The world’s three largest container shipping lines, Denmark’s Maersk, France’s CMA CGM and Swiss-based MSC, have suspended their bookings to and from Russia after Moscow sent troops into Ukraine on Feb. 24, sparking a flurry of Western sanctions.

The exit of major container shipping companies — which transport most manufactured goods around the world and are essential to international trade — is expected to cause a major decline in shipments if no alternatives to these firms are found soon, according to the head of Delo Group, Russia’s largest container operator.

“We expect the drop in shipments (to and from Russian ports) in the northwestern region to be around 90% to 95% starting in May if no alternatives appear on the market,” said Delo Group CEO Dmitry Pankov. He was referring to container terminals at Russian ports including those in St. Petersburg and Ust-Luga.

Pankov said ports in the Russian Far East, the Black Sea and Sea of Azov would suffer less from the exit of mayor container shipping companies because their share of cargo traffic was smaller than that of northwestern Russia and because new players in those regions were beginning to emerge.

He did not name those companies, but said some came from Turkey.

Alexander Isurin, chief executive of TransContainer, predicted the exit of container shipping companies would result in a shortage of containers in circulation on the Russian market.

“The market will need to find a replacement for some 300,000 twenty-foot equivalent units (TEU),” said Isurin. TransContainer expects about 30% of containers on the Russian market to be withdrawn from circulation.

“The Russian transport market will most likely not be able to make up for everything and replace the largest container lines in the world that suddenly decided to no longer work here.”

Isurin suggested Russia might have no choice but to work with smaller regional container shipping companies new to the Russian market.

“There are Chinese, Japanese and Korean companies that can choose their position,” he said. “I think that many of them have taken a wait-and-see position that will depend on how the situation develops.” (Reporting by Reuters; editing by Guy Faulconbridge).

Source: www.reuters.com

Image: www.pixibay.com

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On episode 120 of the Inbound Logistics podcast (bit.ly/ILMagPodcastPage) Marty Wadle, chief commercial officer and Paul Jensen, senior vp of supply chain solutions for Ruan, an Iowa-based logistics provider, spoke about the importance of transparency and trust in the industry. Here are the highlights of their interview.

Wadle: A single integrated solution removes waste and duplication and creates a stronger relationship with the customer. It creates inventory visibility throughout the supply chain—whether it’s raw materials inbound, work in process, or finished goods.

If you work with one logistics provider, you see the freight all the way through the process. Visibility across the entire supply chain when you’re working with one provider is a huge benefit.

A single, integrated solution also enables rapid response to supply challenges. If we see what’s going on in the entire supply chain, we’re able to effectively maneuver around a clog, wherever it might be. If we see where we have challenges—at the ports or with containers coming in from overseas—then we can do other things to expedite freight once it hits our borders to get that product to customers more efficiently.

We also look at ways to work with our carrier partners to put them on continuous moves. Shippers today are looking to be a shipper of choice. As we act as an extension of our customer, we do our best to create that shipper of choice view from our carrier perspective: How quickly can we get carriers in and out of the docks? Can we put two or three different lanes together to create a continuous move, keep that carrier moving, and eliminate their empty miles? That just creates a better solution.

We also look for backhauls for our dedicated resources that may be delivering finished goods for one of our value-added warehouse customers. The trucks can pick up inbound raw materials or other third-party freight so we can keep dedicated assets loaded at all times. That drives continuous improvement and takes waste out of the system for customers.

Jensen: A common theme across the different services that we provide is transparency. On the dedicated fleet side, we’re 100% transparent. On the managed transportation side, we’re 100% transparent with our customer—from a service, cost, and carrier payment standpoint—and that develops a sense of trust with customers.

We operate best when we’re part of our customer’s enterprise. We bring the most value when we’re included in strategic discussions about the direction of their organization, when our goals and objectives are fundamentally aligned. And that starts from the first day we engage with a customer.

We are all about being as transparent as possible, so that the decision-making on both sides—from our customer’s perspective and our perspective—drives toward a common goal.

IL: What are some innovations that Ruan has implemented where you really see that value-add in play?

Jensen: Every implementation of a solution begins with the needs of the customer. Whether that’s a sophisticated racking system or a complex pick-to-light, multifaceted kitting operation that directly feeds manufacturing lines, we build solutions that meet a specific customer objective.

