The February 2023 jobs report showed some serious job growth, estimating that over 300,000 new jobs were added to the economy. During an average year, that would be tremendous; during a period of economic hardship, like the current global marketplace is still struggling through, you would typically expect those numbers to be big news. Job growth (or the lack of it) is one of the most commonly used statistics economists look at to make their projections and otherwise assess the health of the economy, because the number of employed people impacts everything else—for example, consumer spending.
But, for some reason, other current statistics aren’t showing that much of an increase at all, which is odd. Not all of the stats correlated to job growth are necessarily positive ones, either—for example, increased inflation usually correlates with increased employment numbers. That aside, the majority of other economic metrics are typically the ones associated with healthy, growing economies.
Think about everything that happens when someone is hired as an office worker, for example. Not only does that person get added to payroll and begin drawing a paycheck (and paying taxes, and often receiving benefits—health insurance premiums, 401k contributions, etc.), there are countless other small economic activities that take place from this new hire. The business will often purchase their equipment, like computers, possibly office furniture; coffee in the office will be consumed a bit faster and need to be purchased more often or in greater volume; and frequently (though less typically than a few years ago) that new employee will have some type of commute. A generously short 10-mile commute will consume a gallon of gas every day, and that’s assuming the new employee never makes any stops along the way at a coffee shop.
The point here is that additional jobs correlate with additional economic activities, and those other activities have historically increased right alongside job growth statistics.
So why isn’t the shipping market bouncing back alongside these statistics?
We’re still in a strange economic situation
Consumer spending habits have changed so dramatically that traditional data analysis methods may not be viable, at least until things change. Think back to the early days of Covid, back when toilet paper and hand sanitizer was next to impossible to find, but think about everything else that went on, too. There was a huge spike in consumer purchasing for all sorts of products, not just consumable or wellness products, partially fueled by stimulus distributions.
A significant chunk of the middle class kept their jobs and shifted to remote work. That meant they still received their paychecks, but also received “unexpected” (at least at the beginning of 2020) windfalls from these stimulus checks. A surprising number of these people used that money not just for maintaining their standard of living, as you normally expect (covering housing payments, putting food on the table, paying bills, etc.) Many used those checks ($1,200, $600, and $1,400 per eligible person, plus additional funds for dependents; the maximum benefit for a married couple with three child dependents totaled $13,900 between April of 2020 and March of 2021) to make purchases they otherwise might have put off. These are long-term, durable purchases—recreational vehicles, televisions, living room furniture, and other high-ticket items that will last for years before they need to be replaced.
But… how many couches does someone need to buy? Not one every few months for the next ten years. The same goes for RVs, televisions, and more of these types of durable goods. But for a few quarters, demand skyrocketed for those types of items. In response, businesses started ordering more of their products, just as you’d expect them to. The problems began when factories started getting overloaded and ports saw significant slowdowns in their turnaround time for unloading. The shipping backlog dragged on for months—but demand started slowing down as the market cooled off from that flurry of stimulus activity. So businesses suddenly woke up one day and realized that they had (in some cases) doubled up on their inventory, and slowed down or stopped their ordering activity in favor of inventory liquidation.
To summarize: a surprising number of long-term, high-value products saw a tremendous spike in demand and sales, businesses overordered to meet that demand, and when the pendulum swung back in the other direction, they dropped their high volume and began selling what they already have. Businesses are now making much smaller, more tightly focused orders for these types of products, rather than focusing on stocking up ahead of time.
Basically, the United States economy packed in a few years’ worth of purchasing activity into one year, and it’s going to take some time before demand rebounds. But that’s compounded by other unusual circumstances:
Economic uncertainty has changed public psychology
For the first time in many years—for some in the younger generations, maybe the first time in their professional lives—interest rates are no longer at fire sale rates. Interest rates were cut way back and kept low for years, which meant one thing for lots of people: very cheap financing. That’s part of what was fueling big ticket sales like RVs during the Covid demand spike: buyers were able to finance it at extremely low rates. Cheap, low-interest loans are much harder to find. In Q1 of last year (2022), the average 30-year fixed mortgage rate in the United States was just over 3%. This week, it’s 6.5% (source).
This is intended to reduce inflation, and it will, but it will also make consumers less likely to spend money on unnecessary items even if they have it. Everyone who’s been to the grocery store in the past few months has noticed how much prices have gone up across the board. For some items, even sale prices are higher than their old regular price—certain types of coffee, for instance. Add on rumors of issues with some banks and whispers of “recession” in hushed voices, and you have consumers wary of overextending their budgets.
