The peak season chaos experienced in the second half of 2009 indicates how inadequate communication between shippers, forwarders and carriers can sometimes lead to a severe mis-match between demand and capacity.

 

 

Senior forwarding and logistics executives acknowledge that things broke down last year, and have been trying to identify how to ensure the experience is not repeated.

 

 

Diederick de Vroet, Kuehne + Nagel’s senior VP of sea freight for north-west Europe, says: “One of the issues that will be further emphasised this year in the relationship between carriers, forwarders and customers is forecasting.

 

“We always talk about this, but this year has taught us to focus with individual customers to get the forecasting right. Within that, of course, there are always factories where there is delayed production, but if we can make the forecast more accurate, it will help air and sea freight.”

 

Although some shippers struggle to forecast demand accurately, there are improvements to be had.

 

Tim Scharwath, president for north-west Europe at Kuehne + Nagel, says: “Some customers can forecast better than others, even those sourcing from the same factories.”

 

De Vroet adds: “If your expectation is to get it 100% right, then you won’t achieve it. But if you can forecast eight weeks in advance, from actual [customer manufacturing] orders, then there is a certain window of, say, four weeks where the data is more or less accurate.”

 

However, although forecasting needs to be a major focus across the whole freight transport sector this year, it would not have prevented the peak season chaos experienced in the last quarter of 2009, say forwarding and logistics executives.

 

Shippers, forwarders and carriers all shared some of the blame for the backlogs and scramble for capacity, although, ultimately, carriers in survival mode were responsible, believes de Vroet.

 

“It was caused by the reduction of capacity by the carriers,” he says. “It is a triangular relationship in terms of communication, between shippers, forwarders and carriers, but the way sea freight and air freight carriers adjusted capacity [in the second half of last year] had nothing to do with getting the forecasts right – it was to do with getting their profitability up to a level where they stopped losing money.

 

“The priority for carriers shifted from being commercially driven to, really, survival. We came across strong survival instincts to drive market levels up to where they felt comfortable again.”

 

He says capacity on the Asia westbound trade had been reduced by around 23%.

 

Gianluigi Aponte, CEO of shipping line MSC, recently blamed shippers for the crisis in container shipping last year, claiming they had taken advantage of industry overcapacity at the start of the year to get cheaper prices, forcing lines to cut capacity to rebalance supply and demand and rebuild rates.

 

But Andrew Traill, MD of the Shippers’ Voice website forum, defended shippers, saying lines have to be responsible for their own fortunes.

 

“If you are offered low rates, you are going to take them,” he says.

 

John Pattullo, CEO of Ceva Logistics, says there is always room for improvement in terms of forecasting and communication between shippers, forwarders and carriers, but he also believes the main factor ultimately responsible for the capacity crunch last year was the sudden fleet cuts by carriers.

 

“Understandably air and ocean carriers reduced capacity because they had had such a difficult first half,” he says. “I would say the levels of demand in the second half were higher than people were forecasting during the doom and gloom of the second quarter. You could call that poor forecasting, although those were also exceptional conditions.”

 

In terms of the air freight situation last year, Scharwath believes the blame was shared. “No-one was able to forsee last year how the volumes were going to develop,” he says.

 

“Shippers talked about volumes, and asked for rates for volumes, but the volumes came [later than expected] in the second part [of the year], especially the last quarter. The airlines took out capacity to bring the rates up to a decent situation to work on, and the forwarders were stuck in the middle, trying to balance things and make it work.

 

“We managed to find space, but sometimes at different rates than we anticipated. It was more difficult than in sea freight, because of the different way the market worked last year.”

 

Although some customers were surprised and angry about the problems accessing capacity and the rates they had to pay, Scharwath says shippers had been warned that rates would increase.

 

“The discussions at that time last year were not easy, in air freight or sea freight,” he says. “But we have always been very open with our customers, and told them the rates they were getting at the start of last year would not be available all year. Some customers listened and some did not.”

 

Scharwath says the challenge of accessing capacity in the second half of last year underlines the importance of good relationships between forwarders and carriers.

 

 “We have different contracts with our carriers and one of our strengths is that over many years have always delivered on our partnerships with the many carrier contracts that we work with, and that has enabled us moving forward this year to guarantee space and allocation to take care of our customer requirements,” he says.

 

This is underlined by a recent report from Drewry Shipping Consultants, which indicates that shippers increasingly turned to forwarders last year in order access capacity with container lines.

 

Scharwath says the experience of recent months has also increased the importance of the partnership approach in air freight.

“That needs to be even tighter now,” he says. “The way volumes went up and down last year, and continues this year, means there has to be a dual approach from both parties – carriers and freight forwarders/customers – in order to find the right amount of volume that is needed. Sometimes, for example, on a different day of the week.

 

“In the past, it was much more plannable than it is now, or was last year, particularly out of Asia. So maybe we need different IT tools that show you where there is capacity available for cargo.”

 

But if the main cause of the capacity crunch last year was because airlines and shipping lines cut capacity for their own purposes, regardless of demand conditions, will better forecasting help this year and in the future to avoid such a scramble for capacity as seen at the end of last year?

 

“Yes,” says Diederick. “With the recovery of rates and volumes that we have seen in recent months, our expectation is that carriers will not be in that survival mode this year.”