With 2018 into its second month, the forwarding community is still very much in the uncharted seas of ambiguity.
We are no further along with how exactly Brexit will affect the industry, and with just over 12 months to go before our perhaps inevitable exit, a few eyebrows are starting to raise. Brexit is the hot topic for many within the industry. However, there are various other issues that many of us will have to pay attention to over the next few months.
The ever-present arguments regarding e-commerce, the lack of space for air freight pushing up rates, greener distribution methods for suppliers and many other topics being discussed across the forwarding industry need to be addressed to continue to spark growth for forwarders around the country, and farther afield.
At the risk of sounding like a broken record, Brexit is still the most important issue facing any freight forwarder working today.
The importance of brokering trade agreements that don’t hurt VAT and import/export through our ports is vital, amongst other issues that need to be met by the UK government. Understandably, until more serious talks happen, we can’t give exact facts on how this is going to affect the industry. But we can make a pretty good, educated guess.
If the UK ends up leaving the EU entirely, barriers to trade would be significantly increased, with a resultant increase in pricing on imports and possible shortages of stock. Worse, the UK may choose to strengthen trade relations with non-EU countries and this could put pressure on Irish exporters dependent on the British market. Agriculture and food are particularly at risk as there could be more competition in the UK market from these countries.
This important economic relationship is something that we really don’t want to break up, and something the UK government needs to really consider before making any major decisions. On the other hand, it could be argued that British exports to the EU will decline and this represents an opportunity for Irish companies to provide similar, substitute products. Either way, both these predictions mean that a country will suffer in the long run, along with the freight forwarders who deal with import/export for any of the products/destinations mentioned.
However, trying to steer Brexit away from doom and gloom, in more recent talks it was confirmed that real progress on Brexit negotiations had been reached in ongoing talks between the EU and the British Government. Britain has agreed to pay up to £39bn in what has been described as its ‘divorce bill’, whilst a form of compromise was reached on the previously mentioned issues of the Irish border and the future status of EU citizens in the UK.
The progress made on the ‘phase 1’ discussions will allow talks to move onto ‘phase 2’, and consideration on issues relating to the minefield of future trading relations between the UK and EU. Many people are now breathing a sigh of relief due to the UK and European Commission having reached an agreement on phase-1 issues. It would be naïve to think that this is the end of the hard work. However, this is a positive sign in the ongoing Brexit talks and here at FORWARDER we eagerly await the next bout of negotiations.
E-commerce is a topic that many throughout the industry are talking about, due to certain irregularities regarding their growth and margins. Certain companies, in recent times, are looking to capitalise on the rapid growth of online consumer sales, but the margins generated by the sector appear not to justify the investments carriers are making. Whilst e-commerce is all the rage and fills planes, it remains somewhat elusive for airlines.
Not many companies have a clear picture regarding how much of it they are carrying, because a large proportion of it moves via mail and consolidations. For many carriers, postal agencies have been the primary clientele associated with this business. Industry experts have pushed an emphasises on airline’s co-operation with international postal organisations, advising that customers can take advantage of full charters to transport air mail and e-commerce shipments.
The lack of visibility regarding how much traffic is e-commerce makes it difficult for many airlines to gauge how much it contributes to the overall circulation, but it is certainly not in the same bracket as other sectors concerning growth.
When looking at the value of individual shipments many have seen that it is usually not high and, moreover, the cost pressure on e-tailors is intense. This has led to many questioning the cost of final-mile delivery, due to high return rates for some commodities and consumer expectations that delivery should cost little or be free altogether. This confusion and annoyance over the e-commerce issue won’t be going away anytime soon, and is one for many in the industry to pay close attention to.
Air freight is usually seen as the preferred method of distribution for many freight forwarders due to the quick turnaround associated with it. However, due to the lack of space being offered to forwarders, many are returning to the oft-forgotten ocean freight method as an alternative to combat soaring rates.
The rush in demand for air freight capacity has not abated, and distributors across the country are turning to ocean shipping as an alternative. The latest Freightos Index Update, which covers week 49 of 2017, points to ‘sky-high rates’ for air cargo capacity on many sectors. This is backed up by the latest figures from Tac Index, which shows that airfreight rates on services from Hong Kong to North America last week remained above the $5 per kg mark for the third week in a row.
Prices from Hong Kong to Europe were also high, staying above the $3 per kg mark. Certain sectors indeed can absorb some of these higher rates, due to their higher profit margins, and continue to take full advantage air freight, however, many other companies transporting bulkier items may, in time, have no other option than to return to the slower ocean freight counterpart.
The environmental way in which we are approaching freight forwarding is an ever-changing process, with leaps and bounds being made in the last few years. An example of this comes from the Freightos online marketplace offering a free tool to allow users to select the greenest mode of transport. The tool incorporates calculations into freight quote options, for example showing that a 200kg consignment from Shanghai to London will produce 1.1 tonnes of CO2 by air but only 0.02 tonnes (20kg) of CO2 by ocean.
This is a major development for many within the industry looking to reduce their carbon emissions and a positive step in the fight towards a more sustainable industry. Whilst this is great progression, we can also help reduce our footprint by moving freight by rail or water instead of by road, where possible. This can help reduce the environmental impact of logistics and, in turn, be good for your business.
However, switching freight to rail or water may require capital expenditure on new facilities for handling equipment, or new connections to the rail and waterway networks. In the UK the North of England has seen heavy investment in these sectors already, which could see the UK at the forefront of an environmental revolution for the logistics industry.
The next few months are going to be very interesting for any freight forwarder. Here at FORWARDER we will be helping to guide you through the murky waters that lie ahead and letting you know exactly how you can stay one step ahead of others in the freight forwarding game.
Matt Dailly, Editor, FORWARDER magazine