

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Archives, Global Logistics, Global Trade Daily, Ocean Ports

PORT OF BEAUMONT ACHIEVED ANOTHER RECORD YEAR DESPITE THE GLOBAL YOU-KNOW-WHAT. HERE’S HOW.

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What does it take for a port to remain competitive and progressive, regardless of the market disruptions at hand? Port of Beaumont Director of Trade Development Ernest Bezdek shares the answer to that question and more secrets to the Texas facility’s success in an exclusive interview with Global Trade Magazine.

Known for leading cargo handling for the petrochemical industry, the Port of Beaumont reported robust numbers in 2019-2020 and continues to soar during a historical year of disruptions. According to the latest reports, the port’s liquid bulk terminal handled 4.2 million tons of crude and refined products, and the dry bulk terminal moved more than 2 million tons of aggregate in ’19-’20. 

“While aggregate isn’t directly tied to the petrochemical industry, the majority of the product coming through the Port of Beaumont is used for industrial expansions along the Sabine-Neches Waterway,” Bezdek explains. “The port’s Orange County Liquid Bulk facility, which began handling crude and refined products in 2012, has realized a 5,000 percent increase in cargo volume since the first year of operation.”

The Orange County Liquid Bulk facility is a public-private partnership between the Port of Beaumont and Jefferson Energy Companies, he adds. 

“The liquid bulk facility was responsible for the first shipment of refined products to Mexico upon deregulation in 2017 and continues to ship crude and refined products to international markets, playing a significant role in sustaining the Sabine-Neches Waterway’s spot as one of the top three crude refining complexes in the United States,” Bezdek says.

Another significant statistic the port boasts about is maintaining the position as the fourth largest in tonnage. This title, the port’s record success and forward-thinking approach to operations contribute to all levels of development growth, from local, state and federal initiatives. 

“Locally, the port approves tax abatements for companies looking to open or expand along the waterway,” Bezdek says. “On the state level, the port serves on the board for the Port Authority Advisory Committee and works with state legislators to ensure Texas ports are always top-of-mind. And federally, we work with congressional leaders and industry trade organizations to ensure legislation . . . supports the needs of the maritime industry well into the future.”

One example of such legislation he cites is the Water Resources Development Act (WRDA) of 2020.

“Additionally, the port supports and encourages private investment,” Bezdek adds, “and it has leveraged public dollars five to one with the public-private-partnerships currently in place.”

ANOTHER LAYER OF FOCUS

Sustainability and infrastructure also top the port’s list for legislative initiatives. Outdated facilities and limited capacities have no place in the modern maritime arena if you want to remain competitive and continue record-setting trends. The Port of Beaumont takes sustainable resiliency seriously, eliminating chances of limiting future growth opportunities. Among the initiatives put in place to ensure the latest and greatest infrastructure is in place, Bezdek highlights the following:

Composite Fenders: “The port replaced deteriorating timber fenders with new eco-friendly composite fenders on our most heavily used dock. Products like Axion’s Struxure boards are estimated to have five times the service life of hardwood, which offers better performance while reducing our maintenance costs.”

Buford Rail Interchange Track: “We are in the process of constructing a second rail interchange track. The additional rail interchange track on our property will allow a higher percentage of outbound surface cargo to be loaded on rail cars as opposed to trucks. Currently, approximately 15 percent of forest cargo and 15 percent of project cargo leaves the Port of Beaumont by truck. It was determined that this percentage could be reduced, resulting in significant benefits in safety, highway maintenance costs, decongestion and environmental impacts if an additional rail line was constructed.”  

Main Street Terminal 1: “We will be constructing a general cargo dock to replace docks 2, 3 and 4, which are no longer in use. It is assumed that without the reconstruction of the wharves, 15 percent of the increased project tonnage would come to the Beaumont area by truck. Reconstruction of the wharves will result in reduced congestion on all major highways between Corpus Christi and Houston and Beaumont, but especially on the I-10 corridor between Houston and Beaumont. The new dock will be supported by concrete piles to provide a c foundation with prolonged design life and resiliency. The final concrete topping slab will use synthetic concrete reinforcing fibers as opposed to traditional welded steel wire mesh, which will also provide a corrosion-proof wearing surface with prolonged design life and resiliency.”

BRINGING IT ALL TOGETHER

Unlike other logistics-focused industries impacted by the pandemic, the Port of Beaumont successfully navigated disruptions without much of a slowdown and without compromising the continued development of its employees. Bezdek explained that a developed, educated workforce, carefully executed social distancing measures and a strong mix of diversified cargo have ultimately paved the way to success throughout 2020. 

“The port focuses on diversification to minimize disruption and we took an early and aggressive stance on COVID-19 by maintaining strict protocols, social distancing and screening measures since early March [2020],” he says. “We have 45 employees with more than 500 years of combined experience working at the Port of Beaumont as well as thousands of contractors and partners working at port facilities regularly. The key to breaking records is exceptional teamwork and clearly communicating goals and expectations of the organization, while focusing on employee growth. The more we invest in our employees, the more records we see broken. Of our 45 employees, 40 have participated in some type of training or continuing education in the past 30 days.

“The port’s competitive advantage is much more closely tied to infrastructure and proximity to key assets, such as I-10, three Class I rail carriers and an extensive pipeline network. The newest technology used at the Port of Beaumont that has created the greatest benefit is ArcGIS, a mapping and analytics software that has many uses in a port setting, including asset management, space allocation, utility management, property and lease management, environmental management, emergency response and management, and it also has functions useful for marketing, among other things.

While the pandemic has caused economic decline in many areas industry-wide, the Port of Beaumont’s cargo volumes remained strong with a 7.6 percent increase, year-over-year, when Bezdek was interviewed.  

“The pandemic has not had a significant impact on the Port of Beaumont, but we understand this could result in a slow-down in the future,” he concludes. “We remain optimistic that project and breakbulk cargos will bounce back as economic recovery efforts continue.”

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Archives, Global Logistics, Global Trade Daily, Ocean Carriers

Three Supply Chain Risk Management Lessons You Can Learn from the Suez Canal Block

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The Ever Given vessel is floating, but the ship is not out of hot water. In fact, Egyptian authorities said it will remain in the Suez Canal until they are compensated by the vessel owners for the damage, labor, and disruption caused. Although the cargo on the Ever Given is still at a standstill, other ships have been able to freely move through the canal over the past few weeks.

