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7 Challenges Faced by Freight Forwarders in 2020
Freight forwarders in 2020 are facing an increasing number of challenges that keep growing as the years go by—the only significant difference between 2019 and 2020 COVID-19.
It’s the elephant in the room that freight forwarders can’t avoid. While many of these challenges listed below are not new, they have been exacerbated by the effects of COVID-19.
1. COVID-19 – Lower Demand
After the COVID-19 outbreak, many countries implemented lockdowns, which restricted global economic activity. Both freight fluidity and demand for freight forwarding services saw significant decreases. Even as oil prices begin to rebound and stabilize, and markets are gradually shifting towards normality, the post-COVID-19 landscape will still present challenges.
Likewise, existing challenges from the past will only compound the already precarious situation.
The art of good business is being a good middleman, and that’s what freight forwarders need to be now.
According to Safety4Sea, freight forwarders can mitigate the fallout from COVID-19, particularly when shipping through China, by:
- Legally assessing special contracts for force majeure clauses
- Communicating with customers concerning any problems experienced by others in the supply chain
- Communicate with other parties in your supply chain to quickly resolve issues
Once the pandemic has ended, the post-COVID-19 boom will equally present many more challenges. Providing guaranteed space could be one such challenge, and GreenX provides users with secure space.
2. Demurrage and Detention During COVID-19
Demurrage and detention are two issues that you will probably need to communicate with your supply chain partners and customers about.
Since April 28th, the Federal Maritime Commission (FMC) has been investigating if demurrage and detention charges incentivize freight fluidity. Freight forwarders might be unable to transport cargo on a shipper’s behalf without the availability of trucking or warehousing.
Until the FMC makes a decision, however, ocean carriers will continue to charge shippers for demurrage and detention to incentivize shippers to collect cargo.
Such charges can exponentially increase over time. It’s important to work with your customers and supply chain to create a workable solution to avoid these charges, or to at least set a realistic expectation.
3. Ocean Freight Rate Volatility
Ocean freight rate management is complex, and accounting for the factors that create volatility is difficult.
Factors affecting freight rate volatility could include a mix of any of the following:
- Service charges
- Bunker capacity (BAF surcharges)
- Peak season surcharges
- Container capacity
- Geopolitical crises
- Global pandemics
- Foreign exchange rates (CAF surcharge)
- Shipping industry innovations
These are only several elements that affect ocean freight rate volatility.
There are some strategies to reduce the effects of rate volatility and they include:
- Reserving or booking your shipments before or after seasons
- Negotiating for contracts with fewer PSS adjustments
- Including a clause that PSS can only be included in mutual agreements
- Leveraging relationships with NVOCCs or carriers for better rates
- Minimizing rate volatility is not always possible. As we progress through 2020, COVID-19 will continue to wreak havoc on rate fluctuations.
Post COVID-19 may also change the dynamics of shipping, making the above list of factors affecting freight rates much more complicated.
Only time will tell what the new normal will look like, but rate fluctuations will be constant.
4. Commoditization and Competition Between Freight Forwarders
Shippers place a heavy emphasis on rates and perceive ocean shipping as a commoditized service. In other words, services and expertise aren’t the most significant differentiator for shippers. Getting their cargo from A to B with the lowest cost is. As such, freight forwarders frequently have to compete for business.
According to the Harvard Business Review, there are some strategies to combat commoditization that include:
- Innovate – disruptive innovation can differentiate your business, and this could be achieved by digitalizing your offerings online
- Bundling – add differentiated ancillary services or platforms that buyers perceive as being premium
- Segmentation – focus on providing services to less price-sensitive customers and differentiate with customer service
Freight forwarders aren’t the only players in shipping who end up in the commodity trap. Ocean carriers find it difficult to differentiate their offerings, as price is still the determining factor for their customers.
5. Adopting New and Innovative Technology
The shipping industry hasn’t been fast to adopt new technologies to enhance operational efficiencies.
We at BlueX identified the following five technologies that will innovate shipping:
- The Internet of Things (IoT) and Freight
- Digitalizing Your Freight Business
- Blockchain Technology in Freight
- Artificial Intelligence in a Stagnating Industry
- Safeguarding the Industry with Cybersecurity
Perhaps the most imminent technological innovation in shipping is digitalization.
Digital platforms can offer instant quotes from carriers, up-to-date information on rates, space, and schedules, and improved online document management capabilities. As well as that, they can also enable you to drive more lead generation via digital marketing efforts.
6. Shortage of Workforce and Retention Problems
Employers are starting to see trends emerge, with 40% of the workforce estimated to be millennials in 2020. Most notably, millennials want to join enterprises that cultivate an entrepreneurial spirit that is changing their world.
In the coming years, most of the workforce is looking towards industries such as technology/software, healthcare and pharmaceuticals, financial services, with a heavier emphasis on skills in programming and marketing.
Even without adding millennials into the mix, at least 54% of logistics companies (in the UK) are expecting skills shortages to increase in the new shipping sector.
It’s no secret that the shipping industry has been slow to embrace technology, and this could be a hindrance to bringing in a more tech-savvy workforce. However, there are a few ways to combat this shortage and retain employers, and can include:
- Creating a mentor program – the learning curve for the shipping industry is steep, and mentorship could retain employees that would otherwise be intimidated
- Offering flexible hours – allowing employees to schedule their work is shown to improved morale
- Offer competitive compensation – the market for professionals is competitive and matching or exceeding market salaries is important to find and retain talent
- Creating a company culture – an enterprise that creates a culture with an ethos that enables employees to develop themselves and the company will have lower turnover
7. IMO 2020 and Thinner Margins
IMO 2020 is increasing overhead with carriers needing to comply with lower low-sulfur fuel regulations since January 1st, 2020. According to PWC, the regulations require marine fuel to have a maximum sulfur content of 0.5% to reduce pollution caused by higher sulfur content.
The significance of IMO 2020 cannot be understated.
Each day, around 3.8 million barrels of fuel were consumed in 2017, and reducing the sulfur content to 0.5% from 3% will be beneficial for the environment and public health. The losses felt by IMO 2020 could cost up to $15 billion by the end of 2020.
When it comes to this new regulation, there doesn’t appear to be much freight forwarders can do, except to communicate the potential increase in prices to customers.
Overcome Challenges in 2020 with BlueX
With COVID-19, the need to adopt new technology, and competition from other players, may cause freight forwarders to find 2020 to be one of the most challenging years since 2008.
We at BlueX understand the challenges facing freight forwarders. We’ve developed a solution that can help you with challenges in 2020 and beyond.
The BlueX API gives freight forwarders instant access to real-time ocean freight data directly from ocean carriers. This data includes the most accurate customer contract rates, space availability, and schedules without any delays.