Among the many events and excellent keynote speakers, I attended a presentation by Dr. David Fung, entitled “Meeting the challenges of growth demand: a shipper’s view.” Dr. Fung currently serves as Chairman and CEO of the ACDEG Group of Companies, a global technology integrator with business partnerships in several different sectors in North America, Europe, and Asia.

His analysis of the current and future business prospects for ocean freight carriers was quite pessimistic, due to changes in the economic forecast and in the business models now being used around the world. For example, with business producing more goods locally, the number of containers shipped has diminished substantially. New technologies such as 3D printing are also decreasing the need to ship by sea.

Of course, nobody wants to hear pessimistic forecasts, but we have to appreciate the contradictory opinion because it helps businesses prepare for tough times. He concluded by encouraging the audience to not look to the past for solutions, but to focus on looking forward and accept the new challenges.

Even the top companies are facing challenges

I wanted to investigate this outlook further, but data from the major ocean freight shippers is not always easy to obtain and when we do, the data is always a bit old.

I looked at the financials for Maersk, the world’s largest shipping company, whose latest data is from Q4 2016. On their financial report, they argue that the demand for transportation of goods grew below expectations in the first half of the year, leading to significant downward pressure on freight rates. In the second half of the year, and especially in Q4, demand increased while the number of deliveries was reduced, which led to a gradual improvement of freight rates.

The difficult business environment during the year enabled industry consolidation, and Hanjin Shipping Co. Ltd., the world’s seventh-largest container shipping company, went out of business. Despite this, Maersk Line continued its cost leadership strategy and gained significant market share.

Maersk Line nevertheless recorded a loss of USD $376 million (compared to a profit of $1.3 billion in 2015) and a return on invested capital (ROIC) of -1.9% (+6.5% in 2015). The underlying result was a loss of $384 million (profit of $1.3 billion in 2015) due to poor market conditions leading to sustained lower freight rates. The lower rates were then partly offset by higher volumes and lower unit costs related to lower bunker price, higher utilization and cost efficiencies.

Looking at the financials for Nippon Yusein Kaisha (NYK) Line as well, their revenues for the first three quarters of 2016 were ¥2,272.3 billion, but their forecast for the same time period in 2017 is just ¥1,414.5 Billion, a major decrease.

Tough times for the industry may be worsened by the Trump administration

While Hanjin’s insolvency made headlines in early 2016, they weren’t the only company struggling at the time.

Due to the sharp decline in ocean freight rates, all of the world’s top 15 container shipping companies reported negative operating margins (EBIT margin) for the first six months of 2016 except the Asian shipping company Wan Hai, which only operates regionally.

Since then, the biggest news story in the world has been the election and presidency of Donald Trump. The election and its economic consequences are not still clear and it is too early to say if and when the change will bring some improvement or deteriorate the current forecast for the industry.

One possible effect is on the iPhone, one of China’s biggest focuses in 2017. Based on the iPhone’s packaging dimensions (15.5 cm x 9 cm x 6 cm, 0.385 kilograms) it is estimated that 44,000 phones will fit in a standard 40-foot shipping container before it hits the weight limit. However, based on recent announcements by Apple, more production is scheduled to happen in the United States because the Trump administration is pushing for Made in America production.

Are sunny skies ahead for the ocean freight industry?

Despite the rough start to the year, the September 2016 quarterly financial report of Hapag-Lloyd, the world’s fifth-largest container carrier, remained positive. It reminds their investors that according to the IMF, the volume of global trade, which is key to the demand for container shipping services, was forecasted to increase by 2.3%. Continued growth of 3.8% is expected in 2017.

Based on current forecasts, the growth in global cargo volumes could reach up to 4.2% in 2017. IHS Global Insight is also predicting average annual growth of approximately 5% in the global container shipping volume from 2018-2021.

The issue is of course, is whether the growth of 5% forecasted for the period will be enough to cover for capital expenditures and operating expenses, while still allowing some profit. Even this level of growth may not be enough to cover rising costs for companies, and could result in further problems unless they begin to consider new approaches.

