The COVID-19 pandemic resulting to lockdowns in most countries definitely led to uncertainty and volatile repercussions on the global economy.
Supply chain and logistics industry experts Jack Chang, Managing Director, JUSDA USA and Bernie Hart, VP Customs & Trade Business Development, Flexport share their market insights on the 2020 ocean freight forwarding industry in the midst of coronavirus.
Ocean carriers that mainly control the supply chain market’s supply and demand continue to hop on the trend of blank sailings following the negative impact of the COVID-19 pandemic. This capacity reduction measure is anchored on the expected decline of overall cargo volumes for the remainder of 2020 due to the crisis.
According to Jack Chang, Managing Director, JUSDA USA, what is currently unique would be the organization of three major shipping alliances namely 2M, Ocean Alliance, and THE Alliance that can control and dictate the volume of supply. As demand continues to increase, what is evident is that prices skyrocket combined with equipment shortages, which vastly affect imports from the Asia region into North America especially for the ocean freight industry. Based on DHL’s Ocean Freight Market Update for December 2020, the container or box shortage in Asia is expected to last until Chinese New Year.
Given the unprecedented volatility across trade lanes this year and as it relates to customs, Bernie Hart, VP Customs & Trade Business Development, Flexport claims that the sheer volume of US customs has been difficult for brokers to keep up with during the latter half of this year with more volume coming in from mid-size and large companies.
Related to this is the many Post Summary Correction (PSC) works this year due to sanctions, exclusion lists, and other related factors. Importers are keen to go back and recoup some of their money if they either paid too much or didn’t take advantage of an exclusion.
From an overall industry perspective and in the midst of the COVID-19 pandemic, there has been a stress on the need for data, atomization, and more electronic exchange of information.
As results come in for Q3 and Q4 2020, Jack Chang claims that carriers are going to have better results than what’s anticipated as they make record profits in operating income compared to the same period last year.
Based on what the alliances have done, it definitely has enhanced collaboration amongst carriers where in the past, different areas like the Transportation Stabilization Act(TSA) controlling different fuel mechanisms have not worked or have been scrutinized.
From China’s end, the country has definitely stepped in to work with the Chinese carriers to start cutting down on the number of blank sailings to pull back in more of the supply and catch up with the ongoing demand. Tying in with customs, what’s relevant is as volume increases or more customers require customs or freight transportation services, how the governments could step in to help regulate or control the market is definitely going to be a big factor as 2021 approaches.
Jack Chang, JUSDA USA, states that how long the congestion will last is as long as consumers continue to buy products via different omni-channel chains. He believes that there's going to be an ongoing need for supply chains and freight shipments, but it’s equally vital to know why is there such a peak right now?
Section 301 tariffs will be expiring towards the end of the year and there are importers importing more products prior to its expiration. At the same time, there are companies trying to get products out before Chinese New Year in February and they know it's going to be a pretty tight season due to the ongoing COVID-19. The latter is also taking up capacity of moving different PPE products, gowns, and gloves to the North America markets. It's a fact that there are multiple factors, which combined together, lead to the ongoing congestion.
Will vaccines help? It is believed that it will leave some of the congestion that comes in and lead to some of the volume drop after Chinese NewYear. Do the carriers have their act together now and do the carriers know how to work together to be able to have more blank sailings? Jack Chang believes that yes, there's some intervention probably needed from FMC to really provide some meaningful relief to the congestion. He adds that there are ongoing conversations to investigate this matter.
Bernie Hart, Flexport further adds that current trade lanes also affect where the volume is today since there are deplenished inventories that businesses are trying to replenish, the upcoming Chinese New Year, and sanctions that will conclude by year end. Bernie speculates that the congestion would last until Q1 2021. It will be good if the FMC stepped in together with other governing bodies to assist with the issues, but there’s a bit of pessimism given some administration changes that could potentially drive some turmoil. He doesn’t see a fast resolution to the said issues and even if things start to get better, it will be in a gradual pace in the coming months until Q1 2021.
Bernie Hart claims that amidst the COVID-19 pandemic, they’re still seeing consistent growth. The TPEB coming in from the Asia side as well as the European growth is starting, but the TPEB is the fastest growing and the area that currently has a lot of global focus on.They currently watch the peak season as the Chinese New Year approaches and monitoring those volumes for blank sailing commitments and others.
Jack Chang further comments that as Section 301 came in, a lot of importers were hurt but many manufacturers started putting together strategies on how to get out of China. The concept of China plus one where raw materials of components that are used in the manufacturing of a finished good are still being sourced in China slowly started moving out.
The industry experts are seeing growth in Asia particularly in Vietnam, Thailand, Indonesia, and some movements from Hong Kong and Singapore as financial hubs. Some of these movements are due to the US political landscape with China whereas other areas of growth are India and Mexico with USMCA.
Jack Chang has also seen tremendous movement of capital equipment out of the Asia region into nearshore locations due to the ongoing challenges with Section 301 and the instability created in the supply chain.
Customers are demanding for supply chain visibility. Not only are they looking from a purchase order point, they're looking at the visibility from the manufacturer all the way up to how the manufacturer themselves are sourcing product from a component level. A lot of that ties in with the challenges that COVID-19 and Section 301 presented with how quickly some products or sales could go down if they do not have complete control or visibility of their supply chain.
The industry experts are in agreement that there are a lot of what-if scenarios for data sourcing analysis. What if I change my source of supply? Never has it been more apparent or a need right now to do predicted landed costs because what clients are really looking for would be what is the true net landed cost to get this to my back dock here in the United States? What are my duties, taxes, fees, freight, lift, capacity, insurance? They want to understand all of those scenarios. One of the questions is how do you prepare and predict. One way to do that is via the what-if scenarios. Do you have the luxury? Do you have the capability to change your sources of supply? If you do, then Vietnam,India, these are places that have foreseen large upticks because of the China sanctions and the 301s.
The organizations and businesses that have prepared themselves to have the flexibility in their supply chain, be able to change sources of supplies, and do those what-if scenarios are the most prepared given the current pandemic in 2020 until Q1 2021 and even beyond.