Shippers leaning on LCL, 3PLs during COVID-19

Shippers leaning on LCL, 3PLs during COVID-19

At a time when many people are working from home, Freightos said the best way to navigate the turbulence of the COVID-19 pandemic is to have a strong partner and keep in close communication. Photo credit: Ari Ashe/JOC.com.

As container shipping capacity tightens due to an unprecedented number of blank sailings, shippers are making greater use of less-than-containerload (LCL) services and cementing relationships with reliable third-party logistics providers (3PLs) in an effort to control costs, according to Freightos.

Ari Corman, vice president of sales for Freightos, said the digital marketplace provider has seen a 15 to 20 percent spike in demand for LCL service from Asia to the United States in the last three weeks. That suggests beneficial cargo owners (BCOs) are bringing in only what is necessary, limiting shipping costs by not importing items that may not sell during the COVID-19 pandemic.

The rise in LCL is most noticeable among small and medium-sized businesses, Freightos said. 

“Some small shippers are still working through an inventory backlog from Chinese New Year and the COVID-19 manufacturing lockdown in Southeast Asia. Since their inventories typically move slower than large BCOs, they are still looking to restock,” Freightos said.

If stores remain closed through August as part of the larger effort to mitigate the spread of the coronavirus disease 2019, for example, it may not make sense for retailers to import summer products such as outdoor furniture, sandals, or beachwear, Corman said on an April 21 webinar hosted by Chinese e-commerce marketplace Alibaba. Small- and medium-sized businesses would continue to use LCL because the slow drawdown of inventory would continue to be muted.

In addition to reducing volumes of non-essential and/or seasonal goods, Corman said more shippers are booking space on vessels up to two weeks in advance of a “goods-ready” date to receive the most accurate quote and minimize the chances of being rolled over onto another vessel. During normal business times, a load might be booked a week or less ahead of the goods-ready due date if space is readily available.

“This will ensure that you don't have issues around additional charges or issues with rate validity of the quote, trying to avoid some of those kinds of pitfalls,” Corman said.

At the same time, a number of US importers have pivoted to producing essential goods such as masks, ventilators, and other critical medical equipment in high demand as countries around the world battle the coronavirus disease 2019. But Jamin Dick, head of supply chain for Alibaba.com North America, warned of the difficulties in suddenly shifting shipping processes to accommodate new products.

“There are lots of updates to what can be successfully cleared at the border, so now is not a time to be trying this for the first time. This is pretty advanced stuff right now because the rules change quite frequently,” Dick said on the webinar. “We hear from people who are having trouble getting personal protective equipment into the US.”

Spend now to save later?

With cargo demand plummeting due to the COVID-19 pandemic, container carriers have blanked dozens of sailings in the trans-Pacific trade and are expected to blank dozens more over the next two months. As a result, carriers have largely avoided the precipitous decline in rates that generally accompanies a drop off in demand, but shippers would be wise to take more than price into account when choosing an ocean service provider, Corman said.

US imports from Asia plunged 17.5 percent in March from the same month last year, according to PIERS, a JOC.com sister company within IHS Markit, driven in large part by a 39.2 percent drop in imports from China. Global Port Tracker, published monthly by the National Retail Federation and Hackett Associates, projects continued double-digit monthly declines in US imports, with volumes in the first half of the year projected to be down 15.1 percent from the first half of 2019.

But according to Freightos, spot rates from China to the US West Coast averaged $1,493 per FEU last week, down 7 percent from the prior week and 3 percent from the same week in 2019. China to US East Coast rates were down 2 percent week over week to $2,641 per FEU, with no change from a year ago.

Although more expensive than booking directly with a carrier, Corman recommends shippers use a reputable intermediary to avoid — or at least outsource the mitigation of — potentially costly delays, such as a shipment being rolled or a customs hold, rather than picking the lowest bid.

“Some freight forwarders are offering some very good transit times through direct consolidation shipments from the major ports in China such as Shenzhen, Shanghai, directly to New York, Los Angeles, and even to Chicago,” said Corman. “Some of the ocean services available now are quicker and more direct.”

When it comes to picking a forwarder, Corman said communication is more important to shippers than ever. “[BCOs] want to know, ‘When is my cargo going to be picked up? When can I expect it to depart from the port? When do I expect it to arrive at its destination port?’ And that's an important thing,” he said. “You can't plan too early, especially as there's a lot of unemployment issues in the US and Western Europe.”

Regardless of whether US importers are arranging freight transportation directly or via third-party providers during the COVID-19 recession, Freightos warns not to expect a recovery in demand — nor capacity — any time soon.

“The removal of capacity through June shows carriers are not expecting global demand for non-urgent cargo to return for some time,” the forwarder wrote in an April 22 market update.

Contact Ari Ashe at ari.ashe@ihsmarkit.com and follow him on Twitter: @arijashe.