The port congestion, container shortage and transportation delays that emerged in 2021 followed shippers right into 2022 and have shown no immediate signs of stopping. This has put companies in the position of once again having to put more time and effort into forecasting, planning, budgeting and generally just thinking way ahead when securing ocean freight capacity for their imports and exports.
It also doesn’t help that ocean shipping freight costs are up to eight times their pre-pandemic levels—and even higher for some routes. This reality is making it difficult for smaller companies to do business when they either can’t fill a whole containerload or compete against organizations that are leasing and using their own dedicated ships.
A Finger on the Pulse of Ocean Freight
From his vantage point as DB Schenker’s Head of Ocean Freight, Raymond Tsang keeps his finger on the pulse of the ocean freight industry. Right now, that finger is telling him that the shipping climate looks and feels nothing like it did just two years ago. Companies are slowly adapting to and living with this “new normal” operating environment, which has shifted considerably in the last year alone.
“Over the past two years, the changes in supply chain have evolved very quickly, but the evolution has been forced on the creaking infrastructure and the old methodologies,” said Tsang. “COVID-19 has impacted global supply chains, shippers, carriers and freight forwarders, all of which are now trying to manage business through a very uneasy environment.”
For now at least, Tsang sees no prospects for a “return to the pre-pandemic status quo” in the shipper environment, where the cost of shipping a container from China to an urban center like Toronto has risen to about $30,000 in some cases (versus about $3,500 pre-pandemic). “That’s pretty crazy,” Tsang said.
The escalated cost has changed the way shippers shop around for freight capacity. The focus has at least temporarily shifted away from price and is more centered on securing the capacity, making sure the goods get on the ship, and then hoping it doesn’t sit out at anchor outside of a congested port, waiting to be docked and unloaded.
“The message is pretty clear that companies should not chase after the best price for their ocean transport,” said Tsang, “and that they instead really go after the capacity in order to keep their supply chains moving.”
What Shippers Want and Need
In light of the current ocean freight challenges and ongoing supply chain disruption, shippers are asking for high levels of transportation visibility and DB Schenker is delivering. Using a combination of advanced technology and the strength of its experienced team, the logistics provider helps companies quickly and accurately pinpoint purchase order (PO) status, shipment status, projected arrival dates and other metrics that help those companies better serve their own customers.
“Supply chain visibility is critical for shippers right now,” said Tsang. “They want to know the status of their shipments at every juncture in the supply chain, and we’re working to provide that both within North America and on a cross-border basis.”
Tsang said DB Schenker is also focused on relationship building and on fulfilling the role of trusted partner for customers during this period of great uncertainty and volatility. “We’re building and strengthening relationships with every stakeholder and using good communication to make sure those bonds are solid, reliable and lasting,” said Tsang, whose team members frequently share cargo forecasts, promotions and other “hot items” for shippers to take advantage of and/or act on quickly.
Brace for Two-Tier Rates
As he looks ahead, Tsang doesn’t see much relief in store for shippers using ocean freight this year. In fact, the Russia-Ukraine crisis, higher fuel costs and latest China COVID lockdowns could all add to the current complexities. Work slowdowns due to the International Longshore and Warehouse Union (ILWU) and Pacific Maritime Association (PMA) contract negotiations (which are expected to be completed in late-July) could create more interruptions on the US West Coast and potentially in Canada as well.
For now, Tsang says one good strategy that shippers can use is to brace themselves for two-tier ocean shipping rates, with tier one being the standard freight all kinds (FAK) rates and tier two comprising premium rates. He warns shippers not to select the first tier based solely on price, and to assess the advantages of going premium before making that final choice.
“FAK may give you only certain capacity or allocation, while premium will actually help you move the freight,” said Tsang. “Going forward, we’ll probably see more of these two-tier offerings; we highly recommend shippers educate themselves on this in order to keep their supply chains moving.”