Annual Review and Outlook

As we look back on 2020, we see many changes in the fabric of society, from how we work and consume goods to how we deal with our own and each other’s health and safety. The COVID-19 pandemic created a unique economy in which consumer demand for personal protective equipment (PPE) went through the roof and an already booming e-commerce sector kicked into yet another gear. This new demand caused an increased requirement for air cargo capacity, which had been cut by 40 percent through the grounding of passenger aircraft as passenger transport demand plummeted. But air cargo carriers rose to the challenge, bringing parked freighter aircraft back into service, deferring planned retirements, and in the most innovative move of all, mobilizing more than 2,500 parked passenger aircraft for cargo-only operations. Of those 2,500-plus planes, nearly 200 had their seats removed to increase their capacity. This enabled airlines to address PPE and e-commerce demand, as well as support critical business activity as national lockdowns were lifted. But as we look ahead to 2021, the question remains: Will the industry be able to overcome the logistical challenges presented by the global distribution of COVID-19 vaccines? Much will depend on whether all those vaccines will require ultra-cold distribution, with maintained temperatures as low as –80° Celsius (–112° Fahrenheit); how quickly production can ramp up; the timeframe for distribution; and how national governments tackle in-country disbursements. Given the scale of the challenge, the key to successful COVID-19 vaccine distribution will be communication and collaboration. National health agencies, humanitarian organizations, pharmaceutical manufacturers, and supply chain partners will need to be open and transparent, so they can collectively plan, prepare, and perform. Air cargo will play a significant part in helping to achieve this international imperative.

As a tumultuous 2020 ends, the Air-forwarders Association is optimistic about a more encouraging upcoming year. Hopefully, we will see the promise of a COVID-19 vaccine positively impacting the global economy, hence world trade. Once the vaccine materializes, many are calling its complex distribution the “mission of the century.” The US military will probably play a significant logistical role, and we can expect to see the integrated carriers and freight forwarders providing support in getting the serum to its millions of recipients. Of course, the efficient handling of the vaccine will be of the utmost importance, due to extreme low-temperature requirements and the need for multiple dosing. Therefore, implementation of appropriate climate-controlled warehousing is essential during dwell times either before or after air transport, along with tracking and security. As the vaccine proliferates, we expect a gradual economic recovery worldwide, including a reawakening of the global passenger airline fleet. As people gain confidence and lockdowns dissipate, expect the leisure and the business travel sectors to rise. The equipment reemergence from months of pandemic-related storage will restore needed aircraft belly capacity that provides 50 percent of air cargo space. Of course, these additional flights should stabilize air cargo demand, thus creating less reliance on freighter charters and perhaps a return to pre-pandemic pricing levels. As manufacturing volumes increase, we also expect a stabilization of ocean freight activity, once the initial surge of post-pandemic imports subsides. In the short term, however, expect congestion at major US ports to continue, and with it a reliance on air cargo as manufacturers strive to meet e-commerce-driven consumer demand and US workers return to normal working conditions. Finally, as a new presidential administration begins in the US, we expect the Trump-era tariffs on China to be altered but remain in effect in the foreseeable future. While we can expect some manufacturing shifts to Southeast Asia, including countries such as Vietnam, Thailand, and Cambodia, this relocation of production will reduce but not eliminate US buyer sourcing from China. Therefore, freight forwarders should be prepared to provide import services from China, Southeast Asia, and, of course, Mexico and Canada, thanks to the new USMCA trade agreement.