Many consumers have begun questioning what constitutes a “necessary” expense for themselves. Remote work, for example, means that many employees aren’t stopping for a coffee on their way into the office, buying less gas, eating out less often, and a thousand (or more) other small (but, combined, significant) purchases that they have decided they can live without.
We need new types of data
All of this combined means that old indicators of economic strength (or weakness) may no longer be as accurate as we’re accustomed to. Jobs reports like February’s are still great news to hear, but they no longer mean that we can necessarily look forward to increased consumer spending anymore. Enough consumers are being cautious and keeping an eye on their spending habits closely enough that the data we used to rely on may no longer be viable. This means economists will need to start looking for new sources of information to make their predictions.
Until we have methodology that’s as solid as we’re used to, it might be hard for some businesses to accurately anticipate the demand for their products. That means that the current state of freight shipping and inventory ordering will likely remain as it is for at least a while longer. Currently, many businesses are on a beak-to-trough system, ordering only what they know they’ll need—and will be able to sell. That’s perfectly understandable. In short: when consumers are watching every penny they spend, businesses would be smart to match their caution, and keep a close eye on their own inventory practices. Too many overextended and found themselves in tricky situations—full warehouses with too few customers to sell to—and were seriously damaged as a result.
Businesses should work with a partner who can help them manage their ordering processes step-by-step, from factory floor to last-mile delivery. The more efficient you can make these processes and the more agile you are with your operations, the better you’ll be able to respond to a rapidly shifting market landscape.
There are a number of reasons for some of the significant carriers to team up with one another (instead of directly competing). These alliances allow the carriers to pool cargo between them, and share their resources without trying to outdo the competition on pricing. Over the past decade, several carriers have made similar agreements with one another to take advantage of the opportunities working together affords them. We’ve been through several generations of major shipping alliances by now, and the latest is considered to have really begun in 2017.
This latest generation included three major alliances—2M, Ocean, and THE.
2M: Maersk, MSC, and ZIM.
Ocean: COSCO, OOCL, Evergreen, and CMA
THE: Hapag-Lloyd, ONE, HMM, and YML.
These types of alliances have come and gone since the nineties, but this latest round is a bit different from ones we’ve seen before. The scale of the combined carriers is much wider than previous arrangements. 2M, for example, represents 30% of the world’s container trading capacity. This type of consolidation plainly has an impact on global shipping—and has, in some cases, raised antitrust concerns. Let’s take a closer look at the carrier alliances, and what the future might look like.
The Biggest Alliance Benefit: Standardization
One of the most obvious reasons for the success of franchises like McDonald’s is an essentially universal experience. Big Macs in Florida are just like Big Macs in Wyoming; it’s always familiar, which is comforting. But shipping practices and available technologies aren’t always identical between carriers.
One of the most significant market-wide benefits of these alliances has been the expansion of digitization practices. Shipping a container with one carrier within an alliance is a much more standardized experience than it used to be. And with much of the shipping field allied with multiple partners, processes are now very nearly identical. This improved interoperability results in a much simpler experience for most customers, which can help make your own processes simpler in turn.
Market Impact
While carriers are enjoying benefits on their end and customers are receiving a more standardized experience, alliances aren’t necessarily helping the shipping market. The International Transport Forum—and inter-governmental organization (operating within the Organization for Economic Cooperation and Devolopment, or OECD) with 65 member countries dedicated to providing policy makers with accurate information and recommendations to improve the global transport system—released a report in 2018 titled The Impact of Alliances in Container Shipping. The report takes a negative view of alliances, indicating that they are not having a positive impact on global trade.
The report indicates that these alliances are causing a number of market conditions that are unfavorable for their customers. Because the shipping industry has become much more tightly concentrated, competition is dramatically reduced. The sheer size of these carriers allows them to dominate shipping volume, creating a market imbalance that squeezes out other, smaller carriers who can’t compete within their individual shipping lanes. The concentration of shipping also leads to less efficient use of public infrastructure, reduced schedule reliability, and longer wait times for shipping.
Shipping customers tend to want simple things: lower costs, reliable service, and speedy deliveries. The mere fact that options are reduced by the lack of competitive options makes those priorities harder to come by on the open market.
