Ocean freight is a vital component of global supply chains—with trade volumes expected to increase threefold by 2050. However, since the COVID-19 pandemic prompted global port shutdowns, the industry has been overrun with an unrelenting sequence of obstacles. After the reopening of international trade, a wave of record-high imports and exports has resulted in industry-wide high freight prices, port bottlenecks, and insufficient shipping capacity.
The average terminal dwell time at the end of 2020 was more than five days for over a quarter of shipments arriving at ports on the US West Coast. Carriers have used available ocean crafts to increase shipping capacity—even freight not meant for container shipping—and it’s still not enough to counteract widespread port bottlenecks.
The evidence is clear: ocean freight is in crisis. But understanding the nature of the problem will help shippers stay ahead of the curve. While no one can predict precisely what will happen—especially in times of volatility—anticipating future market movement means shippers can address supply chain vulnerabilities early to strengthen carrier relationships, save time, and avoid devastating profit losses.
Continuing—or worsening—freight costs in years to come
In the last two years, the ocean freight industry has faced soaring freight rates—and experts predict the trend is likely to continue. Pervasive structural problems such as labor shortages and slow behind-the-scenes processes will spur high freight rates and slow delivery times through 2023.
Solutions to these ocean freight woes take time to develop and aren’t likely to ease the current challenges in the short term. According to Jason Chiang from Ocean Shipping consultants, additional shipping capacity won’t become available until 2023. His forecasts don’t include any immediate solution to the current insufficient carrier capacity.
Shutting out small companies
Though ocean freight problems will likely remain, the sea shipping industry is undergoing significant changes. Persistently elevated ocean carrier costs have severe consequences for firms unable to take on higher prices while preserving margins.
For businesses with revenues less than $5 million, ocean freight difficulties and supply chain delays have been particularly challenging—forcing many to raise consumer prices. As this trend continues and customers tire of inflated prices, the bottom lines for lower revenue firms will suffer. The landscape may change as these disruptions continue, forcing some small- to medium-sized firms to exit the market.
Prolonging the problem with future geopolitical conflicts
The external shock of a global pandemic sent ocean freight into chaos—and further supply chain disruptions could extend or worsen the problem. Since the beginning of 2022, the war in Ukraine has also caused ripples across global supply chains. Many naval ports in Ukraine and Russia are shut down, and trade is halted in parts of the Black Sea and the Sea of Azov. These shutdowns will most likely bring about a shortage in Ukraine’s and Russia’s trademark export goods, such as wheat and oil, but experts say it will also cause another type of shortage: human capital.
Ukraine’s and Russia’s combined shipping workforce is roughly 14.5% of the worldwide ocean freight workforce. The inability of these workers to safely travel to other parts of the world and participate in the freight industry means a worsening of ongoing labor shortages is likely on the way. Because this conflict shows no immediate signs of ending, shippers should prepare to quickly adapt carrier selections as insufficient staffing begins to take effect.
Reconfiguring global supply chains
The current state of ocean freight is not sustainable—hurting both customer relationships and company budgets. Rather than helplessly watch as profits suffer, shippers and carriers must uncover ways to accommodate port blockage delays by adapting more advanced supply chain operations. For some, this means redirecting shipments to less crowded ports.
As the US West Coast ports remain severely blocked, many shippers have already rerouted deliveries from Asia to the US East Coast. The rerouting resulted in a low 3.9% inbound volume growth rate for the West Coast. But, the East Coast experienced nearly 27.7% growth in July of 2021. This trend is not stopping anytime soon. In 2022, carriers can expect to see the number of crafts between Asia and the East Coast increase by 60%. For shippers frustrated with extended dwell times, reconfiguring global supply chains is one way to get ahead.
Moving forward through digitization
In times of adversity, cognizant and agile logistics operations can mean the difference between success and lost profits. Shippers should be prepared to face more of the same challenges in the coming months and work out new coping strategies. In this effort, digitization, particularly through blockchain technology, is transformative—enabling seamless coordination between carriers and manufacturers and creating powerful supply chain insights.
Using CTSI-Global’s industry-leading transportation management system, Honeybee TMS, shippers can begin optimizing supply chain operations in the face of current ocean freight obstacles and any future challenges that come their way. From faster digital payments to intelligent carrier selection, this logistics technology will make supply chains more flexible and ocean freight flows more efficient from start to finish.