The coronavirus has been spreading worldwide since March of 2020. Some people lost their jobs and companies that went bankrupt, unfortunately. And conversely, some people and companies made money.
I started working as a forwarder in Thailand in February 2014. I ran my own company in 2016, and I finally began to think about the industry a lot.
Speaking of my immediate surroundings, Covid-19 has polarized the forwarders into those who can get work and those who cannot.
What will the future of the international logistics industry look like? I want to write about my thoughts at this point.
Forwarders cannot get the job because of Covid-19
As I mentioned above, I have had the opportunity to hear about forwarders around me who are losing their jobs or going bankrupt. Why does that happen? It’s the container shortage problem caused by Covid-19.
The container shortage started to affect us around November 2020, and there is still no prospect of solving it.
In addition, there is a concern that the Suez Canal problem will accelerate the container shortage. If the lack of containers becomes prolonged, more and more forwarders will suffer severe damage to their business.
Cannot get the limited space and container
There is a limit to the number of containers available. What kind of company can take this limited number of containers?
To put it bluntly, it is the companies that have high bargaining power with shipping companies. In other words, if a company has no bargaining power at all, it will not be able to allocate containers.
Cannot get the job because of bad cash flow
Another point is cash flow. We, forwarders, pay the ocean freight to the shipping company in advance at the timing when the B/L is issued after Booking the ship.
However, it is much later that we bill the customer. It varies depending on the companies, but we provide our customers with a credit term of one month.
We pay the shipping company in advance and collect the payment from the customer later. So if you don’t have enough cash, you will not have enough funds to make the next Booking.
Affect sky rocket ocean freight
Ocean freight rates are rising due to the container shortage. For example, before the container shortage problem, Shanghai to Los Angeles port was about USD1,500/40′, but now it is over USD4,000/40′.
This is how much cash you need per container, so what if you need to BOOK 10 containers in one shipment? If you don’t have a lot of cash, you won’t be able to take the next job until you can collect the payment from the customer.
Freight Forwarders polarized
Forwarders do not have assets (ships, airplanes, etc.), so it is easy to enter the business.
However, because of the ease of entry, many forwarders have existed in the market. With a small number of people, you can run a business if you have two or three customers with a specific volume of goods.
However, nowadays, if the volume of goods you handle is small, shipping companies will not allocate you containers or space.
Some forwarders will win hands down
Still, on the other hand, companies that can take containers will have an overwhelming advantage. The end of the 2020 fiscal year has come and gone. The news is that each shipping company’s net profit was overwhelmingly positive, and their performance was impressive.
The same is true for forwarders. With less competition, they can sell a limited number of containers to shippers at a higher price to expect higher sales and profits.
In addition, forwarders with strong air transport capabilities are also doing very well. because, some shippers have to shift to air transportation to keep their factories running.
Covid-19 has, of course, affected the international logistics industry. Not in a way that affects the food and beverage and travel industries, but instead separates survival by strength.
The polarization has increased, with stronger companies becoming stronger and some smaller companies even going bankrupt. International logistics will not disappear as long as capitalism continues, but not all companies are safe.