Logistics in 2020: Air & Sea Freight

Globalization has meant that air and sea freight play a major role in getting consumer goods –

from fruit and vegetables to computer games – on the shelves in stores (online and virtual).

Yet both modalities are hard-hit by the sudden changes in volumes created by lower or higher

than expected levels of consumer demand that became common following the downturn.

China is now the largest trade nation, having overtaken the U.S. as the world’s largest trading nation by 2016, (according to a 2012 forecast HSBC Holdings Plc). Chinese ports and hub-and-spoke networks are of primary importance to global freight forwarders, and shipping schedules are developed around them. China has significantly harmonized its customs rules, which previously varied by port. Countries including China are investing heavily in infrastructure to move products from inland manufacturing sites to the ports.

Improved supply chain links with emerging economies in Latin America, the Middle East and

Africa are on the agenda as China leverages its alliances with those regions and increases imports

from its trading partners to support its own infrastructure projects. LSPs have begun to gear up

for increases in future shipment volumes going the other way. Rising costs are forcing Chinese

companies to outsource some low skilled and labour intensive production to lower cost countries.

Near shore and on-shoring is once again becoming more popular in some Western countries. This is largely for speed to market, agility to react to consumer demands and because the economic

downturn combined with the rapid development of China is making it cost justifiable (if not

cheaper).

Increasing fuel costs will continue to affect margins; In 2004 Air France-KLM spent over 2 billion Euros on fuel. By 2010 this was already tripled to over 6 billion Euros. Carriers have become even more sophisticated at measuring profitability of routes and customers, with unprofitable routes unceremoniously dropped and even sharper increases in rates common where capacity is limited.

Mega containers; by 2014, several 18,000 TEU vessels were due to be operational, forcing a move

towards a hub-and-spoke network due to the limited number of ports that can receive these vessels

and the need to run as close to full capacity as possible in order to deliver economic running costs.

This is leading to shipping lines limiting the number of ports they service.

Utilization and agility are key factors; speed is increasingly important - operators cannot wait

for a full load without missing customers’ delivery due dates. More river and canal

barges are under production to service the hub-and-spoke networks, along

with more rail links.

With over capacity in shipping an issue prior to the 18,000 TEU vessels

entering the market and pre-recession orders for container ships having

previously been surplus to requirements, by 2020 there may well be

a highly competitive market, resulting in a weakening in rates.

Track and Trace; is increasingly important for supply chain visibility, and performance

measurement, as service levels become stricter and more directly linked to remuneration.

Inland waterways/short sea; produces 80% less CO2 compared to road and 30% less than rail. As

CO2 reporting legislation comes into place in more countries there will likely be increasing focus

on environmental impact. And potentially further taxation on pollution, driving LSPs to adopt

“greener” transport modes.