The impact of the COVID pandemic on global logistics

The impact of the COVID pandemic on global logistics

Nov 10, 2021 | ,

The pandemic has underlined the critical importance of the global supply chain, in meeting critical PPE and medical needs, as well as satisfying consumer demand and the challenges in keeping goods moving efficiently along it.

The pandemic is creating new challenges for supply chains, as it keeps them working under unrelenting pressure, bringing to light previously unseen and unacknowledged vulnerabilities. 

The ability of ports and supporting infrastructure to work at full capacity has been undermined by staff shortages due to quarantines and COVID-safe work practices. 

The pandemic has accelerated and magnified problems that already existed in the supply chain, such as the pay and working conditions of critical workers, like HGV drivers.

Demand for vessel space and sea freight costs soared on every trade route as the grounded passenger aircraft fleet removed over 50% of air freight capacity at a stroke and to make a bad situation worse the amount of sea freight capacity available, was cut further due to containers and the vessels that carry them, being out of position.

Hopes remain that cost pressures will lessen, as consumer spending shifts from products back to holidays, eating out and other services. And while freight rates are very likely to remain higher than before the crisis, they will not remain at the current levels.

2020 – The COVID outbreak’s supply chain impact

  • Brexit seen as a major trauma to European logistics platforms.
  • The first quarter lockdown in China, prompted carriers to swiftly withdraw vessels.
  • As global lockdowns followed the carriers made further massive cuts to sea freight capacity.
  • The global passenger aircraft fleet is grounded, removing over 50% of belly-hold capacity.
  • Massive and unexpected demand for freight space returns mid-year as consumers buy products, as they are denied access to services.
  • Shipping lines start to return vessels, but they are now vastly off schedule.
  • Reacting to critical global PPE demand, airlines convert aircraft (Preighters) to carry cargo.
  • Ocean capacity is massively constrained, leading some lines to cancel longer term contracts and push shippers and importers to the FAK (Freight All Kind) spot market.
  • Ocean and air freight rates continue escalating to first quarter levels up >1000%.
  • Vessel schedules are even less reliable, adding to congestion at ports and extending transit times, which means empty containers are not returned to the areas of manufacture creating further delays.

2021 – Where we are now

  • Freight rates have remained firm, despite some expectation of them softening post-Chinese New Year and into early Q4.
  • Airlines have remained busy, even without passenger support and air cargo rates have increased significantly as their sole source of income.
  • Lockdowns affect manufacturing and lead times, with infrastructure congested.
  • Extended ocean transits and shortage of equipment effectively cuts capacity by 25%.
  • Reliability of carriers is totally lost with just 30% vessels on schedule and transits massively extended.
  • Global port congestion disrupts vessel arrivals and departures and handicaps the return of empty containers.
  • Inland road haulage and port-linked rail services in the UK, Europe and North America become congested .
  • Shortages of HGV drivers creates additional issues at destination and adds to congestion resulting in storage, detention and demurrage costs.
  • Airlines still operating predominantly on cargo income and pricing at record levels entering peak season.
  • Freight rates on all modes remain historically high, creating a ‘pay to play’ environment, with carriers focusing on the most profitable lanes and markets.
  • Power shortages and periodic power cuts in China, adds pressure in key manufacturing regions.

2022 – Looking to the future

  • As passenger travel opens up globally expectations would be for pricing to soften, as passenger income returns and belly-hold space adds to freight market capacity.
  • Many carriers are very bullish about 2022 and will not currently offer any form of pricing for 2022 contracts which will unwind over the final quarter.
  • Limited numbers of new-build vessels are scheduled to enter service before the end of 2022, so capacity is likely to remain restricted.
  • Inflation may soften consumer demand, reducing pressure on global logistics, in all stages of the supply chain, including manufacturing.
  • Carriers will continue pushing for longer term two year contracts and either decline to offer 12 month contracts, or refer customers to the FAK/spot market.
  • Confident shipping lines, eager to continue growing the ‘bottom line’ and airlines keen to recoup losses will maximise revenues from cargo movements.

