Almost every business has been impacted by the current disruptions in the global supply chain during the COVID-19 pandemic, including product delays, shortages and increasing costs. The challenges related to the pandemic that were expected to be temporary are now expected to last until 2022, and potentially beyond.
The ocean freight industry has arguably shared the spotlight the most with record prices, port congestion, container shortages and more. The average price around the world to ship a 40-foot container has more than tripled since the start of 2021 and is 10 times higher than pre-pandemic rates. Just a few months ago, outside two of the largest US ports near Los Angeles and Long Beach, Calif. (Which handle 40% of all freight containers entering the country), more than 70 ships were waiting to dock. Before the pandemic, it was rare to see more than one.
Given today’s complexities, it’s important that we take a look at key 2021 lessons from the shipping logistics industry to incorporate lessons learned as we prepare to navigate the year ahead.
Lesson 1: Adopt flexible shipping routes
As capacity dwindled, container ships experienced record-breaking times to dock and labor shortages delayed unloading cargo, 2021 stressed that flexibility is key to a successful shipping strategy. For 3PLs and freight forwarders, this meant tailoring plans in real time to manage scarce resources as strategically as possible based on each customer’s specific product and goals.
For some large retailers and automakers, for example, we have seen a growing shift from ocean freight to air freight as an alternative. While air freight makes shipping goods faster and more reliable, it is also a much more expensive option. According to Freightos, a sea shipment of $ 195 can cost comparatively $ 1,000 by air. Due to these major price differentials, we have widely observed the trend to shift from sea routes to air routes at big box retailers and high-end manufacturers who can absorb the higher fares.
However, switching from ocean to air is not possible for most brands. Instead, flexibility in 2021 also meant pivoting to different ocean routes. Throughout the pandemic, many countries have closed or limited the capacity of major shipping ports for reasons such as labor shortages or limiting the spread of the virus. This gave 3PLs and freight forwarders the opportunity to explore traditionally less traveled shipping routes to try and mitigate delays. For example, closures in Australia due to COVID-19 have significantly reduced the capacity of the United States. As a result, some freight forwarders successfully re-routed to Singapore and eventually to Sydney as a solution.
In 2021, we have also seen more and more shippers adopting a hybrid sea-air model. While the transition entirely from ocean to air is not viable for most, shippers have strategically tapped into air to move critical stocks to keep operations running smoothly as needed. Ultimately, 2021 has taught us that flexible, real-time adjustments to supply chain routes based on the current environment and each customer’s strategic goals are essential to better manage backlogs.
Lesson 2: Explore Agile and Visible Solutions
While the ocean freight industry has always faced unforeseen challenges beyond its control, such as extreme weather conditions, the impacts of COVID-19 have only exacerbated these pre-existing problems. Today, it’s more important than ever that shippers explore creative solutions to mitigate the effects of today’s expected and unexpected challenges.
For example, in 2021 we saw the growing trend for large retailers and 3PLs to charter their own transport vessels to combat capacity issues. Coca-Cola began chartering ships usually reserved for raw materials like coal and iron to use them instead for finished products. Retailers such as Walmart have explored the possibility of chartering smaller container ships to dock at smaller ports to avoid congestion. Also, the 3PLs, which chartered more and more ships, sought to guarantee capacity to their customers in an ultra-tight sea freight market. While in the past this was traditionally viewed as risky due to cost and capacity, chartering vessels has become a creative solution for many this year to supplement agreements with carriers.
For other shippers, especially those who cannot charter their own vessels, freight consolidation services have become particularly vital in 2021. Many brands have used Less than Container Load (LCL) services for reasons such as the need to ship smaller, less sensitive products on a more -Hoc basis to keep up with fluctuations in e-commerce demands. Partnerships with 3PLs have become even more important thanks to fixed sailing schedules with space on all major routes, stable freight volume to consolidate orders, and competitive rates and conditions.
This year also reinforced the fact that incorporating sophisticated visibility technology into operations is imperative to address supply chain challenges. A 24/7 freight management application allows real-time tracking and traceability and full control over shipments. Integrating the latest visibility technology delivers critical data at every step of the supply chain, from tracking fluctuating customer demands to in-transit freight updates, to enable real-time decisions based on data. Visibility has proven particularly important during the pandemic to mitigate unforeseen disruption by quickly adjusting resources and strategies.
Lesson 3: Adjust your supply chain with new resources
The pandemic has underscored how essential it is to partner with supply chain experts during times of severe disruption. In fact, a recent study predicts that the strategic relationships between shippers and 3PLs will drop from 28% to 45% over the next five years due to the effects of COVID-19.
There are several reasons for this shift from transactional partnerships to relational partnerships between 3PLs and customers. First, partnering with a qualified 3PL allows shippers to outsource supply chain management so they can focus on their core skills instead. Shippers found that working with a 3PL during the pandemic, when business decisions changed on a daily basis based on the rapidly changing environment, was especially important for focusing on effectively managing operations. Seen as an essential service during the pandemic, 3PLs were also able to keep supply chains moving and businesses running.
Additionally, 3PLs are able to offer real-time adjustments to shipping strategies based on the current environment. Using an international network spanning all modes of transportation, the global 3PLs are equipped to provide comprehensive 360-degree recommendations throughout the supply chain to find the best possible solution. For many businesses during the pandemic, demand was unpredictable and ever-changing. One of the benefits of partnering with a 3PL is its ability to quickly and easily scale up or scale operations based on demand so customers can run their business more efficiently. With an extensive network of carriers, including ships, planes, trucks and railways, 3PLs can tap into their strategic partners to achieve the best possible capacity, even in harsh environments.
As we look to 2022, it is important that we learn from the ocean logistics challenges of the past year, as these issues are not expected to end anytime soon. For this reason, it will be increasingly essential for businesses to focus on flexible and agile shipping strategies and relationship-driven third-party partnerships to better navigate what is to come.
Joshua Garee is vIce president of US Ocean Product at GEODIS in America. Previously Vice President of Operations at PAC International Logistics, Garee has a proven track record of growing organizational talent and implementing innovative solutions through key leadership, best practices, strategic planning, continuous improvement, financial planning and cost management.