For years, a passenger flying around the world could go online, book a seat based on actual availability, and grab a cab to the airport. Meanwhile, booking cargo on the same flight could take days and dozens of emails. Despite moving roughly one-third of global trade, air cargo technology played second fiddle to passenger travel, which represented 90 percent of airline revenue. Air cargo is generally tapped for urgent shipments, offering trans--Pacific transits that are 10 to 12 times faster than ocean. But the procurement and management of air freight is ironically manual. For example, offline capacity and pricing, together with time-sucking back-and-forth communications, caused end-to-end transit times of air cargo shipments for one company we work with to stretch to between 7 and 14 days, despite only two to three days of actual travel. This lack of visibility meant that forwarders and shippers routinely overpaid by 10 percent or more. Meanwhile, the International Air Transport Association (IATA) regularly reports an industry average capacity utilization of under 50 percent, which points to untapped revenue and major sustainability concerns. And then COVID-19 hit. The need for urgent medical supplies and a dramatic increase in e-commerce converged with a massive decline in passenger travel. Demand spiked, while capacity plummeted. As a result, ocean rates remained stable between February and May 2020, but air rates shot up by 400 percent. The sudden supply and demand imbalance created a land grab for capacity and major challenges in moving goods that were suddenly more critical than ever. Most of the industry continued to cling to static, Excel-based schedules and rates that quickly became pure fiction when held up against flights and rates changing on a daily basis. The industry adapted, but another herculean challenge is on the horizon, with billions of COVID-19 vaccine doses destined for every corner of the world. Vaccines require either active or passive cooling door-to-door, with carefully controlled environments and transit times. This means that the end of the pandemic depends entirely on air cargo distribution networks. It won’t only be the pharmaceutical sector that is impacted, though. The global e-commerce shift will push supply chains harder than ever, with iPhone 12s and fast fashion competing with vaccines for space in the belly of fewer flights than ever. It is here that new technologies, more specifically, digital capacity management and pricing tools, are entering as key enablers of reliable and agile global distribution. Air cargo at scale will rely heavily on real-time capacity management and distribution. Freightos research from 2019 found that ocean carriers were far more advanced than airlines in terms of dynamic capacity pricing and application programming interfaces (APIs) that communicate rates and availability directly to customer platforms. Today, accelerated by COVID-19, more air cargo carriers are adapting automated revenue and capacity management, with dynamic pricing and APIs for distribution. At the start of 2020, roughly 8 percent of airline capacity was accessible via digital third-party platforms, but by the end of the year, over 20 percent of air cargo capacity was set to be available online. This is a rapid advancement for any entrenched industry and will translate into improved revenue management as well as more efficient operations, as accommodating demand surges is something computers have been doing above the deck for decades. For forwarders and shippers, the digitalization of procurement improves the purchasing experience, particularly during volatile periods. The use of dynamic pricing can also translate to improved utilization and, in turn, more available capacity and lower pricing across the board. Setting aside the specific technology involved, COVID-19 has also prompted a cultural shift in attitudes toward logistics technology in general. In a September webinar, Robert Kunen, the VP Distribution and Customer Service at Air France-KLM, described how a few months into the pandemic, they could divert customers to online booking with the one-two punch of expediency — no customer support representatives were available — and improved experience. On the customer side, demand for digital services is soaring; e-bookings on the Freightos platform WebCargo, for example, have increased by roughly 600 percent this year compared with 2019. The prospect of a COVID-19 vaccine makes the need for such technology that much more pressing. Vaccines will not get children back to school or workers back to the office without sufficient distribution. Digital capacity management tools can ensure that every cubic meter of space is utilized, at a fair market price, even when flights are added or canceled on short notice. For every air cargo shipment booked digitally, vaccines will arrive hours — sometimes days — sooner. And airlines, many of which are struggling financially after losing key revenue streams, can leverage these efficiencies to regrow their businesses. The logistics industry’s success in keeping global trade moving in the early days of the pandemic was inspiring. But the opportunity to emerge from the crisis stronger, armed with the digital tools that will empower more dynamic shipping, whether a potentially life-saving vaccine or a new cell phone, may be one of the longest-lasting and most impactful byproducts of a challenging 2020.

A defining year for the retail industry, 2020 has been replete with significant challenges and tremendous resilience. When the history books are written about this year, retail’s story will be one of rising to the occasion and helping to keep America going. Back in February, when retail supply chain executives gathered at RILA’s annual LINK Retail Supply Chain Conference, the developing threat of COVID-19 was just becoming apparent as more than a China-specific issue. From that point, the dominoes fell rapidly as COVID-19 quickly became a global health crisis. Throughout the pandemic, retail workers have been on the front lines, from the store associates continually restocking shelves to the distribution center workers packing and shipping items ordered by parents desperate to keep quarantined kids busy. The retail industry found ways to operate while prioritizing the health and safety of their teams, customers, and communities. As retailers adjusted to new demands, some common themes have emerged: adaptability, collaboration, and a laser focus on the customer. While supply disruptions, mandated store closures, and sudden, dramatic changes in buying patterns created extraordinary challenges, retailers responded by quickly pivoting their operations to meet the needs of the COVID‑19‑era consumer. Omnichannel strategies that had been plotted for three to five years out were suddenly accelerated and implemented in a matter of weeks. Almost overnight, retailers deployed contactless options like app-based shopping, same-day last-mile partnerships, and curbside or in-store pickup that were immediately — and widely — adopted by customers. Flexibility and responsiveness have always been hallmarks of top-performing retail supply chains, but 2020 put those supply chains to the test and challenged retailers to adapt faster than ever before. And retailers with the best pulse on their customers were the ones most able to respond in tune with the dynamic needs of shoppers during the pandemic. Stores saw trip frequency decrease while basket size increased, and savvy retailers adjusted product assortment to increase convenience for their customers. Retailers anticipated customers’ desire for frictionless, contactless shopping, and customers have shown their appreciation of these -developments with increased loyalty. Research by McKinsey & Co. found that 75 percent of shoppers have tried a new shopping method during COVID-19, and 73 percent of those intend to continue to use that method in a post-pandemic world. While many retailers have experienced demand spikes of anywhere from 20 percent year over year to more than 400 percent, retail supply chains remain plagued by a rogue’s gallery of obstacles. Production disruptions, blanked ocean sailings, port congestion, an uncommonly tight trucking market, and a strained parcel shipping landscape have given supply chain practitioners more than enough puzzles to solve to ensure that goods continue to flow efficiently into the hands of consumers. Succeeding in this environment demands an even closer level of collaboration and interdependence with partners in the retail supply chain ecosystem, including greater data sharing and collaborative planning. What will 2021 bring? The disruption is far from over, and uncertainty remains the norm. That uncertainty is perhaps the biggest challenge for retailers and their supply chains — it’s made traditional static forecasts a thing of the past, and retailers have instead been looking to scenario planning, AI, and new data models to be able to quickly recognize and react to consumer and economic trends. Indications are that e-commerce volumes will remain at elevated levels for the foreseeable future, and retailers are continually reevaluating their networks to be well positioned for that future. The shocks of 2020 underscored the need for greater cargo visibility, which may fuel increased investment in solutions that connect the end-to-end supply chain. With e-commerce growing and store traffic at a plateau in many cases, significantly more retailers are leveraging stores for forward-positioned fulfillment in the network. That move has workforce implications as well. Despite record unemployment in the US, many industries are finding it harder than ever to recruit and retain frontline labor, and retail is no exception. And there are still plenty of unknowns, from whether population movement and changes to how and where people work will drive long-term shifts away from urban centers to whether constraints and added costs in last-mile and parcel shipping will cause a significant shift toward new or regional players. On the sea and on land, one thing that is known is that retailers will continue to deal with tight capacity and cost pressures throughout their networks. While COVID-19 has changed many things about the way we live, work, and shop, the fundamental imperatives of retail remain the same: meeting customers’ needs where, when, and how they desire. Don’t expect this to change, even if everything else does.