Even still, the effects of the Suez Canal block will continue to ripple far beyond the cargo that remains stuck on the Ever Given. The influx of delayed cargo has disrupted offloading schedules at ports, delivery schedules for shipping companies, and even orders sent directly to consumers. As an industry, it’s imperative for us to learn from this and develop strategies to minimize the impact of similar blockages should they happen in the future.

Now that we can view the incident in hindsight, I wanted to share three risk management lessons you can take away from this to create a healthier supply chain.

1. The entire supply chain can be impacted by one accident

Although the Suez Canal handles only 13% of global trade, its blockage rippled through the supply chain worldwide. The BBC reported that 369 ships were stuck waiting for the Ever Given to be refloated. Not only did all those ships have significantly delayed cargo, but the disruption created a backlog of cargo that continues to be felt today at ports, warehouses, shipyards, retail locations, and ultimately, by customers.

For an example of the negative effects this sort of delay can have, let’s look at perishable deliveries. Perishables are on tight delivery schedules that ensure the product arrives at its destination fresh and ready for purchase. Adding a week to the delivery timeframe for perishables can kill the entire supply chain. Even if the goods are still delivered in acceptable condition, they will not be able to spend as much time on shelves, resulting in a massive amount of food waste and lost profit.

The Suez Canal block has also affected supply chains through the ships that were rerouted from the canal. These ships will arrive later than expected and have a higher potential for damaged cargo as they spent more time navigating through rough seas. This may delay shipments, cause inventory shortages, and create logistical difficulties at various offloading points.

We have yet to even see the full range of effects that this mishap will have on the global supply chain, but it has proven that any incident in the supply chain ripples out to points all across the globe.

2. Flexibility is key

Congestion and disruption can always get worse. Because shippers and even logistics experts can’t always predict exactly what will happen, it’s important to have a plan for every eventuality. Planning ensures that you remain flexible and meet your goals, regardless of the obstacles faced along the way.

To remain properly flexible, you need to have a broad range of options on hand. For example, at C.H. Robinson, we assist our clients through our suite of global services. We use a diverse array of services to ensure that our clients are supported, no matter the situation. For instance, when approaching ocean shipping, we leverage full container load (FCL) and consolidation less than container load (LCL) ocean services to create a diversity of options for our customers. Not only does this allow them to choose the option they desire, it also provides them with alternatives should anything unexpected occur.

Additionally, using the insights gained from logistics technology, in particular from supply chain connectivity technology, can help you see what a supply chain error or delay will affect, making it easier to get ahead of the effects before they derail your operation.

Ultimately, this is all in pursuit of resiliency. Because there are so many moving parts in the global supply chain, it’s unreasonable to expect that each part will always be in sync. An excellent logistics plan with an excellent logistics partner combine to ensure resiliency against even the most unexpected events.

3. A risk management strategy is no longer a luxury

Since the global supply chain has grown so large and so complex in the 21st century, risk management strategies have become a necessity. In most cases, customers expect that they are a given. In the case of the Suez Canal incident, none of the ships stuck behind the Ever Given ever expected that the Suez Canal would be blocked, and no one on the Ever Given expected to become lodged in one of the world’s most vital trade passages. Regardless of expectations, these accidents occurred, and everyone was scrambling to mitigate the risk.

Because no one can predict such incidents, it’s vital to have risk management strategies in place well before any issues occur. Even before the Suez Canal blockage, the importance of risk management for ocean shipping had been increasing. In February, we touched on the increase in vessel accidents over the past year. In that article, we discussed how to prepare for a vessel accident, and many of the same lessons that we imparted there apply to this situation.

Specifically, the two most important pieces of advice that carry over are purchasing maritime insurance and working with a provider with a global suite of services. We’ve already discussed the importance of working with a reputable, well-connected provider, but it bears repeating that a provider with a global suite of services can correct issues faster and more effectively than you could on your own.

Maritime insurance is something that we highly recommend purchasing whenever you engage in ocean shipping. Imagine how you might feel if you were carrying a large amount of produce that rotted while you were stuck in the Suez Canal. Even worse, imagine you were the managing company of the Ever Given, now being asked to pay up to $1 billion by the government of Egypt for the affair. If you found yourself in this situation and did not have maritime insurance, your company could quickly find itself sunk by a combination of lost revenue and damages. Even on a smaller scale, if you were shipping cargo through rough seas and a single container were lost or damaged, having insurance would save you from stressful financial headaches.

Spare yourself trouble by staying prepared

Issues like the block in the Suez Canal have a lot to teach shippers and logistics experts about the interconnected nature of global supply chains. To provide the highest possible level of service to your customers, consider the plans that you have in place for when something goes wrong in the supply chain.

Ready to protect yourself against supply chain disruptions? Connect with our global network of experts to see how C.H. Robinson can provide solutions for your business.

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Archives, Global Logistics, Global Trade Daily, International Trade

The Suez Canal Crisis: Some Lasting Ripples Aren’t Making Headlines

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It came down to physics: a sandstorm, shipping containers stacked too high (believe it or not, they acted like a sail), and a ship too big to spin around.

At the time of this article’s publication, it’s still unclear whether human error by the Ever Given’s captain is also partially responsible for the global shipping crisis caused by the 20,000 TEU container ship’s weeklong “vacation” in the Suez Canal.

Also at the time of publication, the crisis — which ended more than two weeks ago — continues to result in global shipping delays averaging five to six weeks.

I see two main areas where the ripples of the disaster will continue the strongest:

Increased pricing, decreased supply: The carriers are taking advantage of the situation and North American shippers are suffering as their equipment is being sent out empty to regions where the carrier can take a financial position and move those containers at greater profits.

In 2019, shipping industry profits came in at about a dismal -$12 billion. In 2020, they managed to flip it to +$14 billion — that’s not a trend they’re going to let go of easily.

Compounding obstacles: Shippers were stretched even before the Ever Given headed down the canal that fateful day, so adding capacity isn’t a viable solution. The previous problems hampering shippers are now exacerbated.

-The global shortage of shipping containers continues to cause a ripple effect of its own.

-Travel restrictions stemming from the pandemic continue to result in reduced air cargo opportunities.

-The above factors and more continue to overwhelm trucking companies, who face employee shortages and rising expenses.

North American recovery is also hampered by a lack of awareness on the global stage. Many companies headquartered abroad don’t understand the hurdles American vendors continue to face — for example, the price gouging. The United States is one of the only countries where the  government doesn’t oversee or own lines of transportation — in most others, it controls or owns at least cargo shipping and airlines — so vendors and logistics companies are dealing with rate hikes. On the other hand, those countries are also at risk of delays caused due to slow-acting governments entrenched in bureaucracy.