Innovative and courageous thinking is needed to guarantee future success

The current data confirms that the ocean freight is experiencing tough times, and will likely continue to do so. The question now is whether the time has arrived to re-think their business models.

It seems that now is the time to collaborate, rather than compete, and that doing so to meet logistical needs might improve profit margins.

I want to conclude by thanking the Cargo Logistics Canada organizers for the realization of such a wonderful event. Also, a big thank you to Dr. Fung for his “courage” to share his view about the shipping industry, especially when the industry would prefer not to listen to his pessimistic views.

The challenge for the industry is now that they know about the difficulties, what can they do to turn the challenges into profit? Time will tell, but I think major opportunities await to those companies able to tackle these major challenges head-on, rather than hoping things will get better on their own.

The post The ocean freight industry is struggling – but is there hope on the horizon? appeared first on Trade Ready.

A new year means three things: lots of people are going to sign up for gym memberships they won’t use in three months, others will keep writing the wrong year on all their correspondence, and of course there are a plethora of new trends and predictions to look out for in the year ahead.

We’re going to focus on the last of the three.

What should you look out for or expect in the international business world in 2017? Let’s take a look and see what could be dominating the headlines you read over the next twelve months.

1. The future of the EU

The outlook for the EU is grim for 2017. UK Prime Minister Theresa May is expected to trigger Article 50 to begin the formal process to leave the EU, and Italy’s recent referendum has brought the country’s support for the union into question.

France and Germany also both face elections in 2017, which could result in new anti-EU governments who may want to follow the UK’s example.

If the UK, Italy, France and Germany are all led by Euro-skeptics by the end of 2017, the entire future of the EU will come into question.

2. U.S. trade under Trump

During the 2016 election, Donald Trump’s claims for his presidency ranged from refusing to sign the TPP and leaving NAFTA, to setting prohibitive tariffs on imports from China and Mexico.

While many have speculated that some of his proposals, most notably the sizable tariffs on China and Mexico, would be illegal according to WTO rules, it remains to be seen how closely his rhetoric will match his actions on trade.

Whatever he does, positive or negative, will affect countless American and international businesses.

3. Technical innovations in agile manufacturing and last-mile delivery

The ability to create manufacturing parts or entire products with nothing more than a computer and a 3D printer gives companies far greater agility in their manufacturing efforts, and offers opportunities for rapid innovation.

Drones are offering the possibility of rapid delivery to customers. While most tests have been focused on home delivery, some have even experimented with using GPS tracking to deliver directly to people based on their phone location, wherever they may be at the time.

Both technologies, as well as several others, are still in their infancy, so 2017 could be a year of major breakthroughs.

4. Big mergers between major trade companies

While 2016 did not match 2015’s extraordinary number of massive mergers and acquisitions (three mergers and acquisitions deals worth over $100 billion USD were completed in 2015), there were still several notable deals. These included chemical company Bayer’s purchase of Monsanto for $66 billion USD, pharmaceutical specialists Shire buying Baxalta, and Microsoft’s recent $28B purchase of LinkedIn.

2017 is expected to match 2016’s rate of M&As, with pharmaceutical/healthcare, telecoms and finance among the industries that are most likely to see big deals. Will any of them affect your business or your industry competitors?

5. Blockchain in trade finance

Blockchain could be a true game changer in the world of international trade, allowing buyers and suppliers to make online transactions accurately and securely without involving middlemen.

While it has so far been used mainly for Bitcoin transactions, it has the potential to transform supply chains, and revolutionize trade finance.

If corporations begin to use the technology more frequently throughout 2017, it could be the beginning of a new era of global trade transactions.

6. Thinking smaller

Micro-targeting in marketing efforts, product adaptation, and market entry has been an increasingly hot trend over the past couple of years, empowered by the collection, analysis and optimization of oodles of data.

Thinking small comes from a customer-centric approach to business, focusing on building experiences for customers that are as personalized and responsive as possible. These efforts can really pay off in client satisfaction, leading to repeat business and brand loyalty, and can increase purchasing frequency.

As analytics, customer management software and automation get more sophisticated, we will see this trend grow into 2017.

7. The future (or lack thereof) of free trade agreements

2016 was a big year for free trade agreements, with major developments in deals that have been in negotiations for years.