An international supply chain is a tricky thing. 2019 taught us geopolitics can be a hugely disruptive force to a smoothly operated supply chain. 2020 has taught us global health emergencies and the economic consequences of those emergencies can be even more disruptive. Firms make choices when they decide to source globally. Resiliency to production shutdowns, transportation meltdowns, and demand fluctuation is often assumed but not planned for. Consumers cannot buy if firms cannot produce and transport to market. A shift in thinking is occurring from just-in-time precision to not just safety stock necessity, but sales growth opportunity. COVID-19 is changing the way the cost of carrying inventory is conceptualized in the C-suite. While not inexpensive, inventory became king in 2020, and the anticipation should be the same for 2021. Further degradation of ocean network reliability, along with variable, quickly changing demand patterns, will force a costly choice to be made. These costly choices around inventory are made more impactful due to the unfortunate inability of some of the global transportation infrastructure to adapt to the needs of globalization. Most visible to importers in the United States is the continued, severe congestion that plagues our port/terminal complexes. There are several stakeholders in an international supply chain, and each has responsibility to the others. The continued resistance to automation within our port/terminal complexes, a systemic lack of investment in critical infrastructure required to handle volume surges, and a reluctance to share critical data needed to play more nicely together will hinder and slow down our ability to recover and grow the economy. I’m hopeful 2021 will usher in a more cooperative tone within a wide-ranging set of industry and governmental stakeholders. Without more timely action to address our infrastructure needs, our economy will suffer the burden of our collective inaction.

When we ushered in the “Year of the Rat” in January 2020, the unwelcomed COVID-19 gatecrashed the party, and it has since overstayed its welcome, creating anxiety and business interruptions, forcing us to adapt without a fixed end in sight. We became agile and nimble, battened down our hatches, and weathered the near-term storm. For the longer term, we right-sized the inventory and adapted with new ways of working. We had to do better with less. The 2019 performance was of little assistance in forecasting 2020, as the business landscape had changed. It appears as though a reset button was pressed and we had to build a new set of data for comparisons. In short, business is no longer “as usual.” The ways in which we do business in 2021 and beyond will have to be different from the past. The logistics contracting model(s) will have to change. E-commerce will have to be incorporated into the contracts. The interaction between shippers and carriers cannot be transactional as it has been in the past. I envision shippers and carriers will have to pick their partners who will be the enablers of each other’s goals. It will have to be like a marriage, where partners have visibility of the near future and will have to adapt as they grow together. The rebuilding of trust between shippers and carriers is urgent, as it has eroded in 2020. I foresee that shippers will not be able to give annual forecasts but at best provide updated rolling forecasts to -carriers. I foresee carriers may not be able to commit to 52 weeks of weekly sailings from every port or on every string but will conscientiously accommodate their partners’ cargo. The unrelenting collaboration between shippers and carriers is an essential catalyst for our economic growth.

As we exit 2020 and look forward to 2021, maintaining consistent, affordable capacity across the supply chain will be my team’s number one focus at SanMar. Never in my 20-plus years of global logistics leadership have I seen so many facets of the transportation marketplace facing capacity constraints. From the trans-Pacific ocean trade to last-mile parcel delivery, all segments are dealing with capacity challenges. As the nation’s largest supplier of wholesale apparel that is destined to carry a logo or imprint, SanMar and our customers have been impacted by logistics capacity constraints in nearly every segment of our business. As we head into 2021, I believe it is more important than ever to double down on strategic relationships, ensuring our business is meaningful to all our core carriers. It is a time when we need to be transparent about our business needs and back up commitments with long-term contractual relationships. While the pandemic has made travel difficult if not impossible, it will be key that we maintain relationships with all key logistics partners. In 2020, we burned through a lot of relationship capital. In 2021, communication will be key for international suppliers and customers — their participation in a synchronized supply chain will be critical to the overall business success. Country singer Kenny Rogers in his song “The Gambler” said, “You’ve got to know when to hold ’em, know when to fold ’em, know when to walk away, and know when to run.” 2021 is a time when you need to shore up relationships at every level of the organization, ensuring, if carriers are choosing which freight gets moved, yours gets highest consideration.