In summary…

The pandemic-linked supply chain challenges described above, that have driven up prices and slowed the global economic recovery, will lessen over time. But any recovery will be fragile and easily undone by unforeseen events, like the shortage of HGV drivers in the UK and China’s drive for zero COVID cases. 

By 2023 (possibly late 2022) the COVID-19 situation should be under control and consumer demand steady, providing stability in global shipping, operations and costing.

The capacity of the global container fleet could potentially grow by 20%, as new vessels are delivered and schedule reliability will have returned, but how much tonnage the the 9 major shipping lines decide to withdraw or retire from the market, will dictate what volume, if any, is actually added.

Political and global events, not yet apparent, may have a huge influence on global supply chains, on all modes and in all regions of the world. 

Local and global issues are intertwined, due to the fragile state of ocean and air freight markets, demonstrating just how unpredictable the movement of your goods has become.

The shipping lines are expected to declare in excess of $150 BILLION pre-tax profits in the current financial year and it is unlikely they will want to give that up, considering what they have experienced and learned over the last 18 months on market dynamics and influences. They are in control of events and consequently their own success. 

It is widely accepted that the current supply chain challenges and high freight rates, across all modes, will continue into next year without much compromise.

Managing supply chains is no longer a back-office function, largely ignored and taken for granted, because business survival depends on a a high-functioning supply chain run by professionals with the experience and critical support of dependable partners. 

Metro will always provide you with the best alternatives and options, supported by a proactive team, leading-edge technology and open communication. Supply chain solutions that are designed around you, your situation and needs. 

For further information and to discuss your ongoing requirements please contact Elliot Carlile or Grant Liddell.

HGV crisis hidden for years

HGV crisis hidden for years

Sep 22, 2021 | , , ,

The HGV driver crisis, which has been gathering pace over the last two decades, has been largely hidden due, in no small part, to effective transport management by the freight forwarding community. But the situation has been exacerbated by Brexit and tax changes which encouraged 20 thousand European drivers to return to the continent and the loss of 30 thousand driving tests, during lockdowns, which has critically elevated the shortage of HGV drivers to 100 thousand.

The impact of the HGV driver shortage is being felt increasingly by the general public and in every business vertical and is particularly pronounced for the freight sector. 

With driver shortages hitting local collections and deliveries, it is impacting air freight and there are significant capacity issues for pan-European transport. But it is the sea freight sector and in particular the movement of containers that has been hardest hit.

Hauliers have been increasing driver pay rates, offering retention and loyalty bonuses and improving working conditions in a bid to halt the outflow of experienced personnel, which is being reflected in the costs incurred and may reflect a longer term trend to make the industry more attractive to a new generation of drivers.

Changes to the HGV driver testing process, recently announced by the government, will speed up the process and could mean an extra 1,600 drivers joining the industry every week. But there are lots of caveats attached to that figure and its benefits will only become evident over the long-term.

The challenge remains, too much demand and insufficient capacity, and managing the potential impact of this equation on supply chain operations. In the short-term the situation is very likely to worsen, before it gets better and, even if young people and women can be attracted to the profession, it may take up to two years to reach equilibrium.

With over three decades of shipping line and forwarding transport experience, Metro’s transport team is led by Simon Balfe, one of the most knowledgable volume movers in the UK.

Despite the breadth of experience, haulage contacts and relationships across the Metro team, they are increasingly challenged in locating sufficient haulage resource, with ‘merchant’ supply often going to the highest bidder and line haulage becoming increasingly unreliable.

Prior to the pandemic Metro’s on-time delivery KPI hovered around the 99% mark. Today, despite the best efforts of Simon’s team, it has slipped to 80%, which is still far higher than the industry average of 50%.

A significant factor in this fall, is the failure of line haulage reliability. Historically (right or wrong) shipping line controlled collections and deliveries (line haulage) has been perceived to be the ‘gold standard’ in container transport and costed accordingly.