CTOs should be concentrating on finding other viable ways for customers to move freight. Plan for a delay of 5-7 weeks compared to your usual shipping estimates, for the foreseeable future. Air freight — despite the delays caused by the pandemic-crippled air travel industry — is probably your best bet for now. You might have to get your CPO and/or client to make some tough decisions based on how eager they are to get their product to market.

Your next priorities are forecasting and having your product line in order. Take note from restaurants and doctor’s offices and build healthy amounts of downtime and lead time into your shipments. At this point in the recovery stage, a strong enough hiccup can still cause a significant backtrack to the progress.

Even though everything is “fixed,” we’re not going back to normal in the near future. In our industry, the pendulum normally has a five-year swing for the upper hand between shippers and vendors. When it comes back down in our favor, it won’t be anywhere near the levels we enjoyed the last time it was our turn.

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As Chief Transportation Officer, Carmen Gerace oversees all aspects of global transportation for BDP International, including the implementation of new transport solutions and product offerings while also developing future transport strategy. Throughout his 25+ career in the industry, he has held varying managerial and executive positions at BDP. Carmen is based in Philadelphia, PA, and can be reached at carmen.gerace@bdpint.com. 

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Archives, Global Trade Daily, Imports/Exports

Process Agents and Why it Pays for Exporters to Stick to Processes

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Picture the scene. Everyone’s happy with the commercials. Several drafts of the contract have been reviewed. The goods are already being prepared to meet the client’s near-impossible deadlines. At the last minute, the client’s general counsel refuses to sign the contract because there’s no process agent. You scratch your head and google: “what’s a process agent?”. Don’t worry, you’re not alone.

In some transactions, the term can come up early on when signing a non-disclosure agreement. But for many exporters, the first time they hear the term is at the contract stage when dealing with a larger buyer. It is often the final hurdle before the contract can be signed. We look at what exporters need to know about process agents, also known as agents for service of process or resident agents. Even if you have heard of the term before, the team at Elemental CoSec shares a lesser-known provision that could save your firm thousands of dollars a year.

What is a process agent?

Let’s say a US firm, with no UK presence, is supplying goods to England. If the buying firm needed to make a legal claim in the future they would have to file papers in the US. Clearly, this is time-consuming and fraught with difficulties and would put many buyers off. Fortunately, there is a provision in the UK civil procedure rules that allows the US supplier to appoint a process agent upon whom court papers may be served (if the contract is under the laws of England and Wales). A clause would then be added to the contract stating who the process agent is and their address details. This doesn’t just apply to the UK and many international countries will rely on the English Court system.

How to appoint a process agent

Appointing a process agent is a lot like trying to choose an insurance provider. There are seemingly loads of options online, they all seem to offer the same thing and you only really find out how good they are when things go wrong. Here are a few things to consider when appointing a process agent and how to read the small print.

Responsive – It will be the role of the process agent to receive communication on your behalf and to forward this to you as soon as possible. Check to see how responsive they are to your initial inquiry. If it takes too long, it’s not a great sign.

Reliability – The process agent service needs to be in place for the duration of the contract. Look to see how long they have been trading for. Though it is possible to add a contract clause in the event they stop trading this would put the onus on you to check their status and appoint a new one if anything were to happen.

Requirements – find out exactly what information your contracting party requires from the process agent to satisfy their requirements. In some circumstances, they may even have a specific format for the appointment letter.

Changes – ensure you keep the details of the process agent to hand, we recommend appending these to the contract and notifying the personnel responsible for corporate secretarial duties internally. If your company address changes, you should notify the process agent.

Fees – Finally, as an infrequent and sometimes last-minute purchase, this is often where buyers can get caught out. Check to see if process agents charge extra for multiple appointments. It is also worth checking what happens upon renewal, including if there is a renewal discount.

Global appointments

If you have appointed a process agent in the past or for firms that enter multiple agreements, you could be missing out on a way to save thousands of dollars a year by using a global appointment. A global appointment is one process agent service to cover all your English law contracts, anywhere in the world. To find out more about global appointments or other frequently asked process agent questions visit Elemental CoSec’s UK process agent page.

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Archives, Global Logistics, Global Trade Daily, Ocean Carriers

International Windship Association Shares Open Letter Urging Solutions for Climate Concerns

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The undersigned,

We call on all maritime industry decision-makers and the entire shipping community to fully assess and utilize all available power solutions that deliver the necessary deep, swift cuts in carbon emissions over the next decade commensurate with responding to the climate emergency. To that end, readily available and proven wind propulsion solutions must be integrated at the very heart of decarbonization deliberations.

Direct wind propulsion provides abundant, free energy, immediately and uniquely suited to and accessible to shipping worldwide without the need for costly land-based infrastructure or logistics investment. Wind technology helps de-risk shipping from its dependency on bunker fuels. Emerging alternative fuels come with multiple challenges – cost, availability, density, and quality and wind propulsion decouples shipping somewhat from these huge uncertainties around whatever ‘flavor’ eco-fuel is adopted.

Whatever size or type of commercial vessel, wind-assist or primary wind propulsion systems quickly provide credible, practical, robust, scalable and economically viable solutions – a dozen large ocean going vessels will be in operation by the end of Q1, 2021, along with 20+ small sail cargo and small cruise vessels.

The potential exists for 20-30% of the global fleet’s energy requirement to be delivered by wind systems. By adopting wind
solutions as part of a hybrid propulsion approach, vessel owners and operators can substantially deliver on the initial level emission savings targets for 2030, thus providing a critical component and step for achieving the 2050 target. A UK Government commissioned study forecasts up to 45% penetration of wind technologies into the global fleet by 2050. A key EU-commissioned report on wind estimates up to 10,700 installations are possible by 2030, including roughly 50% of bulkers and 67% of tankers alone.

Wind propulsion reduces demand, cost and power storage requirements for the next generation of alternative fuels, which
further helps to accelerate and enable the take-up and cost efficiency of these alternative fuels.

Therefore, we call on all shipping industry decision-makers to:

1. Establish a Multi-Stakeholder International Working Group to evaluate and quantify wind propulsion’s potential contribution to decarbonizing the global fleet in the face of the climate emergency. Promote the potential from a hybrid approach to decarbonization with wind propulsion fully integrated together with operational and vessel optimization measures along with eco-fuels.