The Trans Pacific Partnership (TPP): The 12 member deal, officially signed by all parties on February 4, 2016 will go into force once ratified by all signatories by February 2018. However, incoming U.S. President Donald Trump has said he will not ratify the TPP and has also threatened to tear up or renegotiate NAFTA, throwing the future of both FTAs into question in 2017.

The Transatlantic Trade and Investment Partnership (TTIP): In negotiations for almost a decade, this FTA between the U.S. and EU has met fierce opposition from American and European citizens. The U.S. considers the deal a companion to the TPP, and with President-Elect Trump coming into power early in the new year, and the EU going through some major upheaval, this deal is also being thrown into question.

Comprehensive Economic and Trade Agreement (CETA): Canada’s Minister for International Trade, Chrystia Freeland made headlines in October 2016 after she arrived in Belgium to sign the Canada-EU treaty, only to be informed that the EU could not sign due to opposition from the region of Wallonia. The intra-Belgian disagreement was quickly resolved and the agreement was signed on October 20, 2016. CETA is now awaiting ratification from all parties over and could begin to be implemented early in the new year.

WTO Trade Facilitation Agreement: The TFA contains provisions for expediting the movement, release and clearance of goods, sets out measures for effective cooperation between customs and other authorities on trade facilitation compliance issues and contains provisions for technical assistance and capacity building among signatory nations. Negotiations concluded on the WTO TFA in 2013 and 103 nations have now signed on to the agreement, most recently Canada on December 16, 2016. With only seven more nations needed to ratify the agreement before it is officially implemented, we could see some new developments in 2017.

8. The growing world of e-commerce and drop shipping

According to analysts, online sales will increase from $335 billion in 2015 to over $523 billion in 2020, a rise of almost 10% per year, though the current annual growth rate is actually closer to 14%.

Brick and mortar retailers’ worlds have been rocked by the skyrocketing success of online shopping. E-commerce leaders are making strides in optimizing their strategies and will continue to do so into 2017. Many are predicting the end of frenzied buying on traditional shopping holidays such as Black Friday and Cyber Monday, as an increased focus on real-time customization takes over.

We’ll have our eye on the blossoming arts of predictive data analysis, the Uber-ization of shipping and an increase in the use of artificial intelligence in this area into 2017.

9. Future of ocean shipping

More than 90% of internationally traded commodities are transported over an ocean. In 2017, we expect to see strides being made in the use of automated “smart ship” technology, major increases in port capacity and changes to global shipping routes.

2016 has been a year of turmoil and challenges for the shipping world, with mergers, bankruptcies (Hanjin is still fresh in of our memories), port strikes and trouble filling ships to capacity. But into next year opportunities abound for innovative shipping companies.

10. The importance of professional certification

The trend of increasingly competitive job markets is one that won’t be going away in the year ahead. It will continue to be important to stand out from the crowd of applicants seeking work in 2017. According to Credforce, studies show that 94% of HR professionals will make some form of professional certification for specialized personnel, making skills validation through designations more than just an asset next year.

In the past year we have seen an increase in employers and government departments increasing funding available for employees to gain certification and this is a trend we see sticking around.

The post 10 global trade trends we’ll be watching in 2017 appeared first on Trade Ready.

Shock rippled through the ocean freight community in late August as lenders refused additional financial assistance to the seventh largest container shipper, Hanjin Shipping Co. As a result, Hanjin has had to seek stay orders in 43 countries to protect its vessels from being seized, in addition to going into receivership in its home country, South Korea.

This latest occurrence adds fuel to an already beleaguered ocean freight market that has struggled since the global recession hit eight years ago.  Even after the end of the recession, the global economy has only grown sporadically due to uneven growth in Europe and a slowdown in China.

Bigger ships, bigger worries

In 2011, Maersk ordered 20 ships of 18,270 Twenty Foot Equivalent Units (TEU) at Daewoo Shipbuilding & Marine Engineering in South Korea. The goals of these large vessels focused around three main principles: economy of scale, energy efficiency and environment, so the series was named Triple-E.

