Hurdles the freighting industry must overcome
Times are changing very fast. With the advent of new technologies on almost a daily basis, businesses and industries are changing with them. The same is true for the freight forwarding industry. This sector is as worried about the current changes, and the future ones as the other industries. The new macro trends are bringing uncertainty and confusion to the companies that belong to this industry. These changes prominently include President Trump’s global trade promises to the impact of technology.
The volatility of the global economy is another factor that is impacting the freight forwarding industry. All of these external reasons are put aside due to the internal challenges that are wreaking havoc on the companies, whether they are big freight forwarders or small.
1. Cost of Forwarding
The common currency that is used for international trading is the US dollar. Daily, the exchange rates of the US dollar fluctuates. It affects the freight rates as they might change at any time. Not only the prices of the freight forwarding services are impacted, but it also affects the customers as the price of goods increases. Also, when expensive payment methods are used like bank transfers, they involve hefty fees that are added to the total expense.
For crude tanker companies, bunker fuel is a huge cost. For those of you who don’t know, bunker fuel is the type of oil that is distilled from crude oil. It comes in different categories. It’s chemical composition, use, and boiling point define these categories.
If we compare bunker fuel with other types of oil, we find that it is highly polluting, very crude, and highly viscous as well. Most engines cannot handle this type of oil as it needs to be heated before using it. Only large engines can handle this type of oil. Therefore, it is only used in ships as they have the capacity to heat it before using it.
When the oil prices in the international market fluctuate, the direct brunt of the impact is faced by the freight forwarder. The higher fuel cost impacts the transportation cost directly. The additional fuel surcharges also affect. Rising fuel prices are escalating the surcharges, and they are all added to the freight rates. With these extra costs comes the problem of credit and increasing inflationary demands.
All of this takes a huge toll on the freight forwarding industry, the companies and people working in this industry.
Seasons have a significant role to play in the cost of the cargo and its transportation. Depending on the season, some goods become highly expensive to ship. This is because of the demand and supply changes. Other than the rise in the cost of goods, there is also a rise in the cost of freight.
Another way that seasons affect the freight forwarding industry is because of the bad weather. During this time, a lot of the smaller ships remain docked and lose out on a lot of business. The large ships can handle the weather, but since there is a lot of demand for freight forwarding and not as many ships, the prices increases. Bad weather can also cause damage to the ship. As a result, it needs maintenance, which adds to the total cost.
- Fees and Service Charges
Different countries have different expenses that have to be paid both at the embarking point and the destination. This causes some ships to remain at sea as they are unable to pay the service charges or the docking charges. These charges are different from port to port, and as there are no standards, it becomes a big problem.
Containers are designed to be used at maximum capacity. If the container is not filled to its maximum capacity, the shipper has to handle the cost of the remaining part of the container that is empty. This causes the cost of the goods being transported to increase as they carry the additional cost of the goods that aren’t there. So, if the container is not being utilized to its full capacity, this will increase the cost.
2. Economic Challenges
Apart from the financial challenges, the freight forwarding industry also has economic challenges that it faces daily. Some of them are:
- Staff Shortage & Retention
Because of the uncertainty surrounding the whole industry, there is a serious issue of hiring and retention. Due to the seasonal changes, a lot of smaller ships remain docked and only work in seasons when the sea is not so rough. Because of these reasons, people are afraid to get into this industry, resulting in a shortage of staff.
There are continuous regulations that are being imposed on the carriers by the federal, state, and local authorities. These regulations are stringent, and non-compliance can cost the carriers a lot of money. This adds to the whole cost problem.
In addition to the challenges mentioned above, there are also environmental issues to face. Due to pollution and global warming, authorities have created various environmental regulations that a company must comply with. These regulations sometimes increase the cost so much that it exceeds the benefits.
3. Transport Infrastructure Issues
Even if all the above challenges are under control, there is a huge problem with the transport infrastructure. Not all the roads and networks used by the transport service are in optimal condition. Even though most forwarders communicate and share the relevant information regarding the conditions of the roads and sections, there is still the need to keep the roads in optimal shape. This is so that the delivery can be on time, and there are no issues like breaking down of the vehicle or the increase in maintenance cost.
4. Ocean Volatility
A lot of the goods are transported through ocean shipping. It is highly unstable because there are increasing amounts of elements that directly impact the cost. The rates and contracts are always changing, which results in forwarders not being able to understand their cost structure. This makes it hard for them to provide their clients with reliable quotes.
There are also the climactic changes that they have to face. The huge tides and waves make it almost impossible to conduct a freight operation. There are chances of being stuck in the middle of the ocean, or of sinking. Moreover, the threat of piracy is rampant in some areas and triggers considerable losses to businesses.
A lot of shippers view transportation as a commodity. They do not give importance to the service but are just concerned about the prices. This makes it hard for forwarders to differentiate between themselves and other providers.
The Final Word
Also, there is new technology being introduced every day, but the cost of implementing it is something that a lot of freight forwarders cannot cope with. Taking advantage of the new technologies is a pretty engaging idea, but the adoption of the latest technology is often so overwhelming that forwarders don’t even think about it.
For all these reasons and many more, freight forwarders are facing a hard time coping while keeping their businesses afloat.