Ocean freight forwarders are under pressure as new regulations, volatile marketplaces and changes in supply and demand are increasing operating costs and hurting the bottom line. These factors all add up, but digitizing and centralizing information and communications can drive understanding and efficiency to reduce some of the strain on profit margins. We’ll dig into some of the main challenges being faced by ocean freight forwarders, and what you can do to get back in control.
Let’s start by exploring some of the main issues.
IMO 2020 and Bunker Fuel Sulphur Reduction
The main fuel source for large, ocean-going ships is “bunker” oil, which is a residue from distilling crude oil. When this fuel is combusted in ship engines, it produces large amounts of sulphur oxides, which can have a detrimental impact on the ocean, the wider environment and people. IMO 2020 is a regulation introduced by the International Maritime Organization (IMO), to reduce the sulphur content in ship fuels and limit emissions.
These changes mean that ships must reduce sulphur emissions to 0.5 percent. Ship operators can achieve this by moving to fuels with a lower sulphur content, switching to alternative fuels and putting “scrubbing” equipment in place to remove sulphur from engine exhausts. These changes are driving up costs for shipping operators as they transition their vessels, making freight forwarding more expensive.
Political and Economic Trouble and Tariffs
Political situations like rising tariffs and Brexit are creating more uncertainty in the shipping and freight forwarding marketplaces. Protectionist policies can reduce the amount of international shipping in an industry that’s struggling with capacity.
These political situations can also influence international currency exchange rates. The U.S. dollar is the most commonly used benchmark for pricing international trade, so its performance against other currencies has a significant influence on how much freight forwarders will pay.
Fluctuating Capacity from International Shippers
Ocean shippers are keen to protect their profit margins, and this means carefully managing the capacity of their fleets. As political and economic pressures impact the demand for international shipping, operators are withdrawing capacity to keep rates steady in a volatile global marketplace. Combine this with seasonal changes in supply and demand, and unpredictability in capacity becomes an issue for ocean freight forwarders.
Lack of Visibility of Costs
Global shipping is extremely complex, with multiple organizations involved in managing shipments between ports. A lack of transparency of all parties and associated costs makes it difficult for freight forwarders to understand exactly what they’re paying for, which causes problems when quoting rates to customers.
A Very Price-Sensitive Market
Most end customers looking for global shipping are more concerned with price than service. This commoditization means it’s hard for freight forwarders to stand out from their competitors when all a customer is looking at is their rate sheet or quote.
How Centralization and Digitization Can Help Ocean Freight Forwarders
Many of these challenges can be reduced through digitizing the supply chain and centralizing information on a common platform.
Understanding Supply, Demand and Capacity in Ocean Shipping
Global shipping capacity is continually fluctuating. Ocean freight forwarders need to understand current capacity and model likely future scenarios so you can stay one step ahead to retain capacity at favorable rates. This means having a centralized view of all the shipping operators you’re working with.
A good supply chain management platform will bring together data from multiple sources to provide a transparent overview of pricing, supply and demand, allowing forwarders to make an informed choice. AI and machine learning can also help with predictive analytics, forecasts and scenario modeling, so you can plan for tomorrow. This allows you to communicate likely future capacity and pricing with customers to manage expectations.
Getting Greater Visibility into Costs
Freight forwarders need to account for everything they’re spending so they can protect profit margins and provide accurate quotes. Digitizing the supply chain means you can track all the likely costs you’re going to incur. This makes it much easier to quote and allows you to consider every cost that may impact your profit margins, so you can price in a reasonable way. For example, you could get greater insight into bunker fuel costs which will have a further impact on how much shipping operators charge.
Understanding External Factors Impacting Shipping
It can be difficult to keep track of tariffs, economic environments, the shipping marketplace and other factors. Digitization can bring in and analyze data from multiple sources to provide context and insight into how things are shifting. You can build this external data into your forecasting, and plan appropriately for the future.
Centralizing Your View of Contracts
Freight forwarders rely on robust contracts with their customers and with organizations throughout the supply chain. Viewing all these contracts from a centralized location makes it much easier to understand service levels, pricing agreements, quality controls and other factors.
Getting an Overview of Operational Efficiencies
Key performance indicators (KPIs) and reporting are essential to delivering the freight forwarding that customers expect. A supply chain management platform will bring together all your top-level data in one place so you can immediately check everything is running according to plan. If it’s not, you can drill down into the details to find inefficiencies and delays in shipments and then resolve them to maintain customer satisfaction.
Integrating and Communicating with Shipping Operators, Ports and Others
A multi-faceted, international shipping supply chain could involve dozens of organizations each using their own technology to manage their part of the operation. It can be extremely time-consuming to log into all those separate systems to get a view of how a shipment is progressing. It’s much better to have a platform that can integrate across all these disparate technologies and present “one view of the truth” for your freight forwarding operations.
If you’re a freight forwarder, you don’t need to be overwhelmed by these challenges. Digitizing more of your supply chain and getting all of your data in one place can significantly improve your management and pricing capabilities and increase your competitive standing.
Blume Digital Platform is data-driven and connects trading partners in a collaborative supply chain ecosystem to drive real value and growth for our customers worldwide. Our cloud-based platform is open and neutral, and its extensible architecture enables continuous innovation to forge the future of the global supply chain.