A Coin has two sides – Discussing Covid Pandemic’s Impact on the Shipping Trade

Modern industries demand better service levels and the pandemic has spurred the process of change in the supply chain. Year 2022  could be a pivotal period in the evolution of the shipping industry, shifting it towards a more collaborative approach. According to the shipping Media, the pandemic is expected to have far-reaching repercussions that go beyond just stacking the odds.

Heads I win, tails you lose, shipping’s new spin on a win win situation. Carriers are spinning the line that they are interested in their customer welfare, but as is often the case, actions speak louder than words. And while shipping lines will make a good money this year, shippers have complained of a poor service, and unreliable timekeeping.

Will this, however, be the case in the future?

Winning is just the flip side of losing and this year’s great losers have been the shippers who have seen the cost of transportation skyrocket for a number of reasons, whether it’s the control of vessel capacity, the container shortages caused by the imbalance of trade or simply the surge in demand for port and inland cargo services.

Whatever be the cause, the rates have soared leaving the cargo owners fuming. However, sense prevails for some shippers who are ready to bide their time. They know that what goes around comes around, and there will be a price for the carriers to pay for the mega-bucks that they are charging today.  It is also undeniable that shippers have for the last 30 years seen the cost of freight as negligible in the total cost of bringing products to market. It was this fact that allowed the transformative shift of production to China having in mind the low labour costs and cheaper transportation 

While it is indisputable that shippers have had a good run for their money, and were prepared to pay more for a reliable service. But this year reliability has gone out of the window. Shippers are booking cargoes weeks ahead with the knowledge that the freight will be rolled over and delayed.

Reliability has been a problem, not just because carriers canceled services, but also because the pandemic has seen labour forces slashed, not enough dockers, lorry drivers and freight trains available. Moreover, the patterns of trade were disrupted by the pandemic with the first half of the year seeing volumes crash, either through China’s lock-down of manufacturing, and later through the slide in demand in Europe and the US.

Inventories were slashed, but the return to high demand was rapid and, it was the speed of the turnaround that caught many shippers and operators by surprise. That said the movement of goods was caught in a perfect storm.

Cyclones whirled around the logistics sector and the cost of moving a container from the Asia to West went up multi-fold , adding peak season, congestion and other surcharges the costs mounts up exorbitantly.

According to Global Shipper Forum for some cargo owners the cost of freight has become so great that it is too much for some who will simply avoid exporting their cargoes, rather than pay these prices. One thing they are convinced is that the carriers have latched on to a good thing and are riding the storm for their own benefit, rather than helping move cargo for the benefit of all.

It is a view that carries some weight as “No one feels the pain of the broken ocean import supply chain more than the BCO (beneficial cargo owner). Ultimately, they are paying for a delayed service and in many cases missing product deadlines that cost them business.”

Five day waiting times outside of ports, slow inland travel times, slow turnarounds of empty boxes have all caused delays. And service delays cost money. That is why shippers want to know when their cargo will arrive, and they want to know how much it will cost in total. That has been the mantra from shippers since containerization began.

This pandemic ridden year has seen the acceleration of e-commerce and that offers shippers greater visibility. Shipping lines have embraced the e-commerce idea and that has led the carriers to rapidly digitalize their operations too, and that is all as a consequence of the global pandemic. The digital push has come from such collaborative organizations such as the Export Import Associations and other mutually beneficial organizations that are looking to standardize the use of digital tools in the industry.

This year has also led to the rise of on-line shopping and that will offer carriers new opportunities, one that Shipping giants have been discussing for some time, they want to become shipping’s first integrator.

Integrator status implies a level of sophistication not seen before in the shipping industry. The maritime sector is caught cobwebbed in its traditions, it has developed systems and methodologies over centuries that new tech demands must be forgotten. New technologies require new ways of working. Ringing out the old and ringing in the new is more than just about a new year, it is a new era.

Simply using new technology to replicate old methodologies is not digitalization, but stagnation. A paradigm shift is coming and 2022 could be seen as the year when digital transformations and de-carbonization became the cornerstones of vessel and supply chain development. Currently in its infancy, and there’s no guarantee that the newborn will survive. The two pillars of the newly evolving supply chain will shape its formation and maturity. Having begun with the digital process that was spurred on by Covid-19, de-carbonization by contrast is driven by regulation, which has been stymied by the pandemic.

Experts say that, “There is a distinct likelihood that the ongoing cargo boom supports a large inventory build-up, bringing inventory levels significantly above the pre-pandemic levels. This understanding of the development would close the ‘missing gap’ between the qualitative and quantitative approach to understanding the market. But this would also imply that at some point in 2022, we would be due for an inventory correction.”

If experts are reading the situation correctly the upcoming contract negotiations may see a qualitative change from previous years. Spot rates often form the basis for the start of contract discussions, but long contracts with high rates and uncertain service levels seem an unlikely scenario. Shorter contracts and some certainty on delivery will more likely be what the shippers are after, while the lines will be looking to maintain utilization levels to the maximum while the negotiations continue.

That is a change which is long overdue. But it is also a change that will come because of the new visibility in the supply chain, we will know where our produce, manufactured goods and other consumables come from and we will have better informed choices when it comes to picking out our sources  

Flipping this coin will be a win win situation for the planet and, just as with glottalization, container shipping and supply chain logistics should be at the forefront of these changes. If not we could all be losers in the longer term.