Ocean container overcapacity is a major challenge we see impacting the freight forwarding industry in 2017 and beyond. With vessels becoming too numerous and too large, coupled with the lack of cargo demand, freight rates have been steadily declining. This, in conjunction with a slowdown in global trade, which saw a mere 2.8 percent increase in 2016, is significantly sinking profits for shipping companies.
Though recent mergers and a bankruptcy among the largest container carriers improved freight rates momentarily, the effects are fleeting, and we continue to see a negative wave in the industry standard. Additionally, as analysts project the supply and demand gap widening further, operating margins will suffer. This shift is causing companies to compete through pricing, which, in turn, will lower some shipping company revenue below breakeven levels.
Shippers’ attention should be allocated to a performance-based strategy that highlights digital advancements and lowers operational costs. Leveraging technology innovations to make better, calculated decisions when selecting shipping routes, refining internal practices, and improving communication among shippers and their stakeholders, such as ports and customers, will support the bottom line. Deploying practices that are mindful of operational costs will also remain beneficial.
With experts asserting a resurgence in ocean spot rates, an expected continuation of carrier amalgamation, and a pause on commissioning new ships, we are confident that freight forwarders who embrace technology and focus on optimizing operations will be positioned to take greater control over market share in the coming years.