But the pandemic is tarnishing even this ‘gold standard’ as lines increasingly stop offering a ‘to-door’ service, or fail to honour confirmed bookings, which is having a profound impact on unlucky shippers, who are often left facing additional and unexpected charges.

We are increasingly called on to assist shippers who have had line haulage cancelled, or have received no prior notice of its withdrawal and have been offered new bookings, several weeks forward, leaving them to wait for their goods and the likelihood of rent and demurrage charges. 

Even though the extended time is a direct result of the line’s own actions, they are not sympathetic to writing off these charges, as the shipper always has the option to arrange their own transport.

Although this option does incur lo/lo charges and can be more expensive than line haulage, merchant haulage can potentially offset the rent and demurrage of an extended wait on the quay or terminal.

We work with a number of selected long-term haulage partners across the UK to give us access to the widest pool of equipment and driver resource at the UK’s primary container ports, to offer cost-effective and efficient merchant haulage services. 

To learn more or discuss your situation, please contact Elliot Carlile or Grant Liddell (or Simon Balfe, who leads our UK multimodal transport operations) to talk you through the options.

UK Road freight turbulence to continue impacting global trade and freight movements

UK Road freight turbulence to continue impacting global trade and freight movements

Sep 9, 2021 | , ,

The HGV driver shortage is hitting crisis level in the UK (and around the world) as demand for haulage services continues to increase and, while a potential strike within the industry has been averted, the threat of driver strike action continues at Tesco and Hanson, raising the possibility of further disruption this autumn and running up to the traditional Christmas and festive ‘rush’.

The prospect of strike action comes as severe shortages of workers and raw materials trigger widespread disruption across the British economy, in a crisis caused by the fallout from Covid, Brexit and years of underinvestment in HGV drivers. As well as European drivers returning to their home countries and not returning after lockdowns and Brexit earlier this year, removing an estimated 20,000 HGV1 operatives.

This effect is being felt in all areas of logistics, but in particular within the container transport sector, which can often be seen as ‘hard work that is underpaid’.

The growing global crisis

Fast-food giant McDonald’s has joined the growing list of companies forced to cut parts of their services due to shortages of stock caused by the lorry driver crisis, which adds to stock problems caused by a disruption in international supply chains.

Analysts say a global shortage of truck drivers has persisted since the middle of the 2000s. Still, the deteriorating global driver shortage, which has now tipped into a domestic crisis, has only become visible to the general public this year. It has been around for much longer and has been delicately managed within the supply chain industry.

The transport sector’s labour issues have developed over time as multinationals have driven down supply chain costs, and the global driving workforce has aged. The average truck driver in the UK is 55 years of age. It has not been a popular career path to follow.

The number of drivers in general freight in the US has dropped to 430,000, down from 465,000 at the start of 2020, and the situation is getting worse. This situation is not unique to the UK, and globally there is an issue with the first mile and final mile aspect of freight movements.

Chartered Institute of Logistics and Transport members in Australia and central Asia have reported heavy goods vehicle driver shortages of 20%.

Increasingly, global trade is becoming more complex, consumers want quicker deliveries, and simply there are not enough skilled HGV drivers to handle this demand around the world. In the UK, to become an HGV1 driver qualified for the operation of an articulated 40’ lorry is a lengthy process that has also been impacted by lockdowns and reduced testing for aspiring drivers. Different vehicles require different accreditations, with many tests unable to be completed during the situation over the last 18 months resulting in fewer new people entering the industry.

According to the Road Haulage Association (RHA), there is a shortage of more than 100,000 drivers in the UK, out of a pre-pandemic total of about 600,000, exacerbated by changes to rules following Brexit and 30,000 HGV driving tests being missed because of COVID.

Freight’s own challenge

The impact of this shortage is being felt in every business vertical and is particularly pronounced across the freight sector. Touching domestic delivery and collections, as well as international transport, and particularly the merchant haulage of empty and laden sea containers. The air freight sector is also experiencing issues with collections and deliveries and being impacted as drivers move to less hectic roles within the domestic sector.

