How many barrels to produce, how many ships to sail or how to ship in advance? Demand for Shipping containers is hard to predict ahead of time. Just consider the lack of demand visibility and pricing fluctuations being the cause of China-USA ocean freight rates doubling since last June when they needed to do it through the West Coast, and rates and profits fall.
But mess up rates led many Ocean Carriers to skyrocket profits. In contrast, the drop in trade volumes led to bankruptcies, security and financial guarantees outs for most other parts of the Logistics industry. Their ‘over-reaction quickly provoked charges of using price abuse and even a couple of government investigations.
There is no explanation for taking advantage of climb sharply prices when demand is not. The more likely justification is that a mixture of sensible capacity management and broken demand visibility headed to these prices and the resulting profits. It directly contributed to the speed and possibly the size of the rate spike. But how did we get here?
The need for building alliances
Around 2008, ocean carriers mainly built massive ships; however, the global financial crises struck the markets and shipping huge volumes came to a crash. It took shippers long-worried months to become used to adjusting capacity to respond to the new gloomy-demand truth. In that period, ocean costs went down, leading many Shipping industries to unpayable deficits, even to bankruptcy.
There was then a need for alliances consolidation to allow carriers to manage shipping supplies fast to avoid calling offs shipments in low-demand times. Carriers gain experience from those years, and then came COVID-19! On the verge of the pandemic, the shippers could not see it coming. And they were not sure how long did it would last. In June, demand rapidly overtook supply; it pushes shipments and an inevitable accumulation that drove ocean rates from May to the end of June from China to the US West Coast.
They were able to respond rapidly when the pandemic becomes public, disrupting Economics and Health and dropping demand. What actions did they take?
· China’s manufacturing was closed, impacting not only China or the US economy but the whole world.
· From February to May, Ocean Shipping agents blanked a record number of sailings on China-US lanes.
· From March through May, rates remained stable enough to cope with the significant drops in volumes.
· Carriers could respond in a matter of weeks, counteracting the predictable sinking demand and rate downfall to stopped delivery service deficits.
· In June, US demand for South-East Asian imports surprisingly began to recover.
· More Personal Protection Equipment (PPE) started moving by the ocean as Supply Chains (SCs) leveraged.
· Organisations which inventories rushed down gradually since March began replenishing.
· More home buying and working-from-home involved new home replenishment.
· People reassigned unspent vacation money to consuming more on supplies.
· The movement from brick and mortar to eCommerce required inventories.
Ocean Carriers have the visibility and power to go on.
Shippers were uncertain about restoring capacity too quickly as every macroeconomic indicator announced a recession. However, demands escalated into September whilst volume and laws of supply demands kept on the rise. Worldwide potential market doubles their ocean rates, showing just how much standard patterns were shifting.
Importers from the USA West Coast wondered how long demand would hold up to the quicker route throughout the West Coast. Rates might continue to climb due to ocean-freight services proving to be powerful means of moving and delivering goods; besides, there is no natural alternative to moving massive orders across the world. Therefore, demands fulfilment at current prices would increase even higher.
Takeaways to keep going
· The crisis sustained that carriers can now counteract rate falls through capacity management.
· Their newly-found pricing power indicates container rates are steady regardless of market conditions, and shippers must get used to it.
· Agile containers favour massive SCs operations by reducing the delay between supply and demand.
· Steady prices and fewer rolled shipments lessen stressing operations.
· Real advancement can only come via reliable demand forecasting through edge-digitisation.
· Logistics technology experts will make the difference.
· Highlight the value of innovation for enhancing SC visibility.
· Each stakeholder in the SC should acknowledge the importance of sharing data to open true transparency.
Further comments: look at the potential data-sharing has across the chain, referred to as preventive logistics, affirming that all automation and visibility advances today can integrate and combine in a few years with AI to activate orders shipments in advance to current consumer’s behaviour.
The potential of data will materialise on improved SC visibility, mitigating issues in ocean rates, providing reliability, steadiness and cost-effectiveness to both carriers and shippers.
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