Freight sector faces ‘recurring’ challenges in 2020

2/16/2020

Most of the challenges facing the freight forwarding and shipping sector in 2020 will have “a familiar feel” following the difficult year navigated in 2019, with some of the bigger challenges already beginning to ease, according to US digital ocean freight forwarder iContainers.

Klaus Lysdal, vice president of operations at iContainers, said preparation for IMO 2020 and the United States-China trade war had been some of the biggest challenges for the industry last year, noting: “Aside from IMO 2020, the tariff war has been stealing all the headlines, causing trade to shift, and basically affecting all trade lanes this year. 

“Throughout the year, we have seen a slowdown in traffic as companies were using their larger-than-normal inventories from the import boom at the end of 2018. This decreased the regular import flows and caused a shift towards using suppliers at other origins.”

But amid the uncertainty, Lysdal notes that positive developments have been observed on various fronts, particularly the trucking shortage in the US. Following the implementation of the ELD mandate, trucking capacity in the US was particularly tight not only for large parts of 2018 but also going into 2019, he noted. And after much progress, 2019 had been a much calmer year.

“The biggest improvement was certainly seeing the trucking industry return to normal again this year,” said Mr Lysdal. “There’s nothing like a shortage of supply of something to remind you how much you depend on it.”

And despite the final phase of the ELD implementation taking effect last month, Lysdal isn’t particularly worried about its effects.

“Considering the devastation the industry faced the first time around, one can’t really be blamed for feeling on edge about the final implementation phase. But the worst is over and I reckon a minimal and relatively simple transition to close the ELD chapter.”

Even though the shipping industry will have new challenges to face in 2020, “most of it will have a familiar feel”. According to iContainers, the three themes that will need to be monitored this year have already featured in large parts of the previous years. These include the ongoing Brexit negotiations, the US-China trade war, and IMO 2020.

“We will have to see what ends up happening with Brexit and how that affects European trades. The industry will also continue to adapt to the development of the tariff war. At least the industry as a whole is used to changing climates and usually adapts pretty quickly to any changes,” said Lysdal.

“As for IMO 2020, carriers should already have everything in place. So, it’s mainly just how the increased fuel cost will affect pricing and if carriers keep a united front on the fuel cost or if it becomes a strategy pricing tool for some of them.”

Aside from these recurring headlines, one particular growing issue that iContainers feels will need to be addressed this year is onboard fires caused by misdeclared cargo. According to the Barcelona-based forwarder, part of the problem stems from “misinformed shippers and inept practices”.

Lysdal noted: “At this point, forwarders are still taking shippers’ word for what’s loaded in the container. But from a forwarder’s perspective, that tends to increase the risk that clients who are not well-versed in hazardous cargo and looking to ship it may come to forwarders. This puts the forwarder at risk, especially if the shippers’ paperwork is not in order.”

Lysdal said this was a problem that needed to be addressed urgently, “especially given the growing vessel sizes, whose larger capacities increase the risks of having misdeclared cargo on board”.

He warned that failure to tackle the problem before it gets any worse could ultimately lead to regulations that could cause an increase in shipping costs.

“Some of the carriers’ initial steps to increase fines may help. But if this persists, it could result in mandatory manual inspections or similar moves to protect against these types of issues. Something like that would obviously lead to additional costs involved with shipping,” cautioned Lysdal.

“But something has to happen as we cannot keep having fires happening onboard vessels.”

In terms of digitalization, Lysdal expects headway to be made and to a much larger extent as digitalization slowly becomes an industry standard.

“Both digitalization and automation will become less of a buzzword, mainly because a large part of the industry has already moved beyond the adoption phase to the development phase. It’s almost to be expected that everything being developed or purchased these days will include some level of automation or digitalization,” noted Lysdal.

Over the past few years, the ocean freight industry has seen an influx of systems, apps, platforms, and companies that provide different solutions to different issues, he highlighted. As the industry moves forward, Lysdal foresees development in more comprehensive and complete solutions instead of solutions to localized and specific parts of the whole picture.

“By themselves, some of these solutions may appear a little gimmicky because they may only solve one small part of the puzzle. But these are completely good and valid ideas that offer better answers than the options that are currently available,” said Lysdal.

“Within the next few years and hopefully even this year, we should start to see more of these being integrated into more comprehensive solutions and hopefully gain more traction.”