2. Launch a Comprehensive Strategic Review of shipping industry decarbonization efforts in the context of the climate emergency. Covering all criteria, designations and databases/resources being used, this review would incorporate wind propulsion into all calculations and include a full life cycle analysis of all alternative propulsion systems and fuels so that the industry can fully appreciate the merits of each proposed system. The review should quantify all externalities including infrastructure development and production costs of all alternative propulsion systems and fuels along with their direct and indirect climate impacts.

3. Ensure a ‘level playing field’ is created and maintained for all power systems, removal of market and non-market barriers
as well as fair and balanced allocation of R&D finances and resources in the future.

4. Do more and go beyond the current narrow fuel-centric approach by adopting a fully integrated alternative propulsion approach to decarbonization pathways and policy. Doing so will create a proportionate, measured strategy that is absolutely essential to achieving the industry emissions targets. We believe that wind propulsion systems must be fully integrated within this strategy to help achieve decarbonization as quickly as possible and that this will be broadly welcomed by the shipping industry.

australia
Archives, Global Logistics, Global Shippers 101, Global Trade Daily

Australia Shipping & Trade Insights – What is Really Going on Down Under?

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The global shipping industry is in a state of flux – unprecedented congestion, delays and unfeasible freight prices have caused chaos beyond anticipation. The entire sector is fraught with uncertainty, with lockdowns and border closures bringing national economies to a grinding halt. The global pandemic has affected virtually every aspect of shipping – everything from large-scale shipping line contracts down to the price of a single freight container.

Australia is no exception. Whilst a smaller market, the shipping industry in the land down under has certainly felt the colossal impact of COVID-19 over the past 12 months. The country continues to battle against some of the most challenging market conditions we have ever had to face, with few signs of normality returning in the near future.

Freight forwarder and licensed customs broker, International Cargo Express (ICE), has felt the impact strongly in Australia. The industry challenges were described as ‘unprecedented’ by the company with over 30 years of experience. Below, they share their reflections on the past 12 months and provide some insight into what the future might look like.

COVID-19 hits Australia

When the global pandemic hit Australia and the world in early 2020, the shipping industry was woefully unprepared.

Demand for shipping services dropped dramatically and carriers introduced numerous blank sailings from Asia to Australia, Europe, and the United States. Lockdowns in China were a major contributing factor to this. There was an increase of 435 blank sailings in mid-April, with the three main shipping alliances showing a 17-24% blank rate across the first 15-21 weeks of the year, according to Analyst Sea Intelligence. Maersk alone issued over 90 blank sailings in Q1 2020, indicating a 3.5% fall in capacity for that period.

As soon as the lockdowns in China eased, the demand from Asia, especially from China to Australia, U.S. and Europe suddenly increased (particularly due to a massive demand for face masks, hand sanitizer, and PPE) – leading to congestion at several ports around the world, including at important transshipment hubs in Asia. Carriers started to increase their rates on a monthly basis and additional surcharges were implemented (such as PSS & Equipment Imbalance Fees), but the situation became tense as insufficient empty containers were returning to Europe or Asia – leading to a global container shortage.

Simultaneously, we were confronted with vessel quarantines, lockdowns, and slow operations. The Australian Government implemented a raft of restrictive border measures, closing the border to all non-Australian citizens and residents. To make matters more complicated, each State and Territory put in place their own local maritime restrictions.

A more detailed look into each aspect of how the shipping industry has been impacted over the past year is provided next.

Constrained capacity and rising freight prices

The combination of increased blank sailings and a sudden increased demand in shipping resulted in many ocean carriers and airlines suffering from constrained capacity.

Shippers would constantly find that there was no room for their cargo on freight vessels, leading to expensive delays and major disruption to their business operations. There was a rise in rolled cargo despite ocean carriers trying to provide as much capacity as possible. Maersk’s rollover ratio increased to as high as 35% in October 2020, according to Ocean Insights. Even as recent as February 2021, Australian meat exporters are reporting 10-day delays to secure the right containers for their shipments.

Things were worse in the air. Agricultural exporters in Australia were substantially affected as passenger air fleets were grounded. With retail air travel virtually ceasing, air cargo capacity fell by 91%.

With the extreme drop in air cargo capacity, air freight prices – especially to and from China – spiked to unprecedented levels. Some shippers have reported the cost of shipments doubling due to rising air freight costs and worst of all, there is no real sign of a significant change ahead.

Surge in container demand: the global container shortage

The sharp, unexpected increase in demand for imports led to a significant rise in container demand at origin ports. There simply aren’t enough containers around – leading to an international container shortage of which Australian importers are still feeling the pinch.

Why has this happened? It’s a combination of factors.

Australia has a largely imbalanced container trade, with more full containers entering the country than empty containers leaving. Couple this with the rise in port congestion caused by the sudden increase in demand, in addition to the industrial action in Sydney (discussed below) and blank sailings, and the ultimate result is that not enough empty equipment is being repositioned back to critical origin ports.

The COVID landscape has made the situation considerably worse.  A demanding peak season with a significant rise in imports, alongside the impacts of the pandemic, has left ports unable to cope with the influx of containers. There are an abundance of exports coming out of China, leading to a huge number of empty containers piling up in Australia, particularly in Sydney and Melbourne. We’re now finding a lack of available slots at the empty parks and queues beyond our expectations.

‘Container parks’ in places like Port Botany and the Port of Melbourne are reaching capacity. Struggling carrier capacity has meant empty containers have been left behind, with Port Botany alone suffering an imbalance of over 30,000 TEU since April 2020 of imported containers compared to exported containers. Empty containers once unloaded cannot be de-hired due to the lack of space at container parks and are rather redirected elsewhere – all this coming with added costs to the importer. These empty containers might usually be carried back to China, but the constrained capacity with shipping lines and reduced time allocation for loading at the ports has meant this simply cannot happen.

This is a global problem. Market intelligence states there are about approximately 50,000 containers stuck in Australia, around 35,000 containers in South America, 150,000 in the United States, plus containers are stuck on board of vessels at anchor in Los Angeles and Long Beach, California.

So, with all these empty containers just sitting idle, why is there a container shortage? The short answer is a trade imbalance – we are importing much more than we are exporting. But it is not a simple solution. With already constrained container capacity, shipping lines prefer to transport full containers rather than empty ones (despite many ‘sweeper’ vessels deployed to export empty containers). The operational costs of managing empty containers are high, but the profit margins to deal with them are slim.