Some Alliances are Ending
While this isn’t exactly breaking news, the 2M Alliance is coming to an end. In 2025, when the terms of the alliance expire, they will not be renewed, and the largest carrier alliance will no longer be in effect. We’re facing some interesting changes in the global shipping industry. With 2M dissolved, suddenly the market will have significantly greater competition. It should also be noted that the other two main alliances may eventually follow suit. While there’s no news to report in that regard, it’s possible that they also elect to dissolve their agreements.
Fewer alliances and greater numbers of individual carriers will mean some changes. First, as technology grows in different directions, it’s possible that we’ll start to see diverging experiences from one carrier to another. Since they’re no longer pooling resources, one carrier might invest in new types of digital tracking systems, for example, and offer their customers a more proprietary experience that another carrier can’t. And that’s just one tiny potential facet of what we might see.
Greater market competition will allow individual carriers the opportunity to distinguish themselves from their competitors. Tighter, leaner operations might offer greater reliability, of course, which is always beneficial. But, for many shipping customers, the bottom line is where they focus their attention.
While the end result of dissolving alliances won’t really be known until after they’ve ended, we can make some predictions on a number of aspects of container shipping. And it’s obvious from every market report that price competition is likely to be fiercer in the future. When carriers need to compete with one another, the simplest way to attract greater volume is with competitive pricing, along with better service.
Fewer alliances and increased individual carrier operations will mean shipping customers will have more options than they’ve had in a long time. Pricing, service experience, customer relations, technology—when you have a less standardized experience, customers will find the best shipping partners for their business, something that is harder to do when you only have a few options.
Of course, we strongly recommend working with a third-party logistics provider like OL-USA. As a single-source partner, we can help you find the right carriers for you at the right time—which might be harder to do in a landscape with increased competition. We can help you find and secure the best possible shipping rates with the most reliable carriers—without signing a long-term contract.
Remember back in March and April of 2020 when nobody could find toilet paper? That was the first nationwide supply chain crisis most of the United States can remember since the Gas Shortage from the seventies. Slowly, over the past couple of years, we’ve started to “get back to normal,” though we’re not quite there yet—and, to be blunt, “normal” heading into the future is going to look less like “normal” from 2018 than most of us hope. Some of the changes made to shipping and logistics processes in response to Covid will be felt for a long time—and they might be permanent. Here are some we think will stick around for years to come.
1. Companies are prepared to spend more to keep their doors open
The earliest days of Covid were tough for just about everybody—it was notoriously difficult for those in the service industry, but retailers were also severely impacted. The first wave of Covid shortages happened during the first few days—the famous Toilet Paper Mania, alongside the Hand Sanitizer Drought. While some of us can look back and shake our heads at how absurd it seems now, the fact remains that people were scared. The fear that gripped most of the population drove them to stockpile the types of supplies they thought they’d need to stay put for weeks at a time—and there was a lot of conflicting information in many US state governments, too. Which businesses were “essential?” Which were going to stay open, and which were going to be closed? The rampant uncertainty and fear triggered an inventory shortage like we haven’t seen in decades in the United States.
The biggest impact was dramatic for many smaller retailers. While the biggest corporations—Wal-Mart, Walgreens, Stop & Shop, etc.—had enough resources to weather the inventory crunch due to almost astoundingly well vertically integrated supply chains, smaller retailers did not. They were used to dealing with a variety of wholesalers and transportation businesses to get what they needed, but suddenly that wasn’t enough. They found themselves faced with only a few tough options: tighten their belts, shut down, or sacrifice margin.
What we’ve seen is that the businesses who narrowed their profit margins to acquire the inventory they needed are, by and large, the ones who are still standing today.
This isn’t only true for the smaller retailers, either. Many of the massive brands went in the opposite direction from their traditionally effective practices. Most businesses have spent the past several decades laser-focused on cutting costs and increasing productivity to maximize their returns. Wal-Mart, for example, had infamously granular inventory management processes. But in the inventory and shipping crunch that started in 2020 and still, in some cases, continues today, they slowed down that granularity and instead began stocking up.
The simple truth is that nobody knew what was coming next. Would there be a Coca-Cola shortage? Better stock up, just in case. Same with Adidas sneakers. And paper towels. And motor oil. And, and, and… In short: businesses started stockpiling rather than relying on smaller, just-in-time shipments. And there’s no sign that that’s going to stop anytime soon. Nobody knows what’s just around the corner, and uncertainty is best countered with caution.
