COVID-19 has made a widespread impact on the world, with a substantial effect on the transportation and logistics industry. Importers have quickly shifted organizational strategies to help deliver much-needed personal protective equipment (PPE) to those that need it as well as continue generating business. With companies expecting that it will take months to return to supply chain normalcy, many are starting to question what the international ocean transportation market could look like in the short and long run. Ultimately, it will take time to tell, but our global transportation team has compiled five potential factors for importers to consider while planning for the coming weeks.
It is expected that, due to nonessential business closures and a stifled economy, there will be a lull in purchase orders (POs) in the immediate future, which will, in turn, have a ripple effect on the amount of cargo needing to travel across the Pacific Ocean. Just after COVID-19 hit the United States, the freight forwarding industry saw a wave of PO cancellations as retailers adjusted to store closures and the unknown fate of their businesses.
Over the past few weeks, orders that were placed earlier in the year were still in transit, filling vessels for the short term. However, many carriers have already begun cutting service strings to remove space due to reduced capacity. It is estimated that more than 400% of available capacity has already been eliminated from the market.
Ocean transportation rates are expected to drop in the short run due to the significant decline in containers needing to be transported from Asia to the United States. However, supply chain executives should not expect these rates to last all year. With exceptionally low oil prices around the world, short-term BAF (Bunker Adjustment Factor) rates are expected to be lower than usual, which will further force rates down.
Operational mitigations, such as cutting entire vessel sailings, limiting port calls or a combination of the two tactics, have already begun to occur across even the largest ocean carriers. It’s expected that these actions will help balance the new supply and demand while orders are suppressed.
As soon as U.S. retailers can reopen, it’s expected that there will be a rush to restock goods, forcing the global supply chain to resume very quickly. A flood of POs could potentially be issued in a relatively short time, meaning that products will be manufactured as soon as possible, producing enough cargo to bolster rates back to normal levels. Our team expects that rates will return to what is considered normal relatively quickly once the situation shifts.
Omitting or changing vessel sailings and port calls has the potential of creating a myriad of challenges for importers as bookings are rolled to other vessels or service strings. As soon as both production and the global supply chain resume, importers will likely encounter space issues on vessels.
Additionally, importers that source from regions that are not located near main ports should begin thinking about alternative transportation options. Transporting goods via trucks to the nearby main port could be an option, while others may have to rely on air freight solutions or feeder vessel services.
As history has shown, it’s nearly impossible to predict how quickly the global supply chain will be able to bounce back. Importers should be planning for a volatile peak shipping season, which typically occurs between July and early December, by working through mitigation plans as swiftly and thoroughly as possible.
One essential thing that importers should be planning for is a potential disruption to ocean carrier partners. Our team encourages importers to begin working with their freight forwarders to ensure carrier relationships are maintained, reducing the risk of relying on a singular carrier should any carriers be adversely impacted by the COVID-19 pandemic.
With these potential factors influencing ocean transportation rates in the months to come, it is important to be proactive in planning for the unique challenges of COVID-19. Contact our team to learn more about our International solutions.