Many industries are cyclical, but none are so cyclical as container shipping. For decades, the container shipping Ferris wheel that is supply and demand has kept rotating. When demand spikes in certain trades, carriers rush to introduce capacity to soak up the profits. As supply starts to outweigh demand, the rates drop, as do the profits, and ships are redeployed or parked. All the while, carriers are trying to prove how they are not like the other guys by showing how big — or small —they are, or how their schedule reliability stands out this month, or how many turns they do an hour. Unfortunately, these statistics constantly change, like a Ferris wheel inside a Ferris wheel. In addition to these elusive statistics, some carriers are now focusing on the upsell, things like door deliveries, brokerage, SKU visibility, or even consolidation programs to keep the profits coming. The problem for shippers is the Ferris wheel of supply/demand keeps moving. From one month to the next, shippers can’t tell what the carriers are selling in a particular week. One day you might get a sales call talking about this great opportunity for sweeper vessels, and next week you’re told that an entire service is being canceled next month. As for the upselling of extra services, some carriers like to talk about things such as PO management, track/trace, origin consolidation, broker activities, and similar supply chain solutions. Unfortunately, most carrier sales personnel are not experienced in the full supply chain cycle — i.e., demand planning, inventory, obsolescence, etc. They’re selling solutions, but they want to turn it over to another silo in their operation once they get a bite. For these upselling programs to make sense, the upsell has to be attached to the main component. Carriers today want to sell you inland delivery but not necessarily the ocean service. You can buy the leather seats, but without the car they won’t do you much good. Ocean carriers need to get back to what makes them stand out among the crowd and do it consistently. Is it reliability, space, lead time, predictability, customer service, price, or a combination of these? Until carriers can figure this out, they should stay away from the upsell.

Even before the pandemic, the retail industry was in a state of constant innovation. COVID-19 has dramatically accelerated the pace of change, as retailers have implemented new policies and procedures to ensure the health and safety of their employees and their customers. We have seen innovations occur in weeks and months that would have normally taken years to implement. Retailers have been on the front lines since the start of the pandemic. With the guidance of CDC and other health experts, retailers have gone above and beyond to protect the health and safety of their employees and customers. Retailers are constantly evaluating and refining their safety procedures and protocols and have proven they can operate safely and continue to grow the economy. We are calling on state and local governments to focus on how retailers are safely selling items and not focus on what they are selling when making COVID-related decisions that impact store operations. The unprecedented shift to e-commerce has had a profound effect on retailers. Many had to move quickly to meet the explosive demand for e-commerce offerings. This included a significant ramp up in “buy online, pick up in store” as well as curbside pickup capabilities. This dramatic increase has strained parcel delivery and last-mile operators, and these challenges will continue through the busy holiday season. This past fall, NRF ran a campaign — “New Holiday Traditions” — to encourage consumers to shop early during the holiday season to avoid any delivery delays. Many of the changes that retailers have instituted during the pandemic will continue even after a vaccine is developed. The supply chain, from end to end, has become an even more critical factor for retailers as they seek to deliver value and safe experiences to consumers regardless of how they choose to shop.

Who could have imagined what 2020 would bring upon the world? A global pandemic that is still raging, major tropical storms and hurricanes — so many they ran out of names — battering our coastal areas, political and racial unrest, and everyone running out of toilet paper. This year, supply chain became front-page news as the race for PPEs and essential supplies ran thin and manufacturers and supply chain professionals attempted to meet the demand. To call this a disruption to supply chains is doing it a disservice…. It was a calamity of immense proportions. Supply chain professionals, normally behind-the-scenes people, were now front and center as the nation struggled to keep the pandemic at bay. Nightly news programs covered distribution channels, spotlighting truckers as front-line essential workers, engendering a renewed respect for these dedicated folks. I have watched our members adjust to this new world and respond with innovative practices and improved processes. As difficult as communication has become, supply chain professionals found a way to work together. Both providers and their customers focused on how they could come together and make improvements to benefit everyone. One of the lessons that I believe has been identified is the importance of solid, respectful working relationships. Technology, while very important, cannot replace the level of trust and reliance that comes from a good working relationship. Learning how to establish, maintain, and improve those relationships becomes our challenge as we move together into the new year. As 2020 showed us, no one knows what’s coming down the road, but my belief is that, no matter what happens, our supply chain professionals are up for the challenge.

2018 was dubbed an “unprecedented year” for the transportation industry. We were so young and naïve then! Now we know 2018 was a practice run for 2020. Most companies have contingency plans for cyberattacks and natural disasters — very few had a plan for a pandemic. Although the reasons differed, the result was the same: Demand for trucking capacity exceeded supply. Working for the world’s largest home improvement retailer comes with great responsibility, especially when the business is identified as “essential.” With customers forced to spend time at home, sales increased significantly, and our shipment volume increased even more. Our e-commerce business experienced Cyber Monday volume for numerous consecutive weeks, without the normal year-long planning process established for large-volume events. Remaining open while many sheltered-in-place required extensive investment, as our associates’ and customers’ health remain the company’s priority. How did we manage it all? We pivoted by adjusting our supply chain and store operations to respond to customers’ needs. We partnered with our carriers to significantly increase capacity, which was already constrained; and we created new relationships where necessary. Providing convenience in a very inconvenient time, we launched car and van service capabilities from all 2,000+ stores in less than a month. We introduced curbside service, which had been just a twinkle in someone’s eye to be carried out years later. And in just three weeks, it was offered at all stores, and our customers loved it. With the increase in demand, we needed to get product to the stores faster, so we implemented alternative flow paths of key products. 2020 will certainly go down as yet another “unprecedented year,” but particularly a year that demonstrated our ability to be flexible and agile. For us, it’ll be the year that showed us we can pivot on a dime.