Beginning in 2013, Maersk began taking delivery of these vessels. However, these ships only provide increased efficiency if they are fully loaded. As global trade volumes have declined over the past year due to a number of factors, such as China’s economic downturn, the demand for shipping simply isn’t there.

As a result, it’s been a struggle to fill ships to capacity. Orient Overseas Container Line noted in 2015 that its vessels were only 72% full. However, other container lines followed suit and ordered larger and larger ships, even while demand for capacity has remained low. In fact, the global fleet is forecast to grow 4.6% this year, but demand is only forecasted to grow between 1-3%.

As a result of the overcapacity, shipping rates have fallen. In 2015, spot rates declined by more than 50% from Shanghai to Rotterdam, and more than 70% between Hong Kong and Los Angeles.

Lack of profitability fueling mergers and alliances

Unsurprisingly, many container lines are finding their profit margins shrinking and some are facing heavy losses.  Research firm Drewry predicts industry losses of at least USD $5billion in 2016.

As a result of overcapacity, companies in the ocean freight market have been trying to consolidate to protect their bottom lines through mergers.

A.P. Moeller-Maersk A/S said earlier this month that it’s conducting a review that may lead to the breakup of the 112-year conglomerate.

CMA CGM SA, the world’s third-biggest container shipping company, bought Singapore’s Neptune Orient Lines Ltd. for $2.5 billion this year in the industry’s biggest acquisition since 2005.

Hapag-Lloyd AG and United Arab Shipping Co. said in June that they have agreed to merge to become the fifth-largest container shipping company. That came after Hapag-Lloyd AG bought the container business from Chilean rival Compañía Sudamericana de Vapores (CSAV) in 2014.

In 2015, China merged China Ocean Shipping Group and China Shipping Group to form China Cosco Shipping Corp. as part of the government’s efforts to shrink industries plagued by overcapacity while creating globally competitive businesses.

Along with mergers, new alliances have also been announced this year – The Alliance and Ocean Alliance. The aim of these alliances is to improve efficiency, because lines can share box space on each other’s vessels.

But, the U.S. Federal Maritime Commission is seeking additional information. Together the 2M alliance and the Ocean Alliance would effectively control 51.2% of global ship capacity. The FMC is concerned about the effect this would have on the vendors.

Canada’s West Coast ports are feeling the pinch

For Canada’s West Coast ports, demand has slipped for the first half of this year. In Prince Rupert, total TEUs are down 1.7% for the first six months, while in Vancouver  they are down 4.8%. The declines reflect the overall sluggish global economy.

The effects of the Hanjin collapse will also be felt at the two ports. Hanjin added Prince Rupert to its Pacific Northwest Express service in 2011. As of August 30 of this year, Hanjin was refused entry into the port because of its financial situation; however, cargo began being discharged on September 8^th. Meanwhile, a Hanjin ship remained anchored at Vancouver as of September 15.

As the ocean freight market churns, ports will need to adapt in order to assure shippers their goods will be delivered in a timely manner.

The Hanjin collapse should serve as a timely reminder, not only for shippers, but ports as well, that preparing for disruption is crucial to surviving in global business.

The post Hanjin the latest victim of turmoil in the ocean freight market appeared first on Trade Ready.

Innovation is everywhere, as we observed in my previous article about smart ships.

The efficiencies gained through recent technological advances in the transportation industry are undeniable, and now it seems the stagnant air freight market may finally have its turn.

Air freight has endured numerous issues, despite opportunities for growth and improvement in recent years.

For example, according to a recent International Air Cargo Association (IATA) survey, problems in the industry include a lack of transparency, no real-time information on tracking, inefficient processes, and the detrimentally complex nature of moving goods by air.

These issues have resulted in a reluctance in shippers to use air cargo for their freight.

Air freight’s status quo is costing it business

Currently, cold chain transport and e-commerce deliveries are the two biggest markets for air freight services. However, industry experts have dinged the air freight market for its lack of standards, procedures and service handling.

Air freight’s share of the cold chain market has steadily declined from 17% in 2000 to 11% in 2013. They lost the majority of this business to ocean freight, as those services were able to respond faster and more thoroughly to their clients’ needs.

