The clouds over the global logistics market are getting thicker, with no sign of improvement in sight. The gloom is spreading across regions and modes.
The FBX container freight price update of July 23 shows a 10% drop from the week before in prices from China to the US West Coast. Freightos anticipates rates and volumes to climb again in August, pointing to trade disruptions from EU tariffs, Brexit and security issues in the Persian Gulf, plus the impending fuel sulphur cap, as vessels get pulled out of service for scrubbing. However, Freightos chief marketing officer Eytan Buchman, does not expect that spike to have any lasting effect.
“Given that most of these (factors) are cause for front-loading rather than an indicator of persistent demand, a large rate increase in early August does not necessarily mean that those prices will stick throughout the peak season,” he said.
A number of forwarder executives have indicated that they expect rather subdued peak season volumes this year.
The air cargo market looks no better than business conditions for container lines. Airport throughput figures point to a significant slowdown in the market. Singapore Changi airport reported a 5.1% drop in tonnage in June. Its volumes for the first half of 2019 were down 5.7%. Hong Kong International Airport saw cargo drop 8.6% in June, which put its six-month tally 6.7% below last year’s level.
Airlines are also feeling the pinch. Cathay Pacific carried 5.7% less cargo in the first half of this year than in the same period last year. American Airlines reported a 15% slump in cargo for the second quarter.
According to some forwarders, airlines have reacted to the deteriorating market conditions with aggressive pricing initiatives to fill their planes. Allegedly even more conservative carriers have resorted to rate offers below market prices.
The slowdown appears to be spreading. According to global trade intelligence firm Panjiva, waterborne shipments to the US declined in June, while China’s imports are also believed to have decreased in that month. Meanwhile, exports from China, South Korea, Japan, Taiwan and Singapore have suffered. Singapore’s economy shrank 3.4% in the second quarter, joining South Korea, which already saw GDP decline in the first three months of the year.
The US economy has been on a record run, with economic expansion all the way back to June 2009. Lately there have been mounting signs of a slowdown, from reduced import momentum to lower demand for domestic trucking and intermodal services. GDP growth slowed down from 3.1% in the first quarter to 2.1% in the April-June period.
“The US economic outlook is softer than it was last year,” said the State of Logistics report from A.T. Kearney released this month. The annual report, which is sponsored by the Council of Supply Chain Management Professionals, predicts a sharp contraction in US economic growth in the next two years.
Inevitably this will prove a drag on logistics activity. “The result will be lower demand for logistics services,” the report’s authors predicted.
One of the authors diagnosed that “the logistics industry is at a new crossroads.” The fundamental challenges it is facing extend beyond the near- to medium-term economic outlook to sea changes in customer expectations and requirements.
Brian Bourke, vice president of marketing at SEKO Logistics, noted that shippers themselves are struggling to adapt to a tectonic shift in the business. The changes unleashed by e-commerce have left retailers feeling that the ground is shifting under their feet, he remarked, adding that this is forcing them to constantly re-evaluate their processes and their logistics providers. Annual reviews of transportation providers are no longer adequate, he said.
According to him, this actually constitutes an opportunity for SEKO to come up with new solutions and attract new business. For most logistics firms, the new demands are more of a challenge, though.
Surveys have indicated that shippers look to their logistics providers to take the lead in developing solutions as well as in leveraging emerging technology to that end. However, many see 3PLs as falling short on that front. According to recent research conducted in the UK by supply chain and logistics consultancy SCALA, shippers find that their third-party logistics providers seem unable to come up with fresh ideas. Almost 60% rated their 3PL poor at introducing new initiatives.
3PLs have a more favorable take on their own ability to innovate. More than 80% stated they were good at introducing new ideas. This suggests a level of complacency that could well result in logistics firms dropping the ball. Pressure from shippers to offer solutions that keep them competitive while reducing costs is only going to go up.
The State of Logistics report shows that logistics costs in the US climbed 11.4% last year to US$1.64 trillion, 8% of US GDP. Weakening global traffic looks set to bring some relief there, but ocean carriers have been trying to shore up pricing through blanked sailings. Meanwhile, the acceleration of supply chain velocity pushed by e-commerce, is going to nudge up logistics costs. Forwarders that can offer creative solutions that curb costs should be in high demand.
By Ian Putzger
Air Freight Correspondent | Toronto