2. “Supply Chain” is finally getting the attention it’s always needed
If you look back at news articles from, say, 1990 through 2020, you won’t find many using the term “supply chain.” Executives didn’t have all that much visibility into what went on within their supply chain, either—for them, it was just shipping and delivery. What could possibly be so complicated about that?
It turns out, it’s extremely complicated. That won’t be news to those of us in this industry, but it seems like it was to executives in other industries.
Supply chain visibility became murkier and murkier to high-level executives as the world economy became more and more globalized. When you’re dealing with production and procurement that’s spread across dozens of countries, it became extremely difficult to closely monitor each stage individually. Instead, they tended to have a more general, higher-level view of their overall supply chain, because it wasn’t thought to be all that practical to keep a close eye on the dozens, hundreds, or thousands of moving parts.
A small bright spot from the Covid pandemic is that businesses have changed that attitude. Executives have learned that hard lesson over the past two and a half years, and are investing heavily into their own supply chains—and their level of visibility. They’re building or acquiring software to help automate and track these massive cogs in the machine, naturally, but they’re also partnering with logistics organizations who have the best insight and real information to work with.
3. Inventory practices have changed forever
It used to be all about “buy only what you need when you need it,” because businesses got used to hitting a button and getting rapid delivery—and their customers got used to it, too. Now, manufacturers and retailers are stocking up in advance, making sure they’re ready for the next shortage or slowdown. That’s a big adjustment for most industries, and some businesses who attempted to make this change early on made some crucial missteps.
The initial panic-buying in the early days of the pandemic gave some businesses the wrong idea, and they overstocked. That’s not quite the same thing as stocking up, though the difference can be hard to spot. Lots of businesses watched their inventory shrink during the early days of the pandemic (around March and April of 2020) and started rapidly refilling it as quickly as possible. Some were able to secure advantageous financing options open to many businesses. For those who took them, these low-interest funding options took some of the pressure off, which helped many of them focus on meeting customer demands without cutting payroll. That worked out for them for a few quarters. Furniture, sporting goods, building materials, exercise equipment, camping and RV suppliers—many of these suppliers filled up their warehouses to meet the increased demand.
Unfortunately, the increased demand that continued through much of 2021 began to drop off in early 2022. Few anticipated the length and severity of the lockdowns—and how deeply it has impacted the market. But many continued their overordering, and are now left with full warehouses and fewer people to sell their products to.
This is impacting the old playbook for shipping product across the world. Shipping space went through a tremendous crunch, but it’s gradually improved over the past year or so, and rates are plummeting as a result. That’s had a huge impact on carriers and logistics providers, as they’ve had to anticipate significant rate swings during this upheaval. Probably the most enduring impact from Covid is that noticeable changes in these processes are becoming more common, in both directions, and that can be tough to deal with in day-to-day business. Ideally, you should work with a partner who has a network of resources to help get you what you need at a price you can handle.
4. Bigger networks are more resilient
We know bigger isn’t always better, but numbers do matter. Before Covid, most businesses worked with a relative few shipping partners to get their products and materials. Maintaining a handful of relationships was much simpler than the alternative. But, once again, Covid shone a spotlight on that practice, which was adapted in the name of “efficiency.” Slowdowns and shortages pointed out the weakness in that approach. Now, organizations are working with much bigger networks, because the businesses with redundancy suffered far fewer problems than the ones who didn’t.
It’s a simple approach to what amounts to a pretty simple pitfall. The more partners you can get into business with, the likelier it is that you’ll be able to get what you need when you need it—and yes, it really is that straightforward.
The problem with this approach is the opposite of the efficiency argument in favor of fewer partnerships: managing relationships is time-consuming, not to mention distracting. Most businesses don’t have the time or labor available to keep a close eye on dozens or hundreds of shipping partners, especially when other costs are rising rapidly. That’s where logistics providers can make a tremendous difference. It’s much more cost-effective to work with one partner who will handle the relationships with a wide network of other partners for you. You work with a single point of contact, and let them worry about managing the rest of it.
5. Environmental changes
Green initiatives aren’t going away—in fact, there are a rising number of environmental mandates and regulations every year. Nations across the world have decided that the market changes sparked by Covid is a chance for them to guide industry down a more environmentally friendly path forward. While the biggest focus of these initiatives is always going to be on energy production, that alone has significant impacts across a huge swath of other industries, including—you guessed it—shipping and logistics.