Meanwhile, e-commerce cross-border growth is expanding. In a recent Loadstar article, FedEx executive vice-president Raj Subramaniam stated that:

E-commerce is driving significant change in the air cargo status quo, from shipment sizes to customer profiles.

Furthermore, a spokesperson for Alibaba’s logistics unit, Cainiao, issued a challenge for the air freight market. He stated that Alibaba marketplaces were experiencing bottlenecks from shipping with air freight due to restrictions on products with batteries, liquids and powders.

“So I don’t know if you have any solutions on this, because the volumes are huge. And with these restrictions, a lot of the time we have to switch to sea freight,” he said.

Despite the challenges, there are signs that things are changing for the industry.

Taking billing and booking into the 21st century

Through a collaborative effort between IATA and key stakeholders, the e-air waybill (eAWB) was introduced in 2006.

The initiative aims to build and implement an end-to-end paperless transportation process for the air cargo industry, where paper documents are replaced with the exchange of electronic data.

The change has been implemented slowly but steadily.

Unfortunately, the lag has contributed to the air cargo industry falling short of its end of year target for market penetration in the transportation industry, achieving 36.4% out of its 45% target for 2015.

For 2016, IATA has set a new target of 56% penetration.

This year, IATA is also launching a new initiative called eAWB 360, in order to work with selected airports to implement the eAWB as standard operating procedure for all parties involved in shipping air cargo.

Montréal’s Pierre Elliott Trudeau International Airport is set to become the first airport to implement the program on May 3, followed by Toronto Pearson International, Vancouver International, John F. Kennedy International, Dallas/Fort Worth International, O’Hare International, Los Angeles International, Miami International and Hartsfield-Jackson Atlanta International.

Additional service offerings are finally being introduced by various stakeholders. One such example is the Cargo Reservation, Operations, Accounting and Management Information System (CROAMIS), which was developed jointly between Wipro and Qatar Airways.

The system provides end-to-end views of cargo operations, and is compliant to IATA initiatives such as e-Freight, e-CSD, Cargo XML. CROAMIS will also facilitate adherence to Cargo 2000 quality standards.

Another solution comes from Alaska Air Cargo and simplifies billing for customers. Quite simply, Alaska Air Cargo rolled two current surcharges into its base rates.

This, in turn, will result in customers only being charged by freight weight and a single screening fee. According to Alaska Air Cargo, the changes will allow customers to easily estimate and manage shipping costs, thus allowing for more predictable pricing throughout the year.

Welcome to the web, air freight

Similar to ocean freight, start-up online platforms including Haven and Freightos, offer shippers the ability to book and track air freight shipments online, providing visibility and flexibility for the customer.

Lastly, Lufthansa Cargo is targeting new customers, cutting costs and revamping some of its products after a slump in profits and no signs of improving cargo markets.

This summer, it plans to introduce “myAirCargo”, offering customers flying with its parent group the chance to ship personal belongings or purchases bought on their travels directly, without going through a third party.

In addition, Lufthansa Cargo teamed up with business incubator firm RocketSpace to take part in its “Logistics Tech Accelerator” program. Launched in 2011, the program helps foster innovative technology startups in the air freight logistics sector.

Has the air freight market emerged from its slumber, ready to modernize and innovate? Positive signs are starting to appear.

Let’s hope the pace picks up so that together air freight and ocean freight can bring forth a renaissance in global trade for all shippers, big and small.

Would you consider switching to air freight if the industry can catch up to its competitors in ocean freight?

The post Has the air freight market missed the boat on innovation? appeared first on Trade Ready.

Increasing demand and improving technological capabilities are helping to boost trade in goods such as pharmaceuticals, foods, and other items that require temperature-controlled transportation.

Meanwhile, the spotlight on food safety is on the rise, with international organizations such as the UN’s Food and Agriculture Organization highlighting the importance of successful movements of food to market, particularly that of perishable produce such as fruit and meat.This eye-opening statement by the FAO has logistics providers and countries alike racing to build new infrastructure and introduce solutions to support cold chain transportation.

Where cold chains are lacking worldwide, 200 million tonnes of food spoil before reaching market every year.