In addition, and not widely reported, the purchase of new vehicles and trailers are impacted with manufacturers taking at least 6 months to deliver equipment due to component shortages, other manufacturing issues and demand for new lorries, despite the increasing cost of the assets – simply put they cannot be manufactured quickly enough to meet their order books.

Metro’s transport team is among the most experienced and biggest volume movers in the UK. They are increasingly challenged in locating sufficient haulage resource, particularly for movements within a 72-hour window. Hauliers and carriers, along with market conditions, are dictating a ‘pay to play’ scenario, where the highest bidder benefits. And this is across all modes and sectors of the industry.

Even the payment of a booking premium of >£300 on a container is no guarantee that the contractor will not cancel the booking without notice. This often means the shipper’s container will exceed its free period of rent and detention on imports or fail to materialise on export collections. 

We manage these situations with agility every minute of the day. There are no statistics published that we can advise or refer to, to demonstrate the scale of the issues. But it is frequent and demanding. 

We have and continue to increase our transport teams across all modes, dedicated to ensuring that we overcome all the industry challenges, now and in the future, with innovation, creative and imaginative solutions and hard work. 

No silver bullet

The average haulage movement now takes 3.7 times as long to administer, communicate, and organise, with the impact of all the component events this year, as it did pre-pandemic and in 2020.

The RHA, freight transport association Logistics UK and the British Retail Consortium (BRC) are among the trade associations that have – without success – urged the government to take measures, including relaxing visa regulations, to alleviate the road haulage problem. 

So far, government proposals have been limited to plans to streamline the process for new drivers to gain their HGV license and increase the number of driving tests conducted. In fact, today, BBC News has run an article on how the government is looking to fast track new driver tests – Government to shorten HGV driver testing process. The situation is changing daily……..

The crisis is anticipated to worsen in the coming months as demand for goods increases with the new school year starting, businesses returning to their workplaces and the build-up to Christmas, traditionally the peak time for logistics movements. This, in particular, is due to be felt in the container haulage industry as detailed – an essential ingredient to global freight movements.

Freight sector hauliers have been increasing driver pay rates, offering retention and loyalty bonuses and improving working conditions in a bid to halt the outflow of experienced personnel to retailers. This all reflects in the costs incurred and the reliability to ensure we continue to deliver consistent services to our customers and ultimately to their customers.

Road transport cannot be avoided, as part of the international movement of goods, with drivers critical for container movements, international and domestic haulage.

We work with a number of selected long-term haulage partners across the UK to give us access to the widest pool of equipment and driver resource. 

To learn more or discuss your situation, please contact Elliot Carlile or Grant Liddell (or Simon Balfe, who leads our UK multimodal transport operations) to talk you through the options.

September Update: Air cargo under serious and sustained pressure – and it has only just begun….

September Update: Air cargo under serious and sustained pressure – and it has only just begun….

Sep 2, 2021 | , , , , , ,

Industry data released today shows that international demand for air cargo capacity versus a shortfall in supply pushed average global air cargo rates up 112% beyond their pre-COVID level, as lockdown in Vietnam and the closure of cargo handling terminals at Shanghai highlighted the fragility of Asia supply chains. 

Dhaka in Bangladesh is also very challenging, for a multitude of reasons, from airport construction through to carriers cancelling large amounts of their schedules. That’s without a huge outpouring and swell of demand for air cargo throughout the world’s major markets – it’s not unique to the UK and Europe.

Even before the latest disruptions in Shanghai and Vietnam, air cargo capacity was tight due to fewer international passenger flights. With restricted travel globally, on every conceivable trade lane, very full flights are elevating rates significantly on prime intercontinental trade routes.

Shanghai’s Pudong International Airport (PVG) operations have been hit by a series of COVID cases that have resulted in passenger carriers cancelling services and diverting flights to other airports. In addition crew isolation requirements on arrival and reduced airport warehouse staffing continue to have an impact on physically loading and unloading arriving cargo freighters.