Having spent most of 2020 juggling wildly fluctuating inventory demand and equally erratic freight service quality, global shippers enter the 2021 contract renewal season with ocean carriers seemingly expecting the past twelve months’ rates and performance to set a reliable precedent. So here are three tips for cargo owners contemplating their upcoming conversations with container shipping lines: First, carriers enter the year not quite believing their luck. Spot rates have sustained historic highs in 2020 through coordinated management of capacity and unheard-of pricing discipline among consortia members. Sales teams will be under pressure to bake their new spot rates into your new contracts before it all breaks down. Given the lock-grip alliances have on capacity, you may find rate negotiations heavy going. So push for unbreakable service commitments with painful penalties for performance failures. How about a “Blank Sailing Rebate” every time your box gets left on the quay? Second, container lines enjoy extraordinary privileges under competition law, and as a consumer of their services it’s your rights and protections that have been jettisoned in favor of an easier life for shipping execs. But while the economic morals of this policy are debated in Washington and Brussels (and maybe this year in Beijing?), treat yourself to an awkward moment by asking, “Show me how I benefit from your antitrust immunity?” And wait for an answer. Finally, challenge surcharges — the scourge of every shipper’s budget, able to spoil a seemingly great base rate in just a few additional invoice lines. Question the cause, the amount, and the remedy. What are they for? How do you calculate them? What are you doing to prevent them? Could 2021 be the year lines learn to quote all-inclusive prices and become less about the consortia and more about the customer?

No industry, geography, or channel has been spared from supply chain disruption as the COVID-19 pandemic has spread. While the world continues to battle the virus, we continue to figure out how to outmaneuver uncertainty into 2021. There are a number of lessons to be learnt and addressed, broadly outlined below. Talent. If we do not have the “right” talent driving our supply chain, we are already losing. “Right” here does not mean somebody who is an expert in supply chain, but rather a team of people operating with resilience and flexibility. We continue to search for talent in the market. Systems, technology, and data. This pandemic has proved that working with system, technology, or data constraints adds non-value-added work and increases the complexity of the uncertainty exponentially. Visibility and analytics technologies are key to answering critical questions. Strategic partnerships. It is imperative to ensure that all partners are orchestrating in unison and executing on our strategy to push forward during these uncertain times. We will continue to create win-win scenarios with our partners (factories and logistics partners) based on service/price balance. Communication. Clear, consistent, concise, and cohesive communication (the 4C strategy) is critical internally and externally within our supply chain. Eliminating ambiguity becomes critical when dealing with partners who need clear direction. Agility and responsiveness with resilience. We need an agile, resilient, and flexible culture in our supply chain these days. Being agile involves responding profitably to variable consumer demand, planning with the assumption that plans must be continuously altered and focusing on execution daily with available information. Course correction is inevitable. A prolonged black swan event like this only highlights issues within our supply chains. When this pandemic is over, we need to make sure we focus on those gaps, fix those issues, and build a supply chain (with people, process, technologies, partners) that is agile and resilient to the next disruption.

Our top challenge is to promote a culture of best practices, committed to enhancing our supply chain to avoid the issues prevalent in 2020. We will target a timeline to review that extends from the creation of our PO to our customer’s delivery, and then study every step in between. This will be not only a provider analysis, but also an honest assessment of our own internal practices. It is feasible that these internal practices are contributing to problems we often attribute to our external partners. It is essential to reevaluate and repair our fragile ocean carrier, origin, and trucker relationships. We need to immediately adjust our ocean carrier base and embrace only ethical carriers who recognize the importance of honoring contractual obligations. We need to agree on enforceable contractual KPIs, so arbitrary blank sailings, rolls, delayed booking approvals, and late S/Os have mutually agreed-upon consequences, understood and approved by both parties. These guidelines will nullify the unapologetic, myriad (and disturbingly creative) ocean-related surcharges billed in 2020, despite not being revealed during contractual negotiations. We will also engage with our key ports and interior point intermodal (IPI) locations, closely monitoring operational performance, turn times, labor issues, and rules related to free time and surcharges. These impact not only us, but also our truckers, another fragile component of our supply chain. Unacceptable port turn times, waiting lines, terminal congestion, chassis issues, and administrative delays cost money — a cost that is ultimately passed to the BCO. More importantly, the delays result in critical out of stock merchandise, lost sales, and permanently disappointed customers. Internally, we need to possess the discipline to accurately project our TEU volume by port pairs. We will eliminate sloppiness in the booking process, providing proper lead time, eliminating rejections. We will strive to be a “vendor of choice,” displaying operational excellence, consistently turning equipment quickly, and providing responsive communication and flexible yard accessibility to our truckers.

