Shippers had good reason to expect this year would be a buyer’s market for ocean freight, after carriers added capacity last year and were expected to add more in 2024. But a mix of global events and high demand across trade lanes so far in Q2 2024 has driven ocean capacity down and rates up – in some cases to a premium.
The challenge is especially acute for shippers who were not able to secure enough space at long-term contract rates when ocean carriers set strict contract deadlines in early May and/or limited allocations in the rush to finalize deals. Now, they’re wondering how they can move their goods on time without breaking the bank.
Shippers face elevated ocean rates – or air rates – if they have cargo in Asia that needs to move now. But for shipments that don’t need to be moved urgently, there are steps shippers can take to create some flexibility in their shipping strategy and help manage costs.
Rough waters
The frenzied race to the finish line that we saw during contract season seems to be sticking around for this year’s ocean peak shipping season, amid a lot of turbulence and uncertainty.
In the second half of April into mid-May, demand for space on Asia-to-U.S. ocean vessels started to pick up at a time when some carriers were using blank sailings to limit capacity in response to the lower demand seen after the Chinese New Year. Other trade lanes, such as exports from Asia to Europe and Latin America also saw an uptick in demand, which caught the market by surprise.
The additional capacity that entered the market last year and in the first half of this year has not been enough to cover the re-routing of Cape of Good Hope. Carriers have been looking to the charter market to cover the additional capacity needed. And we are now seeing additional capacity getting added to the U.S. West Coast via new strings and extra loaders.
However, no additional capacity is headed to the U.S. East Coast or Gulf Coast as of today in terms of new strings and even extra loaders. Some carriers that planned to bring in new capacity to these lanes have moved those vessels to the Asia-Europe trade lane due to the Cape of Good Hope re-routings as more assets are needed there and congestion has affected that lane at a higher rate.
As a result of the current market, spot rates kept climbing higher last month. Rates from China to North Europe more than tripled in May, for example, while rates from China to the U.S. East Coast more than doubled. Rates have only continued to climb higher this month, and carriers are now offering premium services to secure space for priority cargo.
Certainly, a key reason rates keep increasing is because of the ongoing risk of attacks on vessels in the Red Sea, driving carriers to reroute shipments far off course. But several converging events are also playing a role, like container shortages, port congestion, and an increase in container imports into the U.S.
What shippers can do
Shippers can’t expect the current market volatility to go away anytime soon. As a result, they’ll need to play the spot market strategically.
With capacity tight and rates rising, shippers shouldn’t risk limiting their cargo to one specific carrier. They also shouldn’t confine their shipments to a single port given the challenges that some regions are experiencing – or could soon be experiencing – with congestion and potential strikes. Instead, shippers should consider diversifying their options to have greater flexibility in the carriers, capacity, and ports that they can use.
An established NVO that has relationships with all of the major ocean carrier alliances can give shippers access to more carriers, capacity, sailing schedules, and ports. When the market is challenging, we’re working through these options with shippers daily, helping reroute their freight when capacity is limited or a port becomes congested.
As shippers contend with higher ocean freight rates, uncovering savings will also be key. This can include using less than container load (LCL) shipping, where shippers only pay for the space that they use. In today’s market, LCL is also helpful to keep freight moving. For example, we’re working with customers to move some of their full container load (FCL) shipments to LCL to keep inventory levels at a manageable level while FCL capacity remains tight.
Lastly, if shippers exhaust their options on the ocean spot market, they can work with a transportation partner to convert shipments to air or expedited LCL services. Both will be a more expensive option than standard ocean services, but they can at least help shippers deliver critical shipments on time.
Answer with agility
No single solution will help shippers avoid higher ocean rates. But they can potentially reduce the risk of higher rates and maintain timely deliveries by diversifying their shipping options and being adaptable during this fluctuating peak season.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.