Lysdal’s expectations echo those expressed this week by US freight giant C.H. Robinson’s president of global freight forwarding, Mike Short. As reported earlier this week, he said global freight forwarding firms look set for a mixed year in 2020, characterised by a more stable air freight market and an ocean freight market in which carriers continue to control capacity better than in the past, with the International Maritime Organization (IMO) 2020 low-sulphur fuel rules contributing to higher ocean shipping costs.

In understanding the outlook for ocean freight in 2020, he noted: “In the past, ocean shipping followed the basic law of supply and demand: When demand increased, rates went up; when demand decreased, rates dropped. This often occurred regardless of carrier profitability. But that is changing, which could reshape expectations for 2020.”

He continued: “Today’s ocean carriers are quick to withdraw capacity when demand changes. By adjusting the amount of equipment available, ocean carriers are better able to ensure demand remains tight enough to protect their profits. This is a successful technique because there are fewer ocean carriers than in the past, allowing for a quicker reaction when supply and demand shifts.”

While ocean carriers can control capacity better “to help ensure rates remain compensatory, we can still expect some level of imbalance due to the IMO 2020 mandate, which increases carrier costs”, he noted.

On the air freight side in 2020, he said: “The good news is that air freight service has stabilized a bit” since last year’s weak and uncertain summer. “While we’re predicting a somewhat stable air freight market for the year, this could obviously change if there is some catalyst that changes the speed products need to come to market.

“We expect demand for air freight to remain stable for the time being. Many organizations continue to focus on managing expenses and are looking for cost-effective, efficient options for delivering on short timelines without breaking the budget.”

He expects air freight capacity “will also likely remain stable”, adding: “Most new capacity is coming in the form of lower deck. Pure freighter capacity will continue to move based on market yields that make sense from a carrier standpoint. There may be some capacity growth in off-market locations, based on passenger demand.”

On the container haulage side, he highlighted potential driver and drayage capacity shortages this year in the US, noting: “California Assembly Bill 5 (AB-5) went in effect on 1 January 2020, which limits the use of classifying workers as independent contractors rather than employees by companies in the state. This may affect the availability of the number of dray carriers in the busiest ports. This in turn can drive drayage costs up.”

Short also highlighted some significant changes on the customs compliance side in the US that were expected to have an effect in 2020, advising shippers: “Customs and Border Patrol (CBP) has several customs changes slated to take place in 2020, and now’s the time to prepare.”

This includes “CBP moving away from ITRAC data”, he said noting: “According to CBP, they will be eliminating Importer Trade Activity (ITRAC) reports in favour of the Automated Commercial Environment (ACE) system. If you don’t already have an ACE portal account, now is the time to get one to ensure all your customs data is available to you when you need it most.”

Short continued: “CBP will continue to scrutinize tariff classification and valuation in an increasing post-summary environment. As the United States Trade Representative (USTR) continues to provide exclusions, many importers will depend on brokers to submit refund requests via post summary corrections (PSCs) or protests.

“CBP often requires additional data and/or documentation to ensure that tariff classifications and valuations are correct. It is imperative that you maintain a high degree of confidence in your compliance program and can substantiate any post summary claims with CBP.”

He also highlighted increasing Importer Security Filing (ISF) penalties in the US, noting: “Throughout 2019 we saw CBP issuing more ISF penalties for inaccurate and/or untimely submissions. This will likely continue and could become a growing issue in 2020.”

He also highlighted various disruptors that may affect the freight forwarding industry in 2020, noting: “While certain trends and regulations only directly affect a single mode or service, there are still plenty that affect freight forwarding in general. Looking at 2020, it’s probably safe to say that the following disruptors will continue to affect the year ahead.”

One such pattern is a broadening of sourcing locations. “While there may be an end in sight to some of the trade war uncertainties, the initiative to broaden sourcing locations beyond China will likely continue,” Short noted. “Southeast Asia has already seen clear benefits of this and will likely continue to see manufacturing growth in 2020.

“Switching sourcing strategies can also bring risks, including capacity availability, infrastructure support, and geopolitical stability. While China will continue to be the largest exporter into the United States, we simply cannot deny the trends that continue to show volume shrinkage from China.”

Another trend will be the accelerated evolution of technology, said Short, noting: “Significant investment in technology and transportation platforms continue to accelerate across the industry. Beyond private equity groups, well-respected and established providers like C.H. Robinson are making investments that will reshape logistics. These growing technological investments will continue to create value across the supply chain.”

He advised cargo owners: “While this opens new options for shippers and carriers alike, you may likely need to spend more time researching which technology option is the best fit for your own organization. After all, the right technology offers tailored, market-leading solutions that work for supply chain professionals and drive supply chain outcomes.