Writing this in the early days of November, it feels insufferable to prognosticate on what COVID-19 has taught us, and by corollary what supply chain lessons we should carry forward into 2021. Some describe 2020 as a “black swan,” an aberration that cannot be planned for. Others, meanwhile, say that the increasing complexity of global networks creates supply chain uncertainty which must be accounted for in long-range contingency planning. In his book on the subject, The Black Swan: The Impact of the Highly Improbable, Nassim Nicholas Taleb defines black swans as surprise events that have a major effect on a market and are not prospectively predictable — only hindsight. To call 2020 a black swan may serve to absolve all parties from being prepared for its impacts, but is the industry well served in doing so? While the exact timing of the COVID-19 pandemic was not predictable, epidemiologists report that a global pandemic like COVID-19 was indeed statistically predictable. And although no one had forecast the dearth of vessel space and rapid rise of ocean freight rates that resulted from the pandemic, the underlying mechanics that have facilitated this outcome — e.g., the market power of alliances, capacity management, carrier consolidation, the reduction in containership orders, and the idling of ships for scrubber installations — were all well understood prior to 2020. Also understood was the removal of slack in the global transportation ecosystem costs by asset providers, including shipping lines, ports, terminals, and land transport providers, driven by the constant pressure to reduce operating costs to achieve profitability. In other words, while few predicted 2020 would evolve as it has, the information needed to understand what the likely outcomes would be if a market shock like COVID-19 occurred was available. The inability to plan for these outcomes derives from an asymmetry of information in the shipping industry, transactions in which one of the two parties involved has more information than the other and, thus, has the ability to make more informed decisions. This asymmetry can cause market failure, wherein the laws of supply and demand that regulate the pricing of services are skewed. It can be argued that the mismatch of capacity supply from carriers and the demand required by shippers have created this phenomenon in the shipping industry today. Due to the interconnected nature of global supply chains and a reduction in system slack, future unexpected events will produce similar market shocks. Inadequate risk management can have a severe impact on company performance. Understanding demand, supply, and manufacturing process uncertainty can reduce risk at its source and minimize its impact on performance. Shippers must plan for the eventuality of additional market disruption and build in system resilience and contingency plans for their supply chains immediately. Critical planning components include understanding customer demand, partner selection, and communication. Consumer buying patterns have changed in 2020, driven by rapid increases in e-commerce and a replacement of services spending with goods consumption. These new demand patterns need to be incorporated into volume projections and communicated to supply chain partners, as carriers rely on shippers’ demand forecasts to plan for adequate capacity. Understanding lead times and the network effects of individual node failures allows shippers a first-mover advantage to modify their supply chains and lessen the impacts of a disruption. Shippers should empirically understand and differentiate those suppliers that acted as partners — i.e., honoring commitments and proposing solutions — during the COVID-19 crisis, as opposed to those that acted as vendors, and reward the former. Partnerships are not built on spreadsheets alone; it is imperative to recognize and nurture key partner relationships that will endure through a crisis. Collaboration and effective information-sharing breaks down barriers between supply chain stages and partners, fostering an integrated and seamless supply chain. Removing information asymmetry requires hypervigilance and an ethos of continuous learning and information sharing. There will always be another 2020 lurking around the corner, but for those who plan accordingly, its impacts can be mitigated. While the COVID-19 pandemic may not have been a true black swan event, its impacts should be incorporated into our future supply chain planning. Taleb reminds us that while Thanksgiving might be a black swan surprise for a turkey, it’s not a black swan surprise for its butcher. In 2021, shippers should look to arm themselves with enough information to be the butcher, not the turkey.

Each spring, after signing new service contracts with my ocean carriers, I take a deep breath, give my eyes a rest from the spreadsheets, and tell our COO that I have completed my most important task of the year. I understand that ensuring our procurement and sales folks have reliable access to predictably priced ocean transportation is essential to the ongoing success of our small business. In 2020, we all learned that having a service contract, while still somewhat helpful, was no guarantee that an ocean carrier would accept our booking requests, provide shipping space, or make equipment available to move our cargo. Without the ability to move goods — raw materials or finished product — business stops. Clearly, we cannot compel an ocean carrier to serve our particular shipping needs at any given moment if their business objectives drive them in a different direction. We have seen carriers decline to participate in whole sectors of industry. Take the October announcement by one large carrier that they would suspend servicing the US Agricultural export community, for example. We understand that a carrier would not want to tie up ocean containers for the necessary additional weeks when they could more swiftly ship them empty to Asia, where they could be loaded with consumer goods heading back to the US at freight rates that are exponentially higher than any soybean shipper would have been able to pay for their shipment departing our country. If ocean carriers continue to shy away from service commitments — in service contracts or otherwise — in favor of having the flexibility to react to market conditions, logistics managers at smaller volume or “operationally unattractive” BCOs should consider aligning with freight forwarders (NVOCCs) or shippers’ associations that might be more successful at securing those commitments. The next step will be explaining to the corner office that the days of being able to budget for ocean transportation are gone, since rates have shown an ability to rise, despite contract agreements and unchallenged by competitive factors, in an environment where roughly 80 percent of the market is served by three alliances.

The American Association of Exporters and Importers (AAEI) surveyed its members early in the COVID‑19 pandemic over a period of three weeks and found several salient features: All companies were affected, many were impacted by the import and export restrictions imposed by source countries delaying resupply, and some tried to build up inventory to avoid losing customers. While US companies were likely already reassessing sourcing from a single country, COVID-19 reinforced the need for companies to diversify product sourcing, including domestic production. As a result of the pandemic, one of the big stories of 2020 was the acceleration in the growth of e-commerce shipments. The -e-commerce supply chain proved its mettle in delivering groceries and toilet paper to the United States for over 10 months. Many companies that traditionally shipped by express air courier are taking advantage of the capacity and speed associated with e-commerce, limiting cost increases by switching shipments to ocean and truck cargo due to reduced air capacity and increased air express courier rates. With increased use, regardless of companies’ desires to change to direct-sales models, shippers must continue to watch trade treatment associated with e-commerce. In July 2020, e-commerce shipments cleared by US Customs and Border Protection (CBP) as “type 86” entries under 19 CFR section 321 — i.e., low value shipments under $800 — eclipsed consumption entries for goods over $2,500 requiring a formal entry. The big question for 2021 is whether the US will have two trade regimes, one for e-commerce de minimis shipments under $800 and another for formal entry shipments. This is a moment of clarity for the US. It remains to be seen whether the international trade community will lead the way in modernizing trade facilitation, moving away from transaction-based reporting, compliance, and risk management for the post-COVID-19 global supply chain and embracing new technologies and governance to integrate millions of small global traders into a system that is easier to understand and more closely resembles direct tax regimes.

