The supply chain and logistics industry has undergone numerous transformations with the aim of adapting and thriving, given the obstacles that have presented themselves in recent years. Following the epidemic, the logistics sector has faced labour shortages and disputes, geopolitical uncertainties, and imbalances in the freight supply and demand, all forcing logistic providers to re-examine their supply chain strategies for 2024.
Maintaining a high level of flexibility will be a must for logistics managers in 2024, especially in the face of current challenges. Let us take a closer look at these challenges, and how your business can navigate through them.
The Red Sea crisis and its’ impact on freight rates
The ongoing developments in the Red Sea pose a remarkable challenge to the ocean freight sector, with the threat towards cargo vessels playing a major role in the fluctuating rates and insurance premiums. According to ET, the “War Risk insurance premium” is now sitting between 0.75% to 1% of the insured value of the vessel, which is a significant increase, considering it was initially 0.05% before the crisis. We can also see the price hikes when looking at the cost of shipping a standard size container (20 feet long) to Europe, costing $2500 which is a 5 x increase from the $500 before October 2023.
With increased travel times causing cargo delivery delays, signification price hikes, and steeper insurance premiums, customers need to ensure their freight forwarding partner can deliver flexible freight service solutions at a competitive rate. Customers should also re-evaluate when to restock their items, including potential delivery delays within the restock strategy.
Panama Canal transit restrictions introduce routing complexities
The Panama Canal is one of the vital passageways freight forwarders use to transport cargo between the Atlantic and Pacific. Due to low water levels, the canal authorities have set out drought restrictions, limiting the number of ships that can traverse the critical waterway, with a backlog affecting up to 115 vessels. Although the canal primarily serves vessels transporting cargo from the United States, China, and Japan, freight forwarders are required to set up alternative routes that could minimize the risks associated with major delays or potential attacks as a result of the Red Sea crisis.
Customers require a freight forwarding partner who is capable of communicating effectively and providing alternative solutions based on political or environmental challenges. As you reassess your logistics strategy for 2024, you should incorporate cargo delays, port congestion, and extended transport times into your delivery and budgeting calculations. You should also be sure to keep communication open with your customers throughout the delivery process to reduce potential confusion or frustration.
Labour shortages impacting the entire supply chain
Labour shortages worldwide within the logistics sector are creating challenges for freight forwarders across the board. With a surge in demand stemming from the e-commerce sector, logistics providers can anticipate extended delivery delays, increased freight costs, reduced capacity, and port congestion, with the impact of the shortages being felt by the consumer. Logistics providers will need to mitigate the impact of the labour shortages through innovative programs, to ensure smooth operations, and customers need to ensure their freight forwarding partner can deliver cargo as agreed.
Increased traffic for coastal ports
A ripple effect from the drought-related restrictions of the Panama Canal, the crisis in the Red Sea, and the labour shortages, will lead to increased traffic across coastal ports. According to TimesLive, shipping traffic has already increased by 35% since November 2023, around the Cape of Good Hope, with traffic diverting to alternative and therefore safer routes.
As cargo volumes shift, logistics managers need to anticipate intermodal volumes through truck, rail, and air to increase. Whilst increased container traffic might lead to port congestion, ample capacity exists among the trucking and warehousing industries, which in turn will aid towards sector growth.
A rise in air freight cargo demand
The air freight market has shown a significant increase by rising to 11% year-on-year for a third consecutive month in March 2024. Although this growth can be attributed to the Red Sea crisis, with freight forwarders and logistics managers looking to avoid further delays, we should not discount the power and importance of e-commerce growth as a contributing factor. Some experts anticipate the air freight sector to return to classic seasonal growth throughout 2024, albeit with a subdued tone.
Exercising caution amidst geopolitical risks
Unpredictability in the market due to geopolitical events can make it difficult for freight forwarders to effectively and reliably provide advice to customers looking for a cargo transport solution. Couple this with increasing strike activity and port congestion, finding innovative solutions and opening practising caution is a must-do for freight forwarders and logistics managers.
Although the air freight sector is showing temporary growth, shippers should consider exploring multimodal freight solutions as part of their strategy for 2024, helping to set themselves up for success. Customers who opt for multimodal freight can leverage other charter products, increasing mitigation measures to navigate through unforeseen disruptions.
Conclusion
Being prepared for current and potential logistics disruptions in 2024 requires customers and freight forwarders to have a holistic and adaptive strategy in place. With a proactive approach, you can implement robust measures that will help fortify your supply chain against potential challenges and trends. One way you can mitigate risks associated with these logistics disruptions, is by partnering with a seasoned freight forwarding company that can provide tailored solutions for your needs, no matter the market conditions.
Reach out to your nearest M6T branch today and partner with a freight forwarder that will help you get your cargo from A to B, stress free!