Industrial action and trade unions

To make things worse, Australia has experienced a wave of industrial action at a time where importing was already at its most challenging. Trade unions have been negotiating the terms of new enterprise agreements with major Australian port players such as DP World and the Patrick Corporation. The bargaining deadlock has caused port workers to stop work across multiple terminals in Sydney, Melbourne, Brisbane and Fremantle – leading, of course, to increased delays and port congestion.

Across September 2020, for instance, Sydney saw major disruptions due to industrial action at Port Botany – including bans on overtime. Industrial action reduced Patrick Terminals’ operations in Sydney to around 50-60% of usual levels, with a backlog of 90,000 containers. In Melbourne, the union had orchestrated three one-hour stoppages a day. Despite industrial action stopping in October, major delays lingered in the aftermath.

In mid-February 2021, the MUA were once again planning major strikes at the Victoria International Container Terminal (VICT) in Melbourne. This began on 19 February and involved a series of 12-hour stoppages of work. This would have once again been detrimental to Australian supply chains if the action proceeded as planned.

For now, the industrial action at VICT has been suspended. DP World also announced that it has finalized negotiations with the union after two and a half years of bargaining, concluding agreements in Sydney, Melbourne, Brisbane, and Fremantle until 2023.

Industrial action continues to be a pressing issue for importers, exporters, shippers, and ports across Australia, leading to ongoing uncertainty across entire supply chains.

Ever-surmounting stevedore charges

A wave of increased infrastructure charges have also been introduced, adding to frustration for both shipping companies and Australian businesses. In July 2020, for instance, Hutchison Ports increased its charges on containers delivered to and from its facility in Brisbane by 9%. VICT in Melbourne also imposed a 7% increase in their charges. Despite container volumes dropping, total operating profit margins for stevedores increased for the first time in a decade, from 5.8% in 2018-19 to 9.9% in 2019-20.

The hike in stevedore fees was vigorously criticized by governments. The Victorian Department of Transport said the decision was “completely unacceptable – especially at a time when everyone should be pulling together to keep businesses open, Victorians in jobs and goods moving across our supply chain”. Indeed, these charges effectively hold transport operators to ransom, forcing them into a non-negotiable position whereby they must pay to collect and deliver containers.

Scaling stevedore charges were then followed by shipping line charges. Around September 2020, shipping companies imposed port congestion charges of up to US$350 per TEU. Shipping line MSC announced a US$300 per TEU Sydney port congestion surcharge, whilst CMA CGM’s ANL announced an equivalent surcharge. As a result, grain exporters, for example, needed to absorb an extra AU$17 per tonne of direct costs. Thankfully announcements were finally made in early March for the removal of congestion surcharges, a promising direction in a challenging landscape.

Government intervention – it can only do so much

The Federal Government has made efforts to assist the industry. In April 2020 the International Freight Assistance Mechanism (IFAM) was introduced.

IFAM is a temporary measure aiming to reconnect supply chains, supporting the import of medical supplies and other nationally critical products. The agricultural, seafood and healthcare sectors are particularly targeted industries. The scheme received an extra $317.1 million in funding in October 2020 to extend the scheme until mid-2021.

But government intervention can only do so much.

Without a full-scale, nationally co-ordinated response to tackling key issues, such as; constrained carrier capacity, the massive costs of air freight, the unprecedented container shortage, the insufficient infrastructure to cope with imbalanced imports and exports, unpredictable industrial action across the supply chain and rising stevedore and shipping line surcharges, Australian businesses and consumers will be subject to ongoing hardship.

Conclusion – where to from here?

As we look to 2021, the world awaits the results of the COVID-19 vaccine which will no doubt have a dramatic impact on the industry and markets. The Federal Government has entered into contracts to distribute the COVID-19 vaccine from March, having secured 10 million doses of the Pfizer vaccine and just under 54 million doses of the University of Oxford-AstraZeneca vaccine.

At International Cargo Express, we’re encouraging clients to turn to ‘air-sea solutions’ (a combination of both quick air freight, and affordable ocean freight) as an alternative to just shipping goods by air. But until we can tilt the scales to introduce more air freight to the market in line with historical prices, the increased demand for ocean freight will continue. In more recent weeks we have received positive news as freight rates from China have slowly started to decrease, and the removal of port congestion surcharges in Sydney has been warmly welcomed.

However, until the market fully resets, we could be in for a volatile couple of years. The only solution is to adapt and think of creative alternatives in our ‘new normal’. There is no such thing as a ‘one-size-fits-all’ approach to surviving, and ultimately thriving, in a post-COVID environment.

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This article was written by Alice Farley, Branch Manager and Head of Marketing of the Australian freight forwarder International Cargo Express. If you are looking to move goods internationally, contact ICE to ensure you don’t face unexpected delays and costs.

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Archives, Global Logistics Planning Guide, Global Trade Daily

GLOBAL TRADE’S ANNUAL LOGISTICS PLANNING GUIDE PUTS YOU IN THE POWER POSITION AGAIN

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2020 was a historic year from politics to a pandemic, but professionals working in logistics, in particular, faced huge challenges and had to dramatically pivot their strategies. As 2021 kicks off, professionals working in logistics, notably 3PLs and 4PLs, will need to remain flexible as some of the changes from 2020 are here to stay.

To prepare you for what lies ahead, here are 10 supply chain and logistics trends to watch for in 2021.

1. Shorter Contract Terms

As we all witnessed, capacity was incredibly tight throughout the year, giving carriers more negotiating power for higher rates, especially leading up to the holiday season. Contract trucking rates are heavily influenced by spot market movements so instead of conducting an RFP in Q3 or Q4 for the year (which is typically RFP season) and locking in a yearly rate, shippers created shorter contract terms, hoping rates will improve in 2021. While this helps shippers to lock in rates in the short term (and helps them budget), it is still a gamble because rates could remain steady or increase. 

This year, I anticipate that this trend will continue. Shippers and carriers want and need more flexibility in this volatile market. Shippers are hoping for lower rates in the future, and carriers want to take advantage of a hot spot market without rejecting previously contracted freight. 

2. Tech Investment for Shippers

Unless new technology investments are truly essential to running the business, many shippers will not be investing heavily into new technology until the pandemic is over. While technology will be a good investment in the long run, it’s often a “want” over a “need,” and it takes a lot of human capital, research, and time to invest in the right technology that will pay off for your business. Right now, every professional working within the supply chain has their hands full running the business, so I anticipate less money and time spent on tech investments in 2021.

