After being subjected to two years of the most severe disruption in modern history, international supply chain participants are exhausted, frustrated, and, as the second half of 2022 got under way, still searching for an elusive return to anything resembling a pre-pandemic normalcy.
Confidence in the industry’s ability to deliver goods consistently has been shattered, stressing relationships to the breaking point as customers wrestle with the disorienting reality of an erosion in service quality being accompanied by the steepest price increases customers have ever experienced.
From a distance, much of what happened is explainable: Homebound consumers enriched by federal stimulus programs went on a historic buying binge, overwhelming ports and draining capacity from the system, and sending rates and carrier profits soaring to previously unimaginable heights. But some shippers saw it as anything but explainable, and tensions only built from there. An industry historically operating with malleable contracts saw the tables turned on shippers long accustomed to negotiating lower rates when spot rates turned lower, but who had seen little of the opposite situation, when the market moves sharply against them during the life of contracts.
Experienced shippers are always wary of paying too little for ocean freight, a recipe for cargo being rolled, or pushed to a later sailing. But as carriers — some more than others — took advantage of a rare bull market in ocean freight last year to prioritize spot market cargo fetching up to $30,000 or more per FEU in some cases, shippers discovered the true meaning of an unfavorable ocean freight market as their contracts were powerless to get their full contracted volumes loaded on ships. Exporters who similarly saw their cargo de-prioritized as carriers rushed empties back to Asia took their grievances to Washington. And when importers long frustrated by unfair detention and demurrage billing joined with exporters, longstanding shipping law was put into play and ultimately rewritten for the first time since 1998.
Midway through the summer of 2022 , the market is easing, allowing participants to take stock and consider what the experience means for the future. What will the post-pandemic reality look like? Could this be the moment when more shippers and carriers throw in the towel on “playing the market” and sign index-linked contracts that effectively take price off the table and allow the parties to focus on collaboration and service? What's the right fit when it comes to contracting and even securing dedicated air cargo, transload over-the-road trucking, and drayage capacity? How will tougher shipping regulation change the balance of power?
As August began, US ports and inland networks remained highly congested. In Asia, where so much cargo originates, the impact of diminishing retailer expectations was rippling through the trade: Spot rates are falling, space on ships is opening up, and sailings are being blanked.
Headed into TPM23 on Feb. 26-March 1, what comes through most clearly amid the extreme turmoil of the market ultimately is the interdependence of the key parties involved. Carriers are nothing without cargo to fill their ships, and getting that cargo starts with relationships with shippers and forwarders. Shippers got burned in many cases, but if the experience of the past two years teaches us anything, it’s the ultimate importance of smartly playing a market where only a few large carriers remain and access to capacity is a precondition for executing on long-haul supply chains.
Strained relationships can be repaired. Memories may be long, but pragmatism has always benefited those willing to remain open-minded.
With this as our backdrop, and with so much to discuss, we can't wait to see you in Long Beach.