Supply Chain Council of European Union | Scceu.org
Transportation

Uncertainty From COVID-19 Changes Peak Air and Ocean Shipping Season Expectations

In the world of logistics, getting ready for peak shipping season for air and ocean freight usually means researching, understanding and following historical demand patterns. But this year, uncertainty from COVID-19 is changing everything.

As one would expect, air and ocean services must adjust to higher demand during the peak shipping season. However, many sectors are experiencing unusual changes to typical supply and demand trends.

Some industries, such as healthcare and paper products, have seen higher demand than normal even in their busiest times of the year. Others, such as foodservice and retail, are struggling to survive amid lockdowns and social-distancing requirements. All of this makes for an unusual peak season, to say the least.

Consumer imports from Asia declined to an all-time low in March, with retailers curbing orders due to demand uncertainties and a temporary halt in manufacturing. Even as states and businesses reopened in the summer months, a rise in COVID-19 cases and returning restrictions forced many importers to reevaluate their ordering habits.

Consumer spending behaviors remain uncertain at this time. With continued escalation in COVID-19 cases, many states are maintaining restrictions on social norms. This makes it difficult to ascertain what actual spending will be, and as such, how much inventory to carry. The change in consumer behavior is affecting multiple sectors, from a surge in demand for home-improvement items to a decreased need for formal clothing.

Air Freight Market

The air market has been, and will remain, volatile. Shippers should expect it to dynamically change from week to week. Freighter and charter options will continue to offer smart solutions for large project-based opportunities, and those with heightened transit requirements.

When it comes to air service, expect overall capacity on a year-over-year basis to be reduced, as carriers continue to limit passenger capacity and retire fleets of older widebody aircraft.

Demand for air service, on the other hand, will likely remain strong, due to a combination of increased consumer purchasing, a resurgent need for personal protective equipment (PPE), and scheduled technology launches. The trend will continue with the need to transport vaccines and associated medical devices, placing a heavy demand on air freight services.

Ocean Shipping

The containerized ocean industry has been undergoing a transformation ever since Hanjin Shipping went bankrupt in 2017. The last few years have brought about significant change to ocean service, and 2020 is no exception.

Carrier consolidations, tariff wars, economic turmoil, and COVID-19 have all taken their toll on ocean shipping. In the face of these challenges, the industry has shown how resilient it can be in navigating the storm.

Due to COVID-19 uncertainties, ocean carriers removed a significant amount of capacity from the market. This action helped to align supply with shrinking global demand. By offering less capacity, ocean carriers have kept freight rates from falling.

They continue to consolidate through mergers and acquisitions. As a result, they’re able to operate more efficiently and remove costs. This trend will likely continue.

Need for Capacity Planning

With the reduction in both air and ocean capacity and heightened demand for PPE, capacity isn’t always readily available. Accordingly, there are a few things to consider in this environment.

While looking to the future and planning accordingly are never easy, importers that can forecast more accurately will benefit, in the form of greater access to capacity and the ability to engage in more seamless inventory-management strategies.

Adherence to schedules is critical, but schedule reliability is currently at an all-time low, due to carriers removing and adjusting capacity. Staying flexible will help ensure that products move seamlessly based on the first-available options.

As air freight rates rise due to PPE demand, be sure to carefully review all your expedited options. Both less-than-containerload (LCL) and full-containerload (FCL) ocean services offer expedited options. There’s a time and place for air shipping, and knowing which shipments truly need the speed of air, and which can utilize ocean service, can help you to keep your budget in check.

All of this disruption has caused significant congestion at marine terminals. Expect shortages of chassis, drivers and drayage services, as well as realignments of rail capacity for the movement of containers inland. There are even situations where entire warehouses are shutting down due to positive COVID-19 cases. Flexibility is key for navigating these slowdowns.

If you’re choosing a slower mode of transportation due to budgetary concerns or port congestion, explore alternative ways to make up time in your supply chain. Services such pick and pack or creative distribution strategies such as direct to store can help bring your timeline back on track.

Whether it’s a reduction in air or ocean capacity, or inventory management challenges, it’s safe to say there’s a lot of stress on supply chains today. Proactive planning and forecasting can make a big difference in how you approach peak season, even in the midst of a global pandemic. Staying flexible and adapting quickly whenever possible is key to success. Finally, work with a provider that can reliably meet all of your logistics and technology needs, today and in the future.

Sri Laxmana is vice president of global ocean services, and Matt Castle is vice president of air freight products and services, at C.H. Robinson.

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