Why you need an alternate freight strategy

The pandemic has caused significant impacts to both local and global freight and logistics. There would be few companies or individuals who have not been impacted in the last year. The impacts are not isolated to COVID however. In Australia, multiple players in the freight industry have also suffered under multiple cyber attacks. With freight being an integral part of most businesses – how do you define a strategy moving forward?

It would be fair to say that there has rarely been a dull moment in business this last year. And every time there is a light at the end of the tunnel, we look ahead and it has often turned into another train wreck coming out of the tunnel towards us all. The biggest impact outside of remote work has been the disruption of global freight and supply chains.

Unlike many other industries, freight requires the physical presence of people. To pack, distribute, receive and carry goods. Most people in the workforce were not even born when the global freight and logistics industry was already mature. 60 years of normal, predictable supply. At its core, the industry is much unchanged since its early days. There have been advances in technology and capacity that have breathed new life into it. But 60 years of normal has crashed in a big way.

There is no one size fits all approach that will work in the current climate. Nor is there an immediate fix on the horizon. Some experts predict that the current impacts will be felt through to 2023 or even 2024. Even when the pandemic is only a bad memory. So where to now?

What is causing the immediate impacts?

The impacts are a combination of the same factors for both local and global freight. 

Demand increases

The predicted slow down in most economies has simply shifted in a move from services to goods. While service industries and especially hospitality and tourism have suffered – consumers backed by significant government stimulus worldwide have turned their service spend into a demand for goods.

This coupled with capacity decreases and fundamental shifts to how deliveries are made (Work From Home) have impacted freight enormously.

Capacity decreases

From a shipping point of view, container shipping companies expected trade to collapse, so fleets worldwide were idled. That was of course a mistake – and has led to shortage of capacity. Even when pretty much everything that can carry a container and can float – is on the sea.

This has been exacerbated by terminal impacts as a result of COVID. One startling fact from the linked podcast above was that 33% of the world’s container ships are in port or waiting to unload. Ships are queuing up further driving a shortage of shipping containers.

Air freight has also been severely affected. 50% of air freight was previously moved in the holds of commercial passenger flights. With a reduction in air travel – capacity is limited and prices have risen dramatically.

Depot and Terminal Closures and slow downs as well as industrial action

Few carriers both locally and internationally have not suffered some form of closure as a result of COVID positive staff or a reluctance of staff to travel to hotspots. Some of our major carriers locally have had locations close such as TNT on August 17 and ongoing action has been threatened or is already in progress.

What has this led to?

Delays or dropped schedules

Shipments of goods are taking longer than ever. And not just as a result of freight issues mind you. Globalisation in manufacturing has also been impacted but the traffic jam on the seas means most companies are forced to wait. Even those with contracted prices, may be forced to look at alternative carriers, longer routes or just deal with the congestion at terminals.

Freight price increases

Freight prices have increased to incredible levels. And there is no doubt it goes beyond supply and demand issues. The average cost of shipping a 40ft container has grown over $6000 (over 400%) since the start of the pandemic and depending on the route, last minute shipments have increased by even more. This is no different for anything moving by road or air and for many – there is very little choice between paying up and suffering congestion or not moving goods at all. 

Many senders and receivers are struggling with these high rates. Where they can be borne or passed on, it may start to have a significant impact on the price of goods we pay for everyday.

Lost revenue

Where high rates may be bearable for the short term – the impact may not necessarily be price but disruption to supply chains causing delays in materials or goods which will impact revenue.

A slow down of goods directly correlates to a reduction in sales – unless you can source alternatives. Further, for those businesses who transform materials into finished goods, the subsequent impact on demand planning and production could slow down revenue or worse, make production unsustainable.

What are the solutions for business?

Accept what is happening and ride with it

You can of course do nothing. However, the flow-on impact to revenue is biting many businesses already.

Go it yourself

If you are big enough. And let’s face it, there are only a relatively small number of companies that are. Those that are may also not be reading this. Some large companies have chartered ships or planes which gives them capacity but still does not solve congestion at ports.

A multi-carrier / supply strategy

A multi-carrier or supply strategy is the one that makes the most sense regardless of the importance of freight in your business. The best way to approach this rather than dividing your volume amongst direct suppliers is to work through a managed service which is proving its worth for many of our members during these times.

Why multi-carrier?

There is only one solution that will carry the overwhelming majority of businesses through. And, that is having a backup in place. We have worked with many businesses in the last year working to put in place short term backups. Our preferred freight and logistics suppliers who offer multiple carrier strategies have proven themselves many times over.

1/ Have a back up – Even if you do not need them, it costs nothing to have a backup supplier in place that you can lean on and rely on in times of trouble. Preferably one who has the ability to work through multiple carriers.

2/ Don’t be too proud – Pride is often the enemy to solving problems and the solutions or suppliers you put in place 2 years ago may not be working. Unless you were responsible for the pandemic, eat your pride and work towards a solution.

3/ Look at alternatives – Whether your requirements are local, global or a combination – a strong external partner who can work across multiple carriers is the right solution right now. Having instant alternative carriers, routes or solutions is just what most companies need right now.

Now is the time to choose

There is no immediate horizon on when this problem will be solved. A return to international air travel may alleviate some effects. So too may an increase in vaccinated workers. Or an end to this pandemic. But prudence and common sense suggest that things may take longer to return to normal. If, how and when that normal arrives – it may look very different to that last 60 years of normal.

We have helped many businesses over the last year work out a solution to their freight challenges and there may be a solution for you.