That includes both finished goods on the outbound side as well as inbound raw materials through a consolidation center. We bring product from across the country into a single consolidation point for splitting, cross docking, reconfiguring, staging, and shipping to various manufacturing sites.

It starts with what our customer’s needs are. As we get into a customer’s business, and we start to learn what their supply chain chokepoints are, we can help them design a better solution that feeds through that distribution process. We understand what it takes to run assets, what it takes to manage carrier relationships, and what it takes to run distribution and finished goods shipping.

IL: When shippers look for a warehouse partner, a lot of thought has to go into that decision. What are some of the things shippers might overlook when they evaluate a new partner?

Jensen: As proposal systems and technology have gotten better, the nuts and bolts of how to share requirements has gotten easier over the past five or 10 years. What hasn’t gotten easier is understanding who your partner is going to be—getting to know them. And not just the services that they provide, but the type of organization they want to be. The way they behave, the way they interact with their customers, and cultural alignment is often overlooked. You need the ability to meet each other’s needs in a transparent way and develop a sense of trust.

When you go out and try to find the right partner, understanding who they are and what they want to be is just as important as pricing and capabilities because your needs will evolve.

I saw this on the shipper side when I worked for a seed manufacturer. In the five years I was there, our business in that industry changed dramatically with complexities that were injected into the manufacturing process, which resulted in much different distribution. Having a partner who could work through that with us would have been a lot easier than trying to figure it out on our own. That’s the kind of partner we want to be.

I’d also caution folks as they look to build a distribution network, build out a regional distribution concept, or just take distribution out of manufacturing to allow more space to create material. Don’t shortchange your long-term plan. Often, in the interest of saving a few dollars on the front end, companies want to buy into a smaller facility that meets today’s needs, but it won’t meet their needs in three to five years. Take a hard look at what your long-term plan is and build for who you want to be—not for who you are.

Although it’s more expensive in the near term, it’s a lot less expensive in the long term to be in the right facility, as opposed to having to make changes along the way as you implement your growth strategy.

Wadle: We perform site analysis for potential customers. One thing that you look at is identifying the right location for your inbound raw materials and for your outbound finished goods locations, to reduce that transportation spend.

Once you’ve picked that location, you also want to look at where you will draw employees from to fill that warehouse. If you’re in a spot where you don’t have access to enough team members, you will be challenged.

We work with our customer to make sure that not only do we find the right location from a transportation standpoint, but also decide if it is the right location for staffing inside the facility. Then we work closely on the configuration.

If we know that a customer’s growth projects that they will need 450,000 square feet in four years, we don’t want to get them into a building that’s 250,000 now and then we’ve got a year to figure out how to add to it or move into another location down the road. We work with the customer to configure the portion of that building they need with the ability to grow into the balance of it.

In the meantime, we’ll work with other partners, other shippers, to bring in third-party freight to defray the cost of that facility so customers can take the full building and be able to grow into it eventually.

Source: www.inboundlogistics.com

Image: www.pixybay.com

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Shipping rarely figures in economists’ inflation and GDP calculations, and companies tend to fret more about raw materials and labor costs than transportation. But that might be changing.

The cost of shipping a 40-foot container (FEU) unit has eased some 15% from record highs above $11,000 touched in September, according to the Freightos FBX index. But before the pandemic, the same container cost just $1,300.

With 90% of the world’s merchandise shipped by sea, it risks exacerbating global inflation that is already proving more troublesome than anticipated.

Peter Sand, chief analyst at the freight rate benchmarking platform Xeneta, does not expect container shipping costs to normalize before 2023.

“This means the higher cost of logistics is not a transitory phenomenon,” Sand said. “For inflation, that means trouble … The element of shipping, in overall prices, small as it may be, is much bigger than ever before, and it could be a permanent lift to prices going forward.”

Ocean transport costs initially leapt after a six-day blockage of the Suez Canal in March caused backlogs worldwide. That tightened an already strained vessel-hiring market as uncertainty about future fuel and emissions regulation had driven orders for new ships to record lows.

Then came a surge in demand for goods from consumers in coronavirus lockdowns, while dockyards were struggling with COVID-related labour shortages.

In early November, 11% of the world’s loaded container volume was being held up in logjams, down from August peaks but well above the pre-pandemic 7%, Berenberg analysts estimate.