While shippers may be hitting the pause button, logistics companies, especially 3PLs, have an opportunity right now to leverage their greatest asset: people. What is most important in our current environment is trusted relationships and human touchpoints. The industry is still scrambling to keep up with the demand for a constantly changing global supply chain, and handholding and relationships will go further than flashy new technology. 3PLs can capitalize on this by spending time discussing with carriers and customers how they can solve their current challenges with best-in-class customer service. If your company is leaning on a new technology or making an investment into this area, this is the year to publicize your innovation widely because there will be less technology noise in the marketplace. Have a technology story that got your company through 2020? Now is the time to tell it. 

3. Consumer Buying Behavior Will Remain A Top Stat for Logistics

3PLs are tracking consumer behavior closer than ever. Due to the pandemic, consumer buying behavior changed dramatically, disrupting the supply chain in ways not previously seen. Because of consumers’ impact on the supply chain and demand of freight, 3PLs, in particular, will continue to follow key consumer buying behavior data. 

Additionally, in 2021 I expect continued steady growth in-home delivery services (from retailers to foodservice) so all eyes will be on final mile demand. This year, we’ll see more online marketplaces and innovation within final mile delivery. With new companies and offerings entering the industry, 3PLs have an opportunity to forge new relationships and add core competencies with these businesses to gain an advantage over their competitors. 

4. Spot Market Will Likely Stay Hot in 2021 

We might call 2021 the Capacity Games–may the odds be ever in your favor. Carriers are entering 2021 with negotiating power. Amidst one of the most volatile marketplaces in recent memory, the growing disparity between driver supply and truckload demand has resulted in increasing tightness. When this is the case, we expect upward pressure on truckload rates, just as we did throughout the back half of 2020. We may have hit the peak of inflated spot rates, but with the pandemic still raging, carriers have the upper hand on rates and may decide to take fewer contracts this year to reap the benefits of the spot market. When some form of normalcy does return, we will see another round of shifting capacity and supply chain volatility; 3PLs that can navigate the chaos and guide their customers through it are going to come out on top with relationships and case studies that will speak volumes. 

If you’re a shipper or a 3PL, this means you have to think about the whole carrier experience beyond just rates. Carriers want to get paid quickly and treated well, so if the facility they are servicing is difficult to navigate or doesn’t offer any driver amenities, your freight is far less desirable compared to previous years. To entice carriers, shippers and brokers need to be creative, reliable and more than anything, flexible. 

5. Carriers Focus On Diversifying Their Book of Business

Prior to the pandemic, most carriers specialized in one or a handful of specific industries. This was a sound strategy because specialization allowed carriers to set themselves apart from the competition by tailoring their vehicles, routes and service to the needs of shippers (who all have different needs, depending on their industry). COVID disrupted this strategy. When the pandemic struck, certain industries completely shut down. From automotive to restaurant services, carriers can no longer focus on one niche industry as the pandemic showed how having all of your eggs in one basket is ripe with risk in these times.

This year, I anticipate more carriers will diversify the industries they support. 3PLs have an opportunity to help and should look for opportunities to offer freight to their trusted carriers who previously may not have considered that type of freight before. By partnering closely with carriers to educate them on the needs of that particular freight and help them enter a new industry, 3PLs will be able to solidify their carrier relationships while also problem-solving for shippers who are desperate for capacity. 

6. Reefer Capacity Will Be Tough To Come By 

People are still working from home. COVID numbers are at an all-time high, and many cities/states are under curfews and restrictions to discourage people from leaving their homes. But people still have to eat. Groceries stores and food delivery will continue to be in high demand, translating to huge demands on reefer capacity. Add to this the reefer capacity needed to effectively distribute the vaccine and the grip on capacity tightens. This isn’t news. This has been the case since March 2020, but it’s only going to continue. 

3PLs have to remain nimble and creative to source reefer capacity and make sure the service they offer those carriers is top-notch to ensure those carriers will continue to partner with them. 3PLs who are able to keep reefer carriers moving and maximize the efficiency of their assets will be the ones who benefit on both sides of the customer/carrier relationship. 

7. Regional Distribution

Because of the supply disruptions in 2020, there was a renewed focus on regional distribution. Amazon led the way during COVID, relying on their regional distribution network when drivers were hesitant to drive long hauls far from home. This will continue to be a go-to strategy for many shippers, and I anticipate we will see many retailers investing more into their regional distribution strategy. This shift will create two demands: final mile and long haul. 3PLs that are able to competitively source and seamlessly provide these two modes to their customers at varying degrees of volume will be the heroes of 2021. 

8. Opportunities for Mid-Size to Small Carriers To Get Access To New Customers

With the COVID vaccine distribution, many large carriers, seasoned in pharmaceutical freight, have been tapped to move this critical freight which means they will not be able to fulfill previous contracts. So, who is going to move that freight? Mid-size to smaller carriers have an opportunity right now to get in with the companies left in a lurch. 

This may not be the strategy for every carrier, but with so much capacity going to the vaccine (as well as all the implementation needed to distribute a vaccine), carriers have an opportunity to service freight previously unavailable to them. 

3PLs, keep this in mind. Follow which large carriers are transporting the vaccine and take advantage of opportunities to follow up with their known customers who may be hurting for capacity. While historically technology, integration, volume commitments, etc. were barriers for mid-size to small fleets in providing service to large shippers, 3PL relationships should be providing access to these large customers as need for capacity widens. 

9. Relationships Continue to Be King

As isolated as many of us have been in 2020, relationships and personal connections mean more than anything. Both individuals and companies want to work with people they know and trust and can rely on to deliver in a time of need. Logistics is truly a people business. No matter what role you play in the supply chain, if you focus on building and deepening your professional relationships, you are investing in your future. 

10. Greater Focus on the Value of Drivers/Carriers

I’m hopeful 2021 will be the year that drivers/carriers will finally get the full respect they deserve. From keeping our grocery stores stocked to distributing the COVID vaccine, carriers/drivers have been on the frontlines of this pandemic. The past few years, the industry has talked about a driver shortage with the narrative focused on a lack of talent entering the industry. But if we take a step back, the problem isn’t people’s interest, it’s because these essential, frontline workers deserve a better wage. 

If we truly want to solve the driver shortage and respect the people who have been front and center in this pandemic, the industry must reward carriers/drivers with better pay, benefits, and support. 

As we continue to progress into 2021, it’s clear that many of the supply chain impacts from 2020 are here to stay. Flexibility and a commitment to relationship building should be a priority for any logistics company looking to navigate the challenges ahead.

