IN THE popular fairytale Goldilocks and the Three Bears, poor Goldilocks is criticised for wanting things to be “just right”, but as we consider the intricate web of the supply chain, maybe she was onto something.
When we refer to the supply chain, we are referencing the various elements that must work together. But each piece of the puzzle is under increasing pressure to not only perform without fault, but to do so at the lowest possible price.
As the fairytale goes, surely there must be a point at which things are “just right”, but it seems we’re all having trouble finding and maintaining it.
If we consider shipping lines first, many within the industry didn’t see the post-covid correction of freight rates, which saw the prices plummet quickly and unexpectedly. Shipping lines went from feast to famine; the freight rates dropped to next to nothing and importers were able to breathe a sigh of relief and claim they once again had the power. But was that – and is that – the right move?
A LOOK AT RATES
As a freight forwarder I’ve learned over the years to take an objective view and look at situations in different ways. I have no idea how much it costs to run a fleet of vessels, but I can imagine that the costs are extraordinary. In the post-pandemic world, all expenses have risen, including charter rates, spare parts, bunker and crew.
If we expect shipping lines to continue to decrease freight rates, moving cargo at a loss, it will only have a negative impact on the market. Services will face increased scrutiny, schedule reliability will become non-existent, and there is the grim possibility that some lines will become bankrupt. I’m sure that the demise of Hanjin Shipping in 2017 is still fresh in all our minds.
Freight forwarders sit in the middle between the shipping lines and the importers. We have the delicate job of orchestrating a shipment’s entire movement, and yet we are also subject to the squeeze. So much pressure is placed on forwarders to match competitors’ rates that it can start to affect the service levels given. As an example, I recently reached out to a freight forwarder, seeking a pre-alert for an incoming import shipment and was shocked at not only the time it took me to reach them, but to learn they no longer send such alerts.
Call me old school, but where did the service levels go? Unfortunately, in the quest to drive down rates, the level of service received by clients and stakeholders is often negatively impacted, whether that be among fellow freight forwarders, customers brokers or others in the industry.
TRANSPORT PRESSURES
The end of the line is possibly the worst place to be sitting in the supply chain. When the age-old argument for price reductions is the reasoning that you can ship a container from Shanghai to Fremantle cheaper than you can transport it from Fremantle to Malaga (a distance of less than 40 kilometres), the final mile transport companies cop the pressure the worst. Their operating costs have also experienced a sharp increase – fuel, maintenance, labour, insurance, registration and equipment are all on the rise. The pressure to decrease rates in the final mile can not only compromise safety standards, but once again it can also have a negative impact on service.
We operate within a highly competitive, reactive industry where the push and pull of supply and demand heavily influences the costs that are felt within the market.
But don’t we all stand to benefit if we can try to find our inner Goldilocks and find the “just right”?
This article appeared in the June 2024 edition of DCN Magazine