As I prepare my commentary for the JOC Annual Review and Outlook, I always look back at the message from the previous year. Last year, my opening line pointed to the roller coaster ride of international trade. Little did we know that the roller coaster was going to have so many steep drops in 2020. Speaking at the CONECT Northeast Cargo Symposium in November — virtually, of course — I reflected on a few simple facts of 2020, all of which point to how difficult it is to predict the future. First, there’s IMO 2020. That the low-sulfur fuel rules were a total non-issue after all the hand-wringing of 2019 reflects a global inability to accurately predict fuel costs. Who would ever have predicted that oil prices would drop so far that futures contracts would actually — albeit briefly — fall into negative territory? Second, there are the continued trade wars that have resulted in US import tariffs covering products from both China and the EU. In the wine and spirits industry, the threat of further increases to the retaliatory tariffs on EU beverage alcohol due to the WTO Airbus decision were scheduled for review in February 2020. The potential for increases in the duty or additional products to be added brought an onslaught of cargo in December and January, filling every available warehouse to the brim. The onslaught was further exacerbated by the threat of 100 percent tariffs on French champagne due to the EU’s proposed digital service tax (DST) on US multinational corporations. In the end, neither the EU tariffs nor the DST retaliation came to pass, but the threat was enough to create a chaotic early 2020. Third, and of course the issue we must treat with the greatest gravitas, there’s the global COVID-19 pandemic. In the first few months of 2020, we were naive; it was a global failure in predicting the spread of the coronavirus beyond China to the rest of the world. When WSSA met with carriers in Oceania, Europe, and South America in January, February, and early March, we did not see COVID-19 playing a major factor in our trades, other than potential equipment shortages. Every industry has experienced the COVID-19 crisis differently, and the companies that have been able to successfully pivot and adapt to the “new normal” of pandemic operations are the ones that have been able not only to survive but to thrive. More importantly, our hearts go out to all of those adversely affected by the pandemic, and we are so grateful to all who have been on the front lines. The beverage alcohol business was deemed essential in virtually every country, and the global supply chain operated with just a few interruptions, but in a changed environment. On--premise businesses — i.e., restaurants and bars — continue to be shut down or operate at limited capacity. A significant percentage of these businesses closed and may never reopen. Distilleries flipped their operations to produce hand sanitizer, and new legislation and shipping rules were implemented to allow for the manufacture and distribution of this much-needed product. Grocery store sales of alcohol boomed, and the ready-to-drink (RTD) cocktail market exploded. COVID-19 once again brought home to us that shippers can never be complacent and must build resiliency into their businesses and supply chains. For WSSA, this meant increasing communication with our members, detailing the effects of the pandemic on wine and spirits exporting and importing countries and outlining options for risk management and cargo insurance, as well as with our carriers, from whom we demanded dynamic partnerships. Quarterly conference calls with key carriers quickly turned into monthly calls consulting on equipment availability, blank sailings, rates, and ways to accommodate capacity needs in a difficult time. Some carriers were superstars during this time, and others, particularly those that found it difficult to pivot to working remotely, were not. More challenges will continue to bombard the transportation industry in 2021. As we live through what we hope are the final months of the pandemic, we cannot predict what will happen with the distribution and efficacy of the vaccine(s), nor the impact this will have on the global economy and patterns of trade. WSSA, for example, will not be holding traditional face-to-face carrier negotiation meetings in the first quarter and will continue to conduct virtual meetings until it is safe to return to in-person meetings. Beverage alcohol ships primarily on more stable and balanced lanes like the trans-Atlantic and therefore is not subject to the extreme swings in demand and rates seen in the trans-Pacific this year. Still, WSSA expects vessel space to be tight as carriers continue to use blank sailings to manage capacity. We also expect continued issues with port congestion and trucking capacity. On the trade and legislative front, wine and spirit shippers are once again waiting to see if the Craft Beverage Modernization Act will be renewed prior to the end of 2021. This legislation, part of the Tax Cuts and Jobs Act passed at the end of 2017, contained a two-year provision reducing excise tax for specific volumes of beverage alcohol for both domestic producers and importers. This reduction has proven to be a growth driver for small and large businesses alike, and a failure to renew the act will have a detrimental impact on the industry, especially given the struggles smaller companies are facing due to the vast reduction in restaurant and bar operations. The industry is also waiting to see the next steps on the WTO Airbus and Boeing negotiations, which could result in additional US tariffs on beverage alcohol imports from Europe. In addition, the UK is on the brink of a no-deal BREXIT, which could clog the flow of cargo between the UK and the European continent. The DST issue will be raised again, and we will watch how the new administration deals with all of the global trade issues on the table. In the US, many rules were changed during COVID-19 in terms of alcohol shipping, as well as “take-out” alcohol. Delivery of beverage alcohol remains a challenge in the e-commerce world, but more and more technology platforms are coming into play, bringing a wider variety of brands and origins to market while managing the complex regulations surrounding alcohol distribution. Shippers and transportation providers across sectors ramped up their use of technology during the pandemic, but we still have yet to see a significant leap in the development and practical application of new technologies in logistics. We still do not have a universal standard for using blockchain, or even for tracking containers. The Digital Container Shipping Association (DCSA), a consortium of nine major ocean carriers, is working toward the elusive electronic bill of lading, and the need for universal acceptance of such tools has never been more obvious than during the COVID-19 crisis. Carriers are also introducing more “smart” container technology, but primarily on their own individual platforms. These advances will help our industry, but they would be that much more impactful if they could be implemented across the board.