Backlog until 2023
In late October at Los Angeles/Long Beach, one of the world’s biggest container ports, ships were taking twice as long to turn around as before the pandemic, RBC Capital Markets estimates.

Although the worst may be past, RBC analyst Michael Tran does not see freight prices returning to pre-pandemic levels for another couple of years.

Even if plans to unload an extra 3,500 containers each week are implemented, the Los Angeles/Long Beach backlog is unlikely to clear before 2023, he said.

“The softening in prices we saw at the end of September is a false dawn. What we see from a big-data perspective is that things are not getting materially better.”

A United Nations report said last month that high freight rates were threatening the global recovery, suggesting they could boost global import prices by 11% and consumer prices by 1.5% between now and 2023.

The impact also ripples out; a 10% rise in container freight rates cuts U.S. and European industrial production by more than 1%.

‘Not worth it’
The report noted that cheaper goods will proportionally rise more in price than dearer ones, and that poor nations producing low-value-added items such as furniture and textiles will take the biggest hit to competitiveness.

The retail price of a low-end refrigerator will rise 24% compared with 6.5% for a costlier brand, Ben May, head of macro research at Oxford Economics said, adding: “Companies may just stop shipping very cheap fridges, as it just won’t be worth it.”

The shipping boom was expected to abate as economic reopening allowed people to spend on travel and dining out rather than clothing or appliances.

But that theory is being challenged by new COVID variants, and the huge pandemic-time savings that customers could channel into even more goods.

During the last earnings season, toymaker Hasbro, retailer Dollar Tree and consumer goods giant Nestle were among companies bemoaning freight costs – and flagging price increases.

With the U.S. inventory-sales ratio near record lows, businesses will also need to restock.

“This will support demand for goods through the first half of next year,” Unicredit analysts said.

The problem could get worse if smaller companies are unable to meet their commercial obligations and struggle to stay afloat, said James Gellert, CEO of analytics company RapidRatings.

“These time bombs are riddled through large enterprises’ supply chains and will present many problems for their customers who rely on their goods and services.”

Real relief may come only when more vessels appear.

Ship orders have risen significantly this year. But it takes three years to build and deliver one, and it will be 2024 before sizeable new tonnage hits the water, senior ING economist Rico Luman predicted.

The post Shipping Costs: Another Danger for Inflation-watchers to Navigate appeared first on Cargo News Today.

In a new blog, the White House National Economic Council said the Federal Maritime Commission (FMC), an independent agency, was already investigating excessive shipping fees, but should consider using other tools, including challenging carrier alliances if they resulted in unreasonable costs or delays.

It also urged Congress to enact reforms to give the FMC more tools to oversee the global shipping sector, including boosting transparency about fees carriers charge their customers.

President Joe Biden and his administration are racing to address supply chain snarls that emerged in the wake of stronger-than-expected recovery from the COVID-19 pandemic, fueling product shortages and inflation.

Much of the focus has been on U.S. ports, which have been inundated with cargo as a result of seismic shift in consumer spending during the pandemic, from travel and dining to physical goods.

The pandemic also reduced the number of workers needed to keep goods flowing smoothly. Aging truckers retired early, while infection control measures have limited dock and warehouse staffing.

The White House said new data showed continued improvements, with a record number of containers imported at the ports of Los Angeles and Long Beach, California, from January to October, retail inventories up 4% from 2020, and on-the-shelf availability at 90%, just 1% below levels seen before the pandemic.

“The good news is that we’re moving more goods than ever before, we’re seeing that retail is fully stocked, and we’re seeing that the ports are moving these goods more quickly,” a senior White House official said. “That means it’s going to be a normal holiday season for Americans.”

At the same time, the White House said more work was needed to improve exports out of U.S. ports, with rising shipping costs making it more profitable for carriers to load empty containers instead of waiting for loaded containers to get to ports.

“The problem … raises questions about the fair treatment of American exporters and importers in the shipping industry,” it said, noting that nine carriers organized in three alliances now controlled 80% of global shipping, up from just 29% in 2011.

The alliances are legally immune from antitrust laws, but the FMC can challenge them if they result in unreasonable delays, unreasonable increase in transportation costs or “substantially lessen competition,” the White House said.

It said the U.S. Justice Department stood ready to help the FMC, adding that the agency needs a bigger budget than its current $30 million.

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