Importance of a Nimble Freight Forwarding Solution

2022. This was the year everything was meant to turn back to normal, right? The peak of the spicy cough had passed, the vaccine boosters had rolled out, and now travel was back on. For the supply chain, specifically around freight forwarding, we found ourselves yet again in an unprecedented position. We faced new and major challenges, creating a ripple effect across global supply chains. Ultimately, goods were piled up in storage, impacting vessels on their way to ports through diversion or being slowed down as they arrived at major transit hubs, thereby restricting global trade flows and limiting access for businesses to import goods and refill their shelves. And this time, without the support of government initiatives and mechanisms to drive consumers to shop,

To understand how it all unfolded, let’s look back on the retail market in the last 12–18 months.

Firstly, there were big shifts in population movement. Thanks to a hybrid work-from-home model, we saw young families making the big move out of their inner-city apartments and into the more affordable suburbs. Some even moved interstate, because, why not?

Secondly, household income rose. Young households became the highest earners in Australia, overtaking mid-life families for the first time ever.

With the above in mind, we saw a fundamental shift in how consumers purchased. While we thought online sales would migrate back to in-store sales, this wasn’t the case. The peak of online shopping that we saw during COVID remained strong and fertile, and retail powerhouses continued to enjoy their loyal customers back on the shop floors.

Fast-forward to present day, inflation is driving record low consumer confidence, and 10 consecutive interest rates are causing high mortgage stress.

Now here is the interesting bit, despite the drop in consumer confidence, people are still spending. Retail sales remain high and ahead of inflation. Annual wage growth has risen as a result and is now at its highest since 2012.

The New Norm for Supply Chains 

As the industry relies on supply and demand, supply chain departments across the retail sector have seen major shifts and have had to adapt quickly to these extreme headwinds. Container shortages, black sailings, port strikes, and staff shortages have all played their part in restricting the movement of goods from A to B. Supply chain leaders have had to think outside the box and remain flexible, nimble, agile, and innovative in order to overcome and bulletproof their businesses against the endless risks they had to face or deal with.

The global and regional markets are expected to continue to recover, and together with shipping line tactics of port bypassing, blank sailings, and rationalisation to consume excess capacity, they will succeed in passing the different rate increases (GRI, BAF, etc.). If that likelihood eventuates and we witness further GRIs through the balance of H2 this year, then current low-level SPOT and FAK rates will cost significantly more than the NAC rates proposed by the forwarders. If volume importers wait too long to commit to longer-term deals, the risk is that those longer-term rate offers may be higher than the levels being offered presently.

The London Loadstar reported some ‘green shoots’ in March, referring to a recovery starting to emerge for carriers and shipping lines. Some forwarders are reported to have full ships again, and with container spot rates stabilizing, the charter market is now ‘bullish’ which drives carriers to order new tonnage. The Ningbo Containerized Freight Index (NCFI) commentary reported that spot rates have increased on 15 out of the 21 export routes from China, with some voyages sailing with full loads again, which has resulted in pushing market rates back up in April.

" As we continue to emerge from COVID and its impacts, many businesses recognize the need to better equip their supply chains by identifying alternative trading partnerships "

It’s challenging to be highly accurate with predictions, though current low rates in the market are even lower than what it costs shipping lines per TEU, meaning rates at these very low levels aren’t sustainable or here for long. The key for retailers would be committing to a fair percentage of bookings under the NAC level while also continuing to benefit from a percentage of bookings still under the low SPOT rate levels (which are likely to have expired by June or July this year). Once SPOT/FAK levels increase, retailers might want to consider rolling out the full percent balance across to the NAC deals and have cost certainty into 2024.

On top of this, we must all stay nimble. Despite the inherent risk associated with focusing on one major trading partner, many businesses have strong relationships with one major supplier, one large customer (or export market), and/ or one major supply chain partner or freight forwarder. As we continue to emerge from COVID and its impacts, many businesses recognize the need to better equip their supply chains by identifying alternative trading partnerships. They are actively seeking a broader list of suppliers, alternative markets and customers, and alternative transport and logistics providers. Supply chain leaders are also turning the attention of their organizations to third- and fourth-party ongoing risk monitoring to not only address inherent and residual risks in near-real time but also cyber and counterfeiting risks.

Businesses can build greater agility and resilience into their supply chains by working with providers who offer new capabilities as a service. New technologies and additional logistics requirements improve cost solutions rather than long[1]term fixed overheads, thereby providing more flexibility and better cost control. The outcomes can create a more diversified and strengthened supply chain with greater potential for risk and cost mitigation in the future.