The reality of hundreds of thousands of marine chassis scattered throughout the major ports and inland intermodal hubs — with different operating rules, different operational models, and competing interests in each location — contributes to the significant complexity in the North American intermodal container paradigm.

The big story in 2020 is the continuing evolution of technology to eliminate waste and improve productivity in corporate supply chains. Shippers and carriers should continue to make significant investments in their technology infrastructure to address the way companies like Amazon and Uber are changing customer expectations.

Maritime transportation companies must equate the cybersecurity threat in 2020 with the physical security threats they faced in the post 9/11 world and take the same layered approach to maritime security that was the hallmark of the Maritime Transportation Security Act of 2002.

The Northwest Seaport Alliance is preparing for another period of transformational change by making major infrastructure investments to redevelop marine terminal facilities at both harbors.

It is hard to predict that liner shipping will have a better year in 2020, but the key to remaining afloat lies in how fast and decisive carriers are able to be in adapting to the uncertainty.

Despite a decline in the global merchant vessel fleet growth rate and the development of new vessel automation technologies, the IMO World Maritime University predicts that that overall demand for mariners will increase over the next 20 years, making the challenges of recruiting and retaining motivated and qualified vessel personnel ever more relevant.

The refrigerated cargo sector, arguably the most profitable for the shipping lines, remains resilient and is poised to grow at a faster pace than the dry cargo sector — 6 to 9 percent — in 2020, driven by population growth, stronger demand for protein in markets like China, and mode conversion from air to sea.

Our industry needs to leverage innovation and technology. Digital supply chains need to make the shift from concept to reality, and terminals need to adapt to these dynamics and help drive them.

In the low-margin business of transportation and logistics, logistics managers must contain costs by finding the path of least resistance. In 2020, that’s efficient cargo movement that wrings delays out of the system.

One of the fastest-growing ports in the nation in container cargo, Houston has seen a 50 percent increase in business in four short years. To remain efficient, reliable, and competitive, the port needs to invest in staying ahead of the demand curve with infrastructure, including cranes, equipment, pavement, and technology.

In 2020 evolving cargo sourcing centers and geopolitics will inform the global trade landscape, but the fact remains that global trade has been and will continue to be resilient.

Modernizing terminals — and in some cases introducing automation — will be the driving force in helping West Coast ports win back business. And beyond the competitive advantage, modern and efficient terminals have the added benefit of cleaning the environment and creating healthier communities.

With longshore labor peace secured, the New York Shipping Association will focus in 2020 on continued implementation of the provisions of the NYSA–International Longshoremen’s Association agreement in the Port of New York and New Jersey, as well as the ILA East Coast Master Agreement’s limits on automation implementation.

Investments in navigation and land-side infrastructure have generated peak problems among a wide range of ship sizes requiring different levels of terminal capacity that can be solved by implementation of smart port and “chain port” concepts.

The Georgia Ports Authority’s central challenge of 2020 is staying ahead of exponential growth in demand for intermodal rail service, prompting significant rail expansion at Savannah’s Garden City Terminal.

New technology such as monitoring devices on chassis and remote management of refrigerated containers is helping logistics providers adapt to changing needs. The next step is to use data science and predictive analytics to anticipate the pace and volume of cargo movements and equipment utilization.

AMA Capital Partners predicts that 2020 will be a year of eventual repair and a slow climb back to normalcy. In the meantime, liner profitability in 2020 is expected to be severely challenged at least for the first half of the year.

In a volatile and challenging business environment, carriers will need to take a more all-encompassing view of the supply chain and enhance their value-added services in order to gain a competitive edge.

The marine transportation system will require a digital and tech-savvy maritime workforce as it becomes more integrated, automated, and increasingly dependent on data and digitization, and maritime education and training must evolve to meet that need.

Forecasting that East and Gulf Coast ports will soon handle 50 percent of the US–Asia trade, the South Carolina Ports Authority will push forward in 2020 with ambitious expansions in capacity financed by a $1.6 billion capital plan.

Executive search within the maritime industry was healthy in 2019, with forward-thinking organizations recognizing the need to develop future leaders via strong succession planning. In a candidate-driven market, with US unemployment at a 50-year low, 2020 is likely to bring opportunities for key executives at some top US ports due to retirements and other factors.

As ship technology becomes increasingly sophisticated, carriers must focus on recruiting, training, and retaining mariners. Key to that effort is using technological advances to enhance mariners’ job satisfaction.