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Aaron Galer serves as senior vice president of Strategic Accounts at Arrive Logistics, “a carrier and customer-centric” logistics company that is headquartered in Austin, Texas, and has offices in Chicago and Chattanooga, Tennessee. Aaron is focused on growing and strengthening partnerships with Arrive’s enterprise shippers and carriers as well as tailoring unique solutions specific to their needs, industry and logistics challenges. He also serves as an internal resource to the entire Arrive team.  Prior to joining Arrive, Aaron helped launch the Amazon Freight program and has nearly a decade of logistics experience with Fortune 500 companies including Expeditors and Starbucks. His past responsibilities include building and overseeing transportation teams that manage large transportation spends and developing technology for large shippers. Aaron is active in the supply chain communities in the Greater Grand Rapids and Greater Seattle areas; he holds certifications in Lean Six Sigma and with ASCM and has a degree in Supply Chain Management from Michigan State University.

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Archives, Global Logistics, Ocean Carriers

Preparing for Rough Waters: How to Handle Freight Lost in a Vessel Accident

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Maritime insurance executives estimate that 3,000 containers have been lost at sea over the past few months alone. Compared to the 1,382 containers on average lost per year between 2008-2019 as reported by The World Shipping Council, that’s a big jump. What’s the reason for it?

As you may have expected, there’s not a simple, all-encompassing answer, instead, there are multiple variables at work. The good news is, there are steps you can take to help prepare for any delays or disruptions that result from a vessel accident. As a platform that works with the many different vessel operators to move our customers’ goods, we share some key things to know.

Why are vessel accidents increasing?

There are more containers on the water than ever

Over the years, vessels have increased in size and capacity. As such, they move more containers and can stack them higher. Add in the high demand for ocean service over the past few months and a decrease in blank sailings that would typically remove capacity, there are more vessels and containers out on the water.

Poor weather and high stacks of containers don’t mix

While vessels generally avoid storms, going through a relatively bad weather cell can happen. Ocean vessels are designed to roll in motion with the waves, however powerful waves caused by bad weather combined with high stacks of containers can change this rolling motion. In these situations, vessels undergo a synchronous and parametric rolling, which often causes vessels to tip at angles that displace higher stacked containers.

What are carriers doing about vessel accidents?

Ocean carriers are looking for ways to optimize how they block and brace containers to minimize accidents – including continued rigor around weight distributions, misdeclarations, improper packing and storage planning. There is also research being done into how technology can help sense container movement, allowing for faster reactions.

How to prepare for a vessel accident

Until your freight has been involved in a vessel accident, you may not be aware of the process or overall impact on your supply chain. Although vessel accidents are unplanned and usually unpredictable, there are steps you can take before you ship so you’re not scrambling when you get the news your freight was involved in an accident. Here’s what you need to know.

Have a backup plan to deal with delays

For starters, even if your freight is not lost at sea, you’re still likely to experience significant delays. For example, a recent maritime accident in December 2020 resulted in freight being held in Japan. In this case, each container (that was not damaged or lost at sea) needs to be unloaded and transshipped to another vessel for transportation. Access to the unimpacted containers can also take a while as the unloading and inspection of damaged containers might need to take place first.

Consider purchasing maritime insurance

One of the avenues to help protect your company financially is through maritime insurance. Cargo insurance is not a requirement, but as events like vessel accidents are usually outside of the carriers’ liability, insurance can provide added protection for your freight. With a cargo insurance policy, you are covered for unexpected losses.

Develop a resilient supply chain strategy

Unfortunately, insurance only applies to the value of lost freight. It cannot help you overcome delays, transload freight, or expedite new orders to realign inventory levels and ensure adequate stock is where it’s needed most. That’s where supply chain resiliency comes in. Rather than wait until you’re impacted by a vessel accident, now is the time to develop a plan that helps you minimize the impact to your business and allows you to continue serving customers.

Rely on a provider with a global suite of services

We recently had a customer impacted by a vessel accident. While their freight was not damaged, it was delayed. Unfortunately, equipment shortages and capacity constraints almost prevented the replacement stock from arriving on time. Through quick communications with our local team in South Asia and thanks to our extensive relationships with global carriers, we successfully secured the space and containers they needed.

But that was only the first hurdle. The original destination port had high congestion and vessel dwell times, so our team shifted to a different port and was able to keep an additional 20 days off the transit time. A transportation provider with reliable service and a global network is the best way to get the careful coordination and market insights these types of situations require.

You can prepare for the unexpected

Developments in technology and changes to freight blocking and bracing will never offer full protection from vessel accidents. Think about the vulnerabilities your supply chain could face in the wake of a vessel accident now to help you minimize the impact to your business in the future.

Ready to drive smarter solutions to prepare your supply chain for a vessel accident? Connect with our global network of experts.

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Air Cargo, Archives, Global Logistics, Global Trade Daily, Stories

Air Cargo Trends in a Pandemic World

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Previous predications in pharmaceutical transportation trends, highlighting declining air passenger numbers and air freight demand increasing, have been pandemic propelled. Coronavirus continues causing worldwide disruption, as it is anticipated its industry impact will continue throughout 2021 and beyond.

Pandemic Response – Preighters Take Off

Pre-pandemic passenger numbers were already on the downturn, however, the COVID-19 crisis significantly accelerated that trend.

The crisis capacity crunch came as passenger flights plummeted and the ensuing scramble to transport pandemic payloads saw the deployment of hundreds of passenger planes as freighters, known as preighters, take off.

Pioneering Portuguese charter operator Hi Fly led this trend and was the first to convert an A380 for freight, taking out the majority of seats to provide more cargo capacity.

Despite the sector seeing the grounding of hundreds of passenger planes, earlier than had been initially forecast, which led to a reduction in the availability of cargo space in the bellies of these passenger aircraft, we’ve seen more planes undergo conversions to freighters.

The preighters prevalence looks set to continue throughout 2021 and beyond. Although the air cargo industry faces continuing challenges, IATA predicts an anticipated 25% rise in freight tonne-kilometers this year.

Boeing projects growth in the global freighter fleet with the number of cargo aircraft in service forecast to increase more than 60% over the next two decades, resulting in 3,260 operational aircraft by 2039. (1)

However, the ongoing drastic downturn in travel means the loss of a lot of capacity in passenger aircraft and while freighter aircraft are still present and working hard, fleet growth takes time, so there will be a slower response to replacing some of the capacity lost from the passenger side of the industry.

