Does your supply chain depend on container freight shipping? And are you struggling with cost and forecasting challenges?
At Logistics Bureau, we have supply chain consultants available to help you improve volume forecasting and attain the most favourable container freight rates possible, even during this period of pandemic-induced turmoil.
However, even with a consulting team on your side, it’s crucial to ensure your managers responsible for procuring shipping services understand the current container freight landscape and issues at hand.
This article might help you cultivate that understanding, as it offers a brief overview of the factors influencing high container freight costs—and the challenges of volume forecasting.
Background to the Current Situation
The real problems with container freight capacity and rates started with the COVID driven shutdown of manufacturing in China in 2020, and the subsequent reopening, coupled with a massive spike in ecommerce growth and stimulus initiatives in the West, which resulted in phenomenal demand for container capacity against a background of misplaced containers. The outcome was a severe global container shortage.
The situation was—and continues to be—exacerbated by a reduction in turnaround speed in ports and terminals due to the need for compliance with social distancing and movement restrictions.
As container demand continues to grow, supply capacity is not increasing fast enough to keep up. In short, a perfect storm of complicating factors has led to:
- Increased port congestion
- Lengthier delays in container loading, unloading, and shipping
- Reduced shipment visibility
- Sky-high shipping fees
- Increased shipping surcharges
- A higher frequency of blank sailings
The market has become carrier-centric, magnifying the challenging nature of forecasting, not least because traditional mitigation practices for forecast inaccuracy, such as overbooking and phantom booking, are no longer tolerated. That means forecasts must be more accurate than ever before, at a time when volatility is making a mockery of the typical patterns of seasonal demand.
Increase Forecast Accuracy to Attain Lower Rates
When negotiating long-term container freight rates, your company’s volume forecasts will be one of the most critical factors any carrier will consider. Liner companies need this vital intelligence to match the supply of container and vessel capacity to the demand on specific routes.
Since the onset of the pandemic, though, a marked squeeze on the market has defied the forecasting skills of logistics professionals and the algorithmic models that typically assist them so ably.
Still, at Logistics Bureau, we’re great believers that anything you can do to improve forecast accuracy, you should do—and that tenet applies at any time, but perhaps more so during periods of crisis and instability.
Adjust to a Carrier-centric Freight Market
By working hard and smart to generate more accurate forecasts, you can still improve your chances of gaining favourable container freight rates. There’s probably no better time to do so than when they are hitting record highs.
While historically, your enterprise might well have enjoyed some privileges in the practice of securing container capacity, such as overbooking, without any penalties, carriers have tightened requirements substantially over the last 12 months. Many now apply fees for booking cancellations and no-shows, leaving shippers with little option but to focus on generating forecasts that are as precise as possible.
Other Steps to Minimise Container Freight Costs
Of course, it’s all very well to focus on increased forecast accuracy, but the opportunities of this approach are finite. So what can you do if you can’t better your current forecasting?
There are a few steps you can take.
The first one should be to focus on building solid relationships with your freight forwarders and carriers. That means sharing your volume data with them and avoiding the exploitative practices of phantom bookings and overbooking.
It also means regular, meaningful communication with your contractual carriers, setting their expectations for realistic, rather than overegged, volumes.
On the other side of the equation, it means letting them know in good time if your volumes start to look like they will be lower than expectations, although in the current climate, hopefully, that will be an unlikely scenario.
Other measures that could potentially help you include the following:
- Right-size your containers (if you are shipping full container loads) by using 20-foot units for goods with a high weight and 40-foot for lightweight, high-volume shipments.
- Look for opportunities to triangulate containers by bringing back imports in the same container you use for your exports. Carriers will often offer discounted rates to customers who can do this.
- Tighten up management efficiencies, especially those which concern shipping and customs documentation, to avoid unnecessary additional costs such as demurrage or detention charges at ports and terminals.
- Actively seek to optimize the shipping routes used for your freight. Are you confident that your carrier is using the most cost-efficient routing? It always pays to analyze the different routing options available.
- Seek options to improve freight consolidation and reduce shipment frequency.
Are Carriers Exploiting the Situation?
While shippers have often been guilty of exploiting dubious practices like overbooking to secure container capacity, the tables have turned since the pandemic levelled massive constraints on freight resources.
With exponentially less air freight capacity available, more shippers have been using ocean freight, drawing even further on capacity already depleted by container shortages.
Now, observers are beginning to question whether carriers are being exploitative by continuing to raise container freight rates, to the point where competition regulators are taking a keen interest in the goings-on.
In Australia, the Australian Competition and Consumer Commission is currently seeking to determine if ocean carriers have breached competition laws in their container administration and pricing practices, while the Federal Maritime Commission is conducting a similar investigation in the United States.
This regulatory interest should probably come as no surprise, given how liberally carriers have been applying price hikes and additional surcharges, with rates on sought-after routes increasing by more than 500% over the last year.
Rates May Not Ease Anytime Soon
Experts suggest that the situation will not improve significantly, perhaps for several years to come. Notably, a few of the largest carriers have announced intentions to cap spot rates and refrain from introducing further surcharges. Nevertheless, there are no guarantees that all competitors will follow suit.
So where does this leave you, the shipper?
Unfortunately, there will be no early reversal in the direction of container freight rates, meaning you must continue to absorb the costs or pass them on to your customers.
Are you are in the practice of tendering for long-term rates? If so, you might try leaning on some of the advice offered earlier in this article. However, if you typically rely on spot rates, now is as good a time as any to consider building relationships with carriers, sharing your forecasts, and looking for favourable long-term carrier agreements for your import and export trade lanes.
Need Some Help with Container Rates and Forecasting?
Container volume forecasting challenges, and astronomical shipping costs look set to continue for the foreseeable future, so you might want to consider your longer-term options. At Logistics Bureau, we can work with you to optimise forecasting processes and utilise the data to negotiate favourable FCL and LCL rates.
To learn more about how we can help with container freight rate reduction and forecasting, why not book a one-to-one discovery call with a Logistics Bureau consultant? It’s FREE and only takes a moment to schedule online.
Alternatively, contact us by phone or email to enquire about our supply chain and logistics consulting services and discuss your needs.
Editor’s Note: This post was originally published on November 02, 2021, under the title “Container Freight Costs and Forecasting: Intrinsically Linked & Frustratingly Challenging” on Logistics Bureau’s website.
