Despite the world’s 90% goods being transported by sea, the sea freight forwarding industry has not been sailing smoothly in recent times. With a global economic slowdown, this industry has also been hit hard. Several mergers, buyouts, alliances, and bankruptcy have been observed dominating the space. So, in a way, financial struggles and losses are seemingly evident in the sea freight forwarding industry.
Though they finally appear to be getting a handle on it, ocean carriers have been plagued by overcapacity for a long time. While that has often meant low, even record low, freight rates for shippers, it also meant financial struggles and losses for carriers. We’ve watched as carrier competition in the industry shrunk through buyouts, mergers, alliances, and even bankruptcy
IMO Cleaner Fuel Mandate
With IMO’s cleaner fuel mandate, the sulfur level in fuel has been advised to be cut down to 0.5% by 2020. The current limit is 3.5%, the transition of culminating to cleaner fuel levels is certainly going to be an expensive affair for the carriers. This will not only be a blow for the carriers but also for the sea freight forwarders, the consequence of which will be an increase in rates. According to industry experts, never before did the sea freight industry experience such a regulatory mandate with potentially disruptive impact. Hence, this mandate has added on to the worries of carriers and sea freight forwarders.
Trade War :
With high fuel prices comes a greater credit crisis and rising inflationary demands that take a greater toll on the US economy. This industry is then pressured by increasing compliance regulations, declining demand, additional capacity with additional increases in key cost centers.
Freight forwarders are up against more competition than ever. Part of the reason is that many logistics companies that traditionally defined themselves as something else (say an as ocean carrier, or even a warehousing company) are now providing forwarding and NVOCC type services. And of course, everyone is talking about how even Amazon is getting in the game as well – which leads us to the next challenge.
There’s a lot of instability associated with the sea freight forwarding industry. Due to complicated rates and contracts, this industry cannot be understood by everyone but experts. Understanding the volatile cost structure due to the random nature of surcharges and GRI’s is a complicated process. Therefore, sometimes it becomes challenging for the sea freight forwarders to provide reliable and accurate rates to customers. Although process simplification tops the priority list at the moment yet it’s not going to bring a sign of relief for the freight forwarders anytime soon.
Many, if not most, shippers view transportation as a commodity. All they care about is that the delivery gets made. Meaning, they place little value on service and a lot on the price. This makes it hard for forwarders to differentiate themselves from other providers – especially when there are always those who’ll try to win on price. Some forwarders are learning they can better compete and maintain margins by offering new or better technology that improves the customer experience.
Rate of Change :
There are constantly new market challenges for forwarders that need to be accounted for. A recent example is a trend for ocean carriers to form alliances. With almost no notice, these can affect the rates and contracts forwarders have with the carriers, as well as service. The aforementioned effect of technology is changing how forwarders (and their competitors) can manage their business – as well as service their customers. Lastly, market expectations continue to focus on ever faster and cheaper deliveries.
Management of Tender:
- Responding to complex tenders is a challenging work for most of the sea freight forwarders. Due to the large volume of the bids and complexity in their nature, resources are drained big time. Therefore, some freight forwarders have made it a point that they work on the improvement of the tender management process in order to emerge successful at accurate and faster bidding.
Thus, it is important for freight forwarders to do smart work. Only then would they survive the intense competition and make themselves distinguishable in terms of services, rates, technology, and customer experiences.
For all these reasons, freight forwarders need to work harder than ever to differentiate themselves in their business – while continuing to focus on service. What the best forwarders know is that just as important as competitive rates are giving customers better service options and technology to support decision making.
Source: medium.com/,www.logisticsmgmt.com, gocatapult.com
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