Some of the 747s which have comparatively low hours on their airframes will undoubtedly become 747 converted freighters and will be flying as freighters just to try to backfill some of that loss in capacity from the passenger numbers.

Large Widebody Aircraft – Grounded or Retired

Before COVID-19, it was predicted airlines would start cutting flights from schedules, mothball larger aircraft, decline production options, and look to utilize smaller, more efficient aircraft in the future for environmental and economical reasons. All of those decisions have been massively accelerated.

The forecast to park some of the larger, widebody aircraft has been brought forward significantly, due to the COVID-19 crisis.

The ongoing impact of the pandemic has meant the majority of all 747 freighter aircraft have or are being retired. The A380, which Airbus had previously announced it would stop deliveries of in 2021, has also been retired across the board by numerous airlines, except Emirates.

Increasingly airlines are globally grounding their A380s in favor of more modern, smaller jets, which can fly more efficiently than their four-engine aviation counterparts.

With far fewer passengers flying in a pandemic world, the travel downturn has ramped up decisions to park planes, some permanently, further impacting the already dwindling resource of global air freight capacity.

What we will continue to see is a lot more interest in leaner aircraft, like the A220, the Canadian Bombardier aircraft Airbus produced in North America.

Sea Change in Modes of Transport

There will be ongoing developments in the sea freight sector, which has an estimated 17 million TEUs (Twenty-foot Equivalent Unit) serviceable globally, of which six million containers are routinely turning and carrying freight.

Put in perspective, at its lowest level of trading during the onset of coronavirus, there were 135,000 TEUs a month traveling from China to the US. However during peak months, when the US retail sector’s stocking up for Thanksgiving and Christmas, this increases to 900,000 TEUs a month. This equates to 8% of the global free flow of sea containers just crossing the Pacific from China to the States.

Any delays will see a huge build-up of sea containers, which lead to availability issues, and rate rises, as seen during the pandemic when China stopped producing. What we saw with the initial emergence of COVID-19, China stopped producing, so wasn’t pushing out those sea containers so there were availability problems in the rest of the world because all the sea containers were piling up in China.

When China returned to approximately 98% of its production output in April other countries were then in lockdown, with some like the US, holding containers for two weeks in ports to quarantine them, compounded by shorthanded workforces operating in the docks.

As sea containers started to pile up in their markets and with exports to China impacted, shipping lines cut sailings from schedules, which saw sea freight prices spike by up to 50%.

Uncertainty in sea freight and air freight availability saw pharma companies initially ship everything they could, by any mode of transport available, to get it out to the markets.

Following months of disruption passenger airlines eventually started flying passenger aircraft with cargo in the lower decks and loose load cargo on the upper decks.

We are now back in the situation where that backhaul from the US and Europe, following seasonal shipments for Christmas retail demands, China now has availability issues again with reduced sailings, so there will not be any kind of normal flows until March 2021, at the very earliest.  However as the UK is currently back in another national lockdown, with all non-essential retail effectively closed and production affected, and if this trend spreads further into Europe and possibly the US, then that will further affect the backhaul. So whereas I was hoping things might be back to some kind of normality in March, I am now inclined to add another quarter to that. So, I now think there will be exacerbated sea freight and sea container availability issues throughout the first half of 2021.

Given the sea freight situation, we will continue to see the utilization of air freight to transport pandemic payloads. When it comes to economics, without the passengers on the main deck it is a much more expensive operational option, however pharma customers are prepared to pay those premiums to move their product.

The volumetric efficiency of air craft is critical at the moment because it is such a scarce resource we need to ensure the best use is made of it.  With air freight capacity a dwindling resource, it is even more important to have the very efficient packing density of temperature-controlled products on such limited air freight resources.

Vaccines vs. Virus – Rapid Response

As the development of successful COVID-19 vaccines continues at a rapid rate, the world’s first approved vaccines are already being administered as part of ongoing mass vaccination programs worldwide.

Temperature-controlled packaging manufacturers continue to play a pivotal part in the global deployment of these approved vital vaccines, including those developed by Pfizer/BioNTech, Oxford University/AstraZeneca, and Moderna.

As COVID-19 vaccines fall into different families of technology, some have frozen and deep-frozen temperature requirements, leading to a scramble to qualify existing solutions for shipping at those specific lower temperatures.

In a rapid response to the logistical cold chain challenges involved in the deployment of these potentially life-saving vaccines, we have adapted our shippers to meet those temperature requirements, as have other providers in the market.

There has been an impetus for innovation to support these temperatures in volume. Suppliers stepped up to meet the vaccine temperature requirements by adapting existing shipping solutions and the capacity is there, so I don’t anticipate it will be an issue going forward.

The focus is reverted back to the capacities in the transport modes and given the nature of these drugs people are paying whatever it costs to ship them, with rates rising sharply from $2.5 a kilo to $23; however, that’s starting to calm down.

Beyond all of the current vaccines being approved, there will be the need to provide boosters. It is going to create a recurring step up in the volume of vaccines being shipped, alongside the flu vaccines being transported and other pharmaceutical payloads every year.

There will not be a continuous crisis, it will be a continuing trend of smaller aircraft, with reduced airfreight capacities, moving that pharma product at temperatures that sea freight cannot do. It really can only fly.

However, there’s not going to be a modal shift from air to sea because sea cannot meet the temperature requirements necessary for these shipments. You get a displacement, whereby COVID-19 shipments, whether vaccines, test kits, and reagents or some of the therapies which help with recuperation, like Remdesivir, are flying at almost any cost on a dwindling resource.

The pharmaceuticals which have more normal temperature shipping requirements, like 2 – 8C degrees or 15 – 25C degrees, get displaced and in that situation, when the air freight rates get so high, sea freight would normally be seen as a shipping solution.

However, with all of the sea freight challenges, coupled with the fact that their transportation rates have also doubled, there has been some displacement but not as much as pharma companies would have liked, which is what has kept pushing the prices up in the region of the $23 a kilo figure for air freight we had seen previously in the market.

Sea freight will improve in the first six months of 2021 so some of that displacement can take place more efficiently. But aircraft will still be full of COVID-19 related products.

2021 will see the industry learning to operate in the new norm with everyone getting used to that new norm. Next year we might start to see some improvements and efficiencies but I think this year is about adjusting our planning, our capacities, and our operations around this spike in demand and the gradually improving capacity picture. Almost like wearing in a new pair of shoes.

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Dominic Hyde is Vice President Crēdo™ On Demand at Pelican BioThermal