Good afternoon All
As you may know, if you import product from overseas, you will employ the services of a freight forwarder / logistics provider and they will transport your product from your supplier in Asia or North America (the most common origins for companies who source product from overseas) all the way to your door, also taking care of Customs procedures on your behalf.
As you may know, if you import product from overseas, you will employ the services of a freight forwarder / logistics provider and they will transport your product from your supplier in Asia or North America (the most common origins for companies who source product from overseas) all the way to your door, also taking care of Customs procedures on your behalf.
All of the world's freight markets are
different and the freight prices which customers pay will vary according to
many factors, but one of the primary drivers of freight rates is basic supply
and demand. If we take ocean freight as an example (and the vast majority of
global freight traffic moves this way) the rates are often driven by the amount
of capacity on that shipping lane or route, and the amount of traffic moving.
As an example, the North American market (also known as the Transatlantic trade
lane) generally has less capacity, due to smaller vessels, and this means that
rates are pretty stable, with some minor seasonal variations.
The market which is extremely volatile is the Asia-Europe market, also the world's largest trade lane, where we can see huge swings in freight costs, driven by two main factors.
1. Spikes in activity/demand connected with two main periods, the first of which is Chinese New Year (early Feb) where Chinese factories close for around 1 week and there is a rush to ship products before the big shutdown. The second is a longer period of increased activity linked to our pre-Christmas trading here in Europe and this runs from August until mid-November. With good reason, you may ask "Why does it start in August?" Well, it can take around 6 weeks to get goods from origin in China all the way to the store and we all know how early we see Christmas displays in our stores!
2. The second main factor is capacity, or how much supply/space there is compared to the amount of demand (container volume). Recently shipping lines have been employing larger and larger vessels (also known as ULCVs (Ultra Large Container Vessels) to reduce their lift cost (cost per container) however this has coincided with generally weak volumes on the Asia-Europe trade lane which has in turn led to significant rate volatility.
The reason why I titled my post "Is your logistics provider behaving like your energy provider?" is because here in the UK, there has been a lot of criticism of the Big-6 energy providers who fail to pass on cost reductions to consumers when the market is soft, but are swift to increase prices when costs rise.
In the freight world, you, the customer are at the end of the chain and rely on your freight forwarder to charge you a competitive freight rate, however what often happens is that your rates don't follow the market down - they only seem to go up!
Add to this the fact that it's often difficult and time consuming for you to find out whether you are paying a fair price and with many customers short of logistics expertise in house, they pay whatever they're charged. We've seen this so many times over the last 5 years and we think it's related to the flatter structures within small-medium sized companies and the fact they find this area complicated and confusing (quite understandable!).
And now back to Asia...from early May, ocean freight rates have been falling, from a high of around USD 861 per 20ft container / TEU (Shanghai-UK) to as low as USD 205 per 20ft container on 19-Jun. Rates have been changing on a weekly basis and as we live in this world every day - and we know how the freight markets work - we have been negotiating rates and ensuring that our customers benefit from the market falls.
And where are we today? Well, we've hit the bottom and as a result, the shipping lines have announced eye-watering rate increases (USD 1100 per 20 foot/TEU) from 1-July and as we're now leading into the start of Peak Season 2015, the only way now is up.
Last Friday, a week before the huge increase, rates from Shanghai to Europe more than doubled, reaching USD 548 per 20 foot so regardless of what rates you have been paying, now is the time to take a really close look at this area and find a way to keep a lid on your freight costs as we run to the end of 2015.
If you would like some advice or would like to know more about how we could help you and take away workload and headaches associated with your supply chain, just drop me a line at andy@straightforwardconsultancy.co.uk.
Also please do take a look at our highly complimentary testimonials and case studies, they show how we've helped customers to reduce freight costs by an average of 35%, reduce their Customs duty burden, improve service levels and have the assurance that their freight and Customs areas are being professionally managed in a cost effective way.
The market which is extremely volatile is the Asia-Europe market, also the world's largest trade lane, where we can see huge swings in freight costs, driven by two main factors.
1. Spikes in activity/demand connected with two main periods, the first of which is Chinese New Year (early Feb) where Chinese factories close for around 1 week and there is a rush to ship products before the big shutdown. The second is a longer period of increased activity linked to our pre-Christmas trading here in Europe and this runs from August until mid-November. With good reason, you may ask "Why does it start in August?" Well, it can take around 6 weeks to get goods from origin in China all the way to the store and we all know how early we see Christmas displays in our stores!
2. The second main factor is capacity, or how much supply/space there is compared to the amount of demand (container volume). Recently shipping lines have been employing larger and larger vessels (also known as ULCVs (Ultra Large Container Vessels) to reduce their lift cost (cost per container) however this has coincided with generally weak volumes on the Asia-Europe trade lane which has in turn led to significant rate volatility.
The reason why I titled my post "Is your logistics provider behaving like your energy provider?" is because here in the UK, there has been a lot of criticism of the Big-6 energy providers who fail to pass on cost reductions to consumers when the market is soft, but are swift to increase prices when costs rise.
In the freight world, you, the customer are at the end of the chain and rely on your freight forwarder to charge you a competitive freight rate, however what often happens is that your rates don't follow the market down - they only seem to go up!
Add to this the fact that it's often difficult and time consuming for you to find out whether you are paying a fair price and with many customers short of logistics expertise in house, they pay whatever they're charged. We've seen this so many times over the last 5 years and we think it's related to the flatter structures within small-medium sized companies and the fact they find this area complicated and confusing (quite understandable!).
And now back to Asia...from early May, ocean freight rates have been falling, from a high of around USD 861 per 20ft container / TEU (Shanghai-UK) to as low as USD 205 per 20ft container on 19-Jun. Rates have been changing on a weekly basis and as we live in this world every day - and we know how the freight markets work - we have been negotiating rates and ensuring that our customers benefit from the market falls.
And where are we today? Well, we've hit the bottom and as a result, the shipping lines have announced eye-watering rate increases (USD 1100 per 20 foot/TEU) from 1-July and as we're now leading into the start of Peak Season 2015, the only way now is up.
Last Friday, a week before the huge increase, rates from Shanghai to Europe more than doubled, reaching USD 548 per 20 foot so regardless of what rates you have been paying, now is the time to take a really close look at this area and find a way to keep a lid on your freight costs as we run to the end of 2015.
If you would like some advice or would like to know more about how we could help you and take away workload and headaches associated with your supply chain, just drop me a line at andy@straightforwardconsultancy.co.uk.
Also please do take a look at our highly complimentary testimonials and case studies, they show how we've helped customers to reduce freight costs by an average of 35%, reduce their Customs duty burden, improve service levels and have the assurance that their freight and Customs areas are being professionally managed in a cost effective way.
Kind Regards
Andy Cliff
Straightforward Consultancy Ltd – logistics simplified
Andy Cliff
Straightforward Consultancy Ltd – logistics simplified
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