Higher rates the biggest short-term challenge for sea freight customers
Higher rates are the biggest short-term challenge facing ocean freight forwarders and shippers, according to DHL Global Forwarding’s global head of ocean freight Andreas Boedeker, who believes strong demand and carrier discipline will mean ocean freight prices remain high this year.
“Supply and pricing discipline in the carrier markets has also increased versus 2016,” he noted. “This will mean forwarders and shippers have to manage higher rate levels and be more flexible in the routing and carrier options they use.”
He said the strong overall market demand so far this year defied a lot of people’s expectations after recent talk of increased protectionism and anti-globalisation. “The US election and the Brexit votes shaped a public perception of trade going down; the opposite has happened,” he noted.
“The US shows increased consumption, the Chinese continue to import industrial goods, but increasingly also commodities for private consumption including food stuff, and the weak Euro and Sterling has boosted European exports. We did not observe major supply chain disruptions, but the strong demand made it more challenging than usual to find the right capacity, and there were some interim backlogs.”
Among the challenges has been a shortage of capacity eastbound from Europe to Asia in March and April − driven by several factors, including unusually strong demand. “On the supply side, the early Chinese New Year and the related blank sailings meant that capacity on the return leg was reduced end of March and early April, when demand is seasonally strong. Carriers had additional blank sailings, for instance, to re-arrange strings in light of the new alliance structures.”
This situation had now largely been resolved. “Since calendar week 13/14, we see full capacity again being available, and booking backlogs have largely cleared,” Boedeker said.
“At higher rate levels, there will certainly be no shortage of capacity on the Europe eastbound trade. The very low rates have attracted some cargo, such as waste paper, that will not be shipped anymore in such quantities at a higher rate level. Therefore, shippers of consumer or capital goods should not be concerned about a structural shortage.”
The recent capacity shortages had led to a certain amount of modal shift – some of which appeared to be continuing. “We still see high interest in eastbound rail, which is a mode that is structurally attractive for automotive parts and other commodities in the value density range,” Boedeker noted. “Demand for air will always be more fluctuating, as producers and retailers grapple with unforeseen demand spikes or supply problems.”
On the transition to the new ocean alliances by lines, Boedeker gave a measured response, commenting: “It is not upon us to judge whether an alliance system is better or worse; we deal with the supply that we find in the market. What does create problems is unpredictable behaviour of alliance partners in terms of schedule reliability, honouring of allotments and the rolling of cargo. Whenever this occurs, we will discuss it with the respective carriers.”
Some have reported an emerging trend whereby major alliance members are finding it easier to push through rate increases than rivals, is this something you’re seeing. But this was unlikely to be significant in the long term. “Bigger players always enjoy a bit more leverage in the short-term. However, this typically pans out quite quickly,” Boedeker noted.
On the whole, he is positive about the outlook in terms of demand for ocean forwarder services. “We are quite optimistic with regards to the market development,” he noted.