Even assuming direct regulations will apply only to energy, that has a follow-up effect across basically every other industry sector. Everybody needs energy, and the more regulations apply to energy, the more the price will be impacted. The price of fuel alone is going to affect shipping costs, which can shave away more margin from sellers at a time when they’re already shaving margin to stay open. There is tremendous uncertainty about energy costs even a year from today, but most will agree on one point: it will be higher than it is now. The only real question is how much higher. Unless there’s another energy revolution, fuel costs are going to increase. The environmental initiatives—though they may help save nature—are going to speed up these increases, no matter how you slice it. You need to plan ahead.
Though there are some other methods you might use to help defray increased shipping costs over the next few years, they’re all time-consuming or expensive in one way or another. It is far simpler and efficient to work with a partner who can find you the best rates with the most reliable carriers. Shipping and logistics providers are a huge force multiplier when it comes to this process, because they have access to a wide network of global shipping partners to work with, and a big part of their value is finding the best rates for their customers Covid has certainly changed the way business operates around the globe, and shipping and logistics in particular. The worldwide upheaval has shown us where our biggest weaknesses are, so now businesses are getting creative to overcome them. OL-USA has helped countless businesses during the Covid pandemic and beyond. We understand these problems, and, more importantly, we have the experience and resources necessary to help you solve them. Don’t wait for the next crisis—plan ahead. Reach out to us, and we’ll consult with you, find out your goals, then build a comprehensive solution that addresses your specific needs.
Early return dates (ERDs) can give anyone the chills. For example, imagine you just successfully finished a grueling negotiation to deliver a large shipment to an overseas buyer. Your company organized a trucking company to transport goods to the port over the next week. You even paid for the storage costs of your goods before they get loaded onto your vessel.
But as soon as all this was finalized, you were told your early return date (ERD) shrunk from a week to only 2 days. Sound familiar?
The unfortunate reality is that situations like this happen far too regularly. Suddenly, all your careful planning is for nothing, and you face extra costs at every turn. The ERD nightmare is real.
There is no easy fix to problems stemming from changes in ERDs. It is an industry-wide problem that plagues all shippers and is the source of many sleepless nights for shipping coordinators.
What can you do to manage the risks of changes to ERDs better?
What Is ERD?
An early return date (ERD) is a policy introduced to help manage the flow of export containers into ports to reduce congestion. Problems arise because ERDs change far too frequently. And the worst part is that ERDs change with almost no advanced notice for shippers.
ERDs- A Multi-Layered Challenge for Ocean Exports
The importance of ERDs for shippers is that they need to make sure their containers don’t arrive too early at ports. Otherwise, they face demurrage penalties, storage fees, chassis rental costs, and other charges. But if their containers arrive late, their cargo may miss the opportunity to get loaded onto the vessel.
This balancing act isn’t always easy. During the pandemic, more than one-quarter of shippers reported that they experienced ERD changes, with about 7% reporting that these changes cost them $1000 or more.
What compounds these difficulties is that many ocean carriers reduce sailings in response to the negative economic impacts of events like Covid-19 and the Ukraine conflict. The net result is that companies looking to transport goods experience even greater headaches.
The worst part is that ERDs can, and all too often, change with little notice. Almost always, these schedule changes cost shippers more money. When profit margins are already tight, these unexpected charges can cause many sleepless nights.
So, in the face of such a tumultuous environment, how can shippers manage these risks and better operate under the constraints of ERD?
Hope for the Future
OL USA strives to help eliminate problems in global trade. We know the challenges you face and the hardships brought about by changes in ERDs.
OL USA is dedicated to transparency through the use of our proprietary track and trace system. We are a full-service transportation partner that can help your business face challenges in transporting goods worldwide.
And there are other reasons for optimism moving forward. Governments in the U.S. and worldwide have responded to the surge in shipping by addressing industry shortcomings. And the scope of financial resources made available with the surge in shipping activity means that there are powerful incentives in place to improve the current system.
With advances in technology and the surge in stakeholder interest in creating a more efficient flow of goods, ERD nightmares can soon become a thing of the past.
Together We Can Succeed
We all know the importance of providing goods and services to markets around the world. It is in everyone’s best interest to work together to find workable solutions to today’s problems.
An early return date (ERD) is a policy introduced to help manage the flow of export containers into ports to reduce congestion. Problems arise because ERDs change far too frequently. And the worst part is that ERDs change with almost no notice for shippers. But OL USA can help.
