The single biggest challenge to our international freight forwarding business that will impact our business today and in 2019 is the impact of US trade policy on company supply chains. From the continued proposed US tariff interventions with China, possible ratifications of the US-Mexico-Canada Trade Agreement (USMCA) and the ongoing trade negotiations with the EU, Japan, and the UK, companies must make critical decisions about who and where they source from. Companies will need to make decisions about whether to adjust lead times, product quantities, and transportation providers. We are spending time with our clients to help them better understand duty amounts, so they can determine landed costs among the options they are considering.
In addition, our international freight forwarding business is working through challenges related to ocean carrier capacity and continued rate volatility. I don’t think it is a stretch to think we may see further consolidation with the heavy losses seen by ocean carriers in 2018. Ocean carriers also continue to struggle with balancing supply with demand. We now have the 10 largest operators controlling 60 to 70 percent of the global capacity and the three large alliances controlling more than 90 percent of the trans-Pacific capacity. As I write this, the trans-Pacific eastbound spot rates to the West Coast are double what they were a year ago. Are those rates sustainable? Doubtful, once capacity loosens, but the carriers will do all they can to become profitable, which will create even more volatility.
We fully expect to see higher than normal US trucking rates as the driver shortage and capacity challenges continue. We encourage our clients to do all they can to position themselves as a shipper of choice for carriers and always have contingencies in place in the event there are weather or capacity disruptions. We encourage our clients to communicate with us any changes in volumes and forecasts so we can help them better plan to secure needed equipment.