What Freight Forwarders Need to Know About the Latest Shipping Crisis

As the saying goes, with every challenge comes opportunity. And, well, the freight forwarding industry has had no shortage of challenges in the last couple of years, creating ideal conditions for propelling forward innovation driven out of sheer necessity – but that will tangibly alter the course of the industry going forward.

 Key Takeaways

• According to the National Retail Federation, it’s expected that 2022 U.S. retail container imports could come in at 25.9 million TEUs, an impressive 17.9% gain year-over-year.
  There is still too much demand, but not enough capacity for container shipping. Labor disputes and equipment shortages are compounding the problem.
• The growth in e-commerce and direct-to-consumer (DTC) delivery is putting added pressure on logistics service providers to conquer the final mile.
• With geopolitical unrest in the region, few ships are daring to travel through the northern part of the Black Sea and the Sea of Azov, increasing global daily freight rates for tankers to their highest in a decade as well as insurance premiums in the region.
• As America faces “the Great Resignation,” many skilled laborers are taking the opportunity to explore new career options, leaving freight forwarders in hiring and retention mode. Plus, the hiring profile is evolving to demand new hard-to-recruit skills.
• Whether it’s to keep up with demand, maximize efficiency, or improve the customer experience, technology will be a driving force in charting the new course of freight forwarding.

With supply chains continuing to be rocked by aftershocks of an ongoing pandemic and a war unfolding in Ukraine, every freight forwarder around the world is feeling the effects of a complex shipping crisis.

Tackling these challenges will require one part strategy, one part creativity, and one part technology.

In our recent webinar, Tackle the Top Industry Challenges & Set Your Business Up for Success in 2022, we covered the top issues of the shipping crisis at hand and provided some recommendations on how freight forwarders can overcome them, stronger than ever. Here are some of the main topics you need to know about the global shipping crisis. 

Scarce Ocean Capacity Has Been Pushing Freight Rates Sky High 

A second straight year of increases for ocean contract rates driven by vanishing capacity is forcing buyers to consider radical options. And while we have seen some declines in spot rates in recent months, rates, in general, are not expected to normalize until soaring demand for consumer goods plus market disruptions in container shipping, instigated by the pandemic, are reduced significantly. 

As we move from pandemic toward living with endemic Covid, we will eventually see a shift in disposable income back to travel and leisure, away from the consumer goods that have been taking up capacity since the initial lockdowns and work from home orders. That shift back towards pre-pandemic spending habits could drive rates lower, but more than likely not until next year. According to the National Retail Federation, it’s expected that the total of 2022 U.S. retail container imports could come in at 25.9 million Twenty-foot Equivalent Units, a 17.9% gain over 2021, which was 22 million TEUs.

The current ocean freight capacity crisis is expected to go on for some time. There is still too much demand, but not enough capacity for container shipping. Labor disputes and equipment shortages are compounding the problem with backlogs and port congestion. In fact, this is a crisis that has been looming for years and has only been exacerbated by the growth in shipping volumes. It will take time for capacity to meet demand, and companies will need to make the most out of their capacity by closely monitoring asset utilization and prioritizing shipments. Indeed, good shipment management, plus a dash of creativity and resourcefulness, will determine the survival of freight forwarders.

E-Commerce and DTC (Direct-to-Consumer) Trends are Shaping the Future of Shipping

The growth in e-commerce and direct-to-consumer (DTC) delivery is putting new pressure on logistics service providers. Instead of shipping a single truckload of product to a retail outlet, many companies now ship the equivalent of a truckload but divided into thousands of individual shipments destined directly to consumers’ homes.

Not only is last-mile shipping more resource-intensive and costly, but it also requires more precise inventory visibility from door-to-door, more efficient pick/pack/ship processes, more frequent carrier pickups, and better communication with agents, carriers, couriers, and customers. This shift is making it more important than ever for freight forwarders to modernize infrastructure to meet customer expectations for visibility and control.

The last-mile shipping landscape is still evolving, as brands seek new ways to meet consumer demands for fast speed and low cost, but also protect profit margins. Plus, sustainability initiatives will force companies to seek creative ways to get goods to consumers while keeping an eye on carbon emissions.

Geopolitical Unrest in Europe is Sending Ripples Throughout Global Supply Chains

If the international ramifications of the Russia-Ukraine conflict keep spreading, there are several possible outcomes:

• Geopolitical alliances, energy and food flows, currency systems, and trade lanes might split as a result of a global economic divergence 
• North American economic integration is a growing priority
• Entire supply chains are being rewritten, with new sources and partners in the interest of corporate and national security
• Companies pay premiums to prioritize vendors that can provide consistent and dependable supplies resulting in higher prices for consumers
• New investments in supply chain technologies and automation accelerate, as will preference for near-shoring and domestic sourcing

We’re already seeing Western companies shifting their business away from the East and more toward Western, neutral states. Several global brands, including Coca-Cola, McDonald’s, and Starbucks, have suspended operations in Russia since the start of the conflict.

Few ships are daring to travel through the northern part of the Black Sea and the Sea of Azov, increasing global daily freight rates for tankers to their highest in a decade as well as insurance premiums in the region. The Wall Street Journal reported that as many as 3,500 sailors have been stuck on 200 ships at Ukrainian ports as the number of vessels hit by artillery off Ukraine’s coast grows. Ukrainian and Russian seafarers are stuck in ports around the world, leaving shipowners scrambling to find replacement crews to keep vessels moving.

Finding and Retaining Qualified Labor is Harder Than Ever

Shortages of labor are impacting supply chains, from warehouse workers to truck drivers and office workers. 

As America faces “the Great Resignation,” many skilled laborers are taking the opportunity to explore new career options, leaving freight forwarders in hiring and retention mode. Employers have had to “up their game” in order to attract new talent and retain existing resources. 

Plus, the candidate profile required to work in freight forwarding offices is also evolving. Sure, having strong organization, communication, and relationship skills with a strong sense of urgency are as important as they ever were. But, mastering a slew of new technologies is becoming a must. Some of the most in-demand profiles will be experts in areas such as process automation, Big Data, and AI. The most valued profiles will be those that can develop smart environments using IoT and provide a differential value to the organization. According to Freightwaves, digital technology and shipment visibility are going to be the most critical aspects of growing a healthy freight forwarding business over the next five years.

Out of Challenge Comes Opportunity

These challenges are shaking things up in the freight forwarding industry, forcing companies to innovate in order to survive. Whether that means pivoting into new business areas or markets or changing the way they’ve done things. Whether it’s to keep up with demand, maximize efficiency, or improve the customer experience, technology will be a driving force in charting the new course of freight forwarding. If freight forwarders aren’t getting there on their own, customers are demanding it, with 45% of shippers saying they started working with another freight forwarder because their previous freight forwarder lacked adequate technology (Freightwaves).

Whether you’re looking to increase end-to-end visibility, enhance productivity with the use of automation, improve your customer experience, or use technology in many other ways to build resilience and adapt to the challenges at hand, Magaya has a solution for you. Learn more about how the Magaya Digital Freight Platform can modernize your business and accelerate your growth.