I recall sitting in a meeting about a year ago. Communications to clients from late 2019 into 2020 had been challenging: COVID-19 in China, docks shuttered, shipment delays. Yet, recovery was on the horizon. But it wasn’t. We all experienced the rest of the story. While 2020 was an historically hard year for freight forwarders, it’s important to look back and realize lessons learned to find the way forward. Hindsight is indeed 2020.
The U.S. and China relationship
Fact, China is a low-cost product producer. Made in China labels are on hats, clothes, mugs, tech equipment and even pharmaceuticals. Over 70% of active pharmaceutical ingredients used in the U.S. market are produced overseas. Almost all of the ibuprofen sold here comes from China. We knew this prior to 2000, but the events that unfolded over the last year shined a spotlight on this low-cost manufacturing dependency.
PPE: Made in China
Among the vast array of products China produces is PPE. Until now we didn’t realize how much, it feels like all of the PPE is made in China. The U.S. need for masks, gloves and other protective gear has created a surge in imports. Rightfully so, those imports have priority. PPE imports continue to surge impacting shipment demand and delays for other cargo.
Import volume’s impact
Record import volumes are drastically affecting export options and equipment. Demand means higher rates. Rates rise when lines drastically need to move empties. Capacity and equipment are more difficult to manage.
Right now, loyalty is everything. As import volumes continue to surge, regular importers have nowhere to go if they need additional space. Importers simply are not able to make changes from one steamship line to another during demand periods like this. In early January, a business partner in China said unless a steamship line had been moving importers’ containers previously, they were not eligible to request space going forward. That included premium space requests. Simply said, right now steamship lines are loyal to their regulars.
Because the majority of major steamship lines work within one of three Alliances, they control the lanes and capacity. Over the past year, these steamship lines have managed to profit from shipments from Asia to the United States using blank sailings. Blank sailing is a term that basically means no sailing or, perhaps more precisely, canceled sailing. A blank sailing could refer to a sailing skipping one specific port (while still traversing the rest of the scheduled route) or the entire sailing being canceled. When demand softened at different times in 2020, blank sailings were imposed, which allowed lines to make a profit.
The way forward
We know we cannot control how Alliances work or the current shipping climate based on the Pandemic. Instead we have learned from what has happened to help clients manage the situation going forward. This is our team’s list of recommendations:
- Diversify internationally shipped import and export products.
- Beneficial cargo owners who typically contract directly with a steamship line should begin to develop relationships with freight forwarders.
- Shippers and importers should consider a relationship with more than one forwarder. Notice the “s” on forwarders in the bullet above.
- Understand the Alliances to make sure you’re using carriers from each. Do not rely on one group of steamship lines within one Alliance to move all inventory. Use our Infographic as a resource.
- Ask your freight forwarder about their partnerships to ensure alternatives are accessible.
- Know and understand port options, whether working with a steamship line or within an Alliance: East Coast, West Coast, Gulf Ports, Canada.
- Consider how the rail system from port to door will affect your transportation time and cost.
- Watch your own freight move. GPS and IT systems are synched up for customers to see where shipments are located using any device.
- Stop trying to think only of saving money, at least for the short term. The prices and open slots are not getting better nor are the transit times.
- Review supply chain plans and ship ahead to have stock instead of trying to manage a just in time system.