Specialist
Former VP at Kuehne+Nagel International AG
Agenda
- Freight bottlenecks across the US, Europe and Asia, focusing on sea freight – key drivers by geography and normalisation outlook
- US driver shortage – causes and relative importance to supply chain challenges vs other issues
- Freight forwarder performance amid enhanced profitability from supply-restricted market, including players best-positioned for upcoming contract negotiations
- End-to-end logistics and asset-ownership outlook, including evaluation vs remaining asset-free
Questions
1.
Sea freight bottlenecks are coming through in the parabolic pricing on the Shanghai to Rotterdam and Shanghai to Los Angeles routes. What are the key bottleneck drivers and capacity concerns?
2.
Earlier on in the bottlenecks there was a lot of talk around the containers being in the wrong place, but the major challenge now seems to be ship-level capacity reductions due to delays leaving ports. To what extent are containers still unavailable in APAC, and how do you assess the capacity concern level across ships, containers or a combination of both, even if we can only really observe the ships at the moment?
3.
Bottlenecks seem mainly driven by truck availability in the UK and the US, and chassis availability in the US specifically, with zoning challenges in Los Angeles an additional challenge. In Asia, capacity has largely been taken out by coronavirus challenges with closures in ports. In mainland Europe, the main problem seems to be planning and congested port space, originally driven by the challenge of getting workers back into the ports as economies reopen. These observations are collated from several previous Interviews. What you would change, adapt or add in this summary?
4.
What are the challenges in Europe and to what extent are they caused by issues in the US and Asia vs Europe-specific conditions? What is the level of interdependence across these markets beyond the problems facing individual ports? To what extent are the challenges at Los Angeles driving the global situation?
5.
What impact would fixing the problems in Europe have on Shanghai-Rotterdam pricing and the global market? It seems operational interdependency has increased significantly, which leads to unprecedented pricing interdependency. Moreover, the problems in Europe seemingly aren’t related to trucks, pandemic closures or huge queues outside ports. It seems the congestion inside the ports could be worked through, in contrast to the US, where there are structural problems with chassis, and in Asia, where there are coronavirus closures.
6.
How do you conceptualise the driver shortage, given US owner-operator registrations for truck tractors have increased on the FMCSA [Federal Motor Carrier Safety Administration] over the last five years, as has the number of drivers on the same database? The shortage numbers thrown around were also very high pre-pandemic, when there weren’t particular supply chain challenges, but goods were still being delivered. Why is there a shortage if the number of registrations has been increasing for the last five years, even at 5% per year?
7.
How can there be a shortage of drivers if so many are queueing at Los Angeles? If there were a shortage, I would imagine containers waiting for drivers to turn up, but there seems to be drivers waiting for containers to be ready.
8.
How could the truck driver shortage be offset by utilisation of digital platforms? As you said, there may be areas with too many drivers and others where there aren’t nearly enough. It seems to be less about the total number of drivers and more about their location.
9.
Where are there containers waiting for drivers to turn up, and how long is the typical wait time in those areas?
10.
What does a shortage of 55,000 truck drivers in the US mean? How is this number calculated? As you said, it’s a chain where all the links are relative to each other, so it needs to be that other parts of the chain are ahead of the drivers to make them the limiting factor, and therefore ports need to be waiting for drivers to turn up to indicate a driver shortage.
11.
How is demand impacted by high pricing in the market? Have you noticed any material destruction of demand or any change in mix, particularly around ocean freight shifting to air?
12.
How long could it take for the market to normalise? Estimates range from at least February 2022 up to 12 months. Could demand declining be the only catalyst for normalisation or can problems be solved on the supply side with demand staying the same?
13.
How have freight forwarders enhanced their profitability so much amid the bottlenecks? How have selectivity on high-margin goods and pushing the spread on the buy and sell rates contributed to this?
14.
What’s the typical lag period between the carrier and forwarding markets, given you suggested the next two years will be very profitable for forwarders? Does this assume a minimum time that the bottlenecks will continue for, plus the lag period?
15.
Which freight forwarders are best-positioned to benefit from the upcoming contract negotiation period, and which may fare less well? Who has the best access to ocean freight and how does this impact players’ abilities to obtain favourable buying rates? How does the level of selectivity towards high-margin goods and away from commodity goods from certain freight forwarders also factor in? Those are the two key variables I’d consider – are there others?
16.
How could the carriers wanting long-term contracts impact the freight forwarders? If carriers want such contracts, and they go direct to the customer, it gets passed through and enforceability in a downturn is questionable. What could be the impact of long-term contracts with freight forwarders vs direct with customers?
17.
Which freight forwarders may have the best opportunities for capital allocation in the next 3-5 years? Which are doing a good job at moving into end-to-end logistics and in certain cases becoming asset owners? Which players are doing less well and staying more on the pure-play brokerage side?
18.
Do you expect any players to take the asset-ownership or end-to-end logistics route, given this would mitigate the risk of Maersk insourcing to its own platform? Most other major liners are making similar moves in marine, and this poses a large risk to pure-play brokerages in the segment. How do you assess end-to-end logistics and asset ownership as barriers to losing customers?
19.
Could you comment on the size of the LCL [less-than-container-load] or LTL [less-than-truckload] market relative to full container load? How does the performance compare?