Shanghai’s problems contributed to a 10% drop in volumes from China to Europe in the last two weeks of August, while westbound capacity was reduced by 18%, with spot rates increasing by 20% in the last week of August.

Disruptions to cargo operations are expected to continue for the foreseeable future and while China Eastern Airlines (who have their own ground handling) has restored some services, it remains unknown when flight schedules will normalise, with limited air cargo capacity likely to further increase spot rates.

Stringent quarantine rules mean that only 1/3 of ground handling workforce is available at any time and air crew can only fly one flight every three weeks on long haul sectors where they have to disembark on arrival. Resulting in cancellations with an impact on cargo both in and out of the region.

Some cargo and charter operations have been suspended at Shanghai, Guangzhou and Beijing due to workforce issues and If nobody can handle the aircraft, or there are not enough crew, then airlines will have to suspend their schedules, until the situation improves and rules are changed.

While we are hopeful that the situation will improve in days, or weeks, we have to consider the impact of a prolonged disruption during the main peak season. Which is yet to come and looks to be challenging with ‘distressed sea freight’ and further disruption.

The biggest shippers (BCO’s as they would be known in the ocean freight market) have been accessing charter capacity, but that option is increasingly difficult, with scarce aircraft availability and insufficient handling capability, even at inland airports.

The situation from Singapore is no less challenging, with carriers diverting capacity from Europe to US services, with yields approaching levels achieved in the earliest PPE days of the pandemic. Or to put it in perspective, very much higher than on the European routes, resulting in airlines seeing greater returns on the American markets and further restricting capacity into the UK and Europe due to the limited uplift and capacity.

In southeast Asia manufacturing delays are adding to air freight demand, as shippers try to  recoup lost lockdown time with air freight with Hanoi, Ho Chi Minh, Phnom Penh and Bangkok all facing high demand for air freight to Europe and the US.

Simply, the carriers have more demand than available capacity and are offering space to whoever pays the highest rates, mirroring the ocean freight dynamics of the last 18 months.

The air and sea freight markets from India are severely compromised, leaving many shippers to hold their shipments at their supplier’s warehouse, as the cost of freight exceeds their margin, while other importers fret about target deadline to meet their sales.

Imports into India from APAC are also disrupted with raw materials drastically delayed due to late arrival of vessels, which has increased production lead time, with late shipments being converted to air. Expectations are that this ‘peak’ could extend to mid-November.

In Bangladesh air cargo backlogs are growing daily, while in Sri Lanka there has been a sharp increase in demand out of Colombo, with Etihad cancelling its ‘Preighter’ services, Qatar pulling flights “for technical issues” and others also cutting flights. It’s not a normal environment for air freight in August as we slip into the traditional months of air freight peak.

But with demand remaining high and retailers wanting to move product as swiftly as possible, rates have rocketed over the past week, even with transit times increasing by four to five days.

The global air freight market is solid from a demand viewpoint, but the infrastructure that supports it is fragile and subject to major disruption, which simply drives rates up further. As evidenced by the closure of air cargo operations at Shanghai Pudong, the world’s third largest cargo airport, after a handful of COVID cases.

However, on the upside, Metro continue to be creative with our solutions and are always considering and operating every option of service available to satisfy and achieve deadlines based on customers’ requirements and expectations. Including the hybrid sea/air platforms through various hubs. 

Innovation and delivering solutions is what we always do on all modes. With air freight we do it quicker and are agile to assist in every eventuality, today. 

Please call Elliot Carlie or Grant Liddell NOW for further recommendations and advice. 

As much visibility and planning in September that you can provide will ensure that we can in the last quarter of the year assist in achieving a tailored and bespoke platform to deliver your product to market – at the right time when it is needed. 

Please engage now – a collaborative partnership is always how we achieve your goals.

Category: Coronavirus

China | Coronavirus | Sea | Supply Chain

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