This is extremely unfortunate as the United Nations Food and Agriculture Organization estimates that about 805 million people worldwide are chronically undernourished. Almost all these people live in developing countries, so the need for cold chain solutions in such locations as Africa and South East Asia are of utmost importance.

Food and drugs are racking up the air miles

While there is currently a movement towards transporting with ocean vessels, air cargo is still the mode of choice for many shippers of temperature-sensitive goods. In fact, these goods have helped boost air cargo use, which has otherwise been in a slump.

According to WorldACD, perishables and pharmaceuticals were the best performing air cargo classes during the month of May 2015, due to their time-sensitive nature.

Furthermore, for the first half of 2015, the biggest gains in perishables air cargo tonnage were in the Middle East and South Asia (MESA), up 59%, while Asia Pacific air cargo rose 35%.

For pharmaceutical air cargo, Asia Pacific and MESA were also the largest regions, increasing 74% and 66% respectively.

An expanding middle class and growth in e-commerce is increasing cold chain demand

In the Asia-Pacific region, the rise in perishables and pharmaceuticals can be attributed to an expanding middle class and favorable changes in healthcare regulations.

E-commerce has further assisted in this demand. Some high impact examples include Alibaba’s Tmall marketplace, who partnered with retailers like Costco to sell fish and produce, and JD.com’s investment in FruitDay, a Shanghai-based importer of fresh produce.

These same providers are also growing their healthcare capabilities.

The Middle East has invested in infrastructure such as warehousing, ports and airports to promote its expanding middle class, as well as a transshipment hub linking Asia to Europe.

For many countries within this region, much of its food is imported. For example, the UAE imports 85% of its food, and this will likely increase as the government plans to develop farmland in other countries in order to secure food supplies amid increasing demand.

Innovation in remote sensors are decreasing waste and increasing control

So, where’s the innovation in all of this demand for temperature-controlled goods? It’s in the sensors – the ability to monitor temperature ranges and adjust as needed while goods are being transported.

While much of this innovation involves the air cargo market, it is also appearing more and more in ocean freight.

Logistics providers such as DHL, FedEx, UPS, Kuehne + Nagel and DB Schenker all provide solutions that utilize sensors, either based on GPS or RFID, for tracking and monitoring temperature and humidity levels throughout transportation. Web-based, real-time monitoring, including report generation, is also included.

Among these solutions is FedEx’s SenseAware, introduced in 2009. It is a multi-modal solution that provides location monitoring, as well as monitoring temperature, light exposure, relative humidity, shock, and barometric pressure.

With these services, it can provide near real-time visibility and insight into shipments. Since 2009, FedEx has adapted this solution, incorporating it into its other services and industry-focused solutions, including aerospace, manufacturing, oil and gas, healthcare and fashion.

Sometimes even the fashion industry needs to monitor humidity while in transit. It has expanded this service into Europe, Asia and South America as well.

DHL’s temperature-controlled solution is another example of innovation at work. In 2013, the company introduced DHL Thermonet, an RFID-based air-freight service which allows customers to track the temperatures of their goods throughout the shipping process.

In 2014, DHL followed this up with the introduction of its global ocean freight service, Ocean Secure, which allows customers to access real-time tracking and temperature data at any given point, and even take remedial action if necessary.

The benefits of cold chain innovation are about more than just profit

There are many significant benefits to this monitoring, including compliance with regulatory authorities, such as the US Food and Drug Administration, and allowing users to be proactive instead of reactive.

Furthermore, it allows for intervention when necessary, whether it’s re-icing cold chain shipments or inspection and repackaging of damaged goods.

On a broader scale, users are provided the insight needed to make better business decisions, resulting in a strong customer experience and often a higher profit margin.

Not only will these new technologies improve better customer experience and higher profitability, they will also reduce food and medicinal waste by allowing for proper monitoring and faster intervention.

This will maintain the integrity of perishables transport and distribution, particularly in regions where it is critical to health and survival.

What do you think is the most useful application or benefit of cold chain innovation, and why?

The post Innovation in global cold chain transport is helping to reduce food and medical waste appeared first on Trade Ready.