Shippers hoping that 2019 will bring some much-needed stability to their rates and supply chains may be disappointed. Carriers have already informed shippers that capacity management will be a major point of emphasis moving into 2019 and 2020. Shippers have been experiencing higher freight costs and disruptions in their supply chains since August 2018. Further cuts in carrier capacity is only going to heighten the apprehension that presently exists between shippers and carriers.
Spot freight rates from Asia to US West Coast and US East Coast ports are up over 80% from the same time period last year. Shippers recognize that carriers need to be profitable to effectively service the shipping industry. The tension between shippers and carriers is not solely attributed to paying higher freight rates. The tension is primarily the result of shippers receiving worse service in return for paying higher freight rates.
Shippers should expect that carriers will continue their strategy of managing capacity to match supply and demand during 2019. Managing capacity to stabilize rates is an effective strategy. Managing capacity to a point where their customers experience lack of space, continual container rolls, and supply chain disruptions, is not an effective strategy. The carriers need to find a balance that stabilizes rates but also allows cargo to move freely during peak shipping periods.
Shippers that hope for a collapse in unified carrier-controlled capacity could be in for a major letdown. Consolidation in the shipping industry has changed everything. There are no longer 20 different carrier entities that need to agree on how capacity should be managed. Capacity management is now in the hands of 7 global carriers. So far, these 7 carriers have shown a tremendous resolve to maintain a united focus on driving up profits at the expense of their current customers.
Shippers will need to learn how to manage their cargo in the post carrier consolidation era. Shippers have far fewer choices to move their cargo during peak shipping periods. Carriers are using this leverage to their advantage. Carriers are far more selective on the type of shipper and type of cargo that gets loaded on their ships today versus 5 years ago. Shippers that refuse to acknowledge the changes brought on by the consolidation era will continue to face service failures and unstable rates especially during the peak shipping periods.
The International Housewares Shippers Association (IHSA) is a not-for-profit association formed to benefit companies belonging to the International Housewares Association (IHA). Through the combined leverage of members, IHSA negotiates freight contracts and partners with other logistics providers to lower supply chain costs.
IHSA’s main function is to negotiate the lowest possible transportation rates and provide the highest quality service for all participating members. Additionally, IHSA members receive valuable market intelligence and advice through regular newsletters and briefings.
IHA member companies looking to reduce their ocean freight costs or have questions about an ocean freight issue are encouraged to contact IHSA to learn about the program. Contact IHSA at +1-513-489-4743 and learn more on our website.