FREIGHT

FORWARDING
Review of 2020 & Preview of 2021
In this e-book, we take a look back at one of
the most challenging years in the history of
freight forwarding. We see what impact
coronavirus had on air shipping and sea
freight, the changes it prompted and the
lessons learned. We also look forward to 2021,
predicting trends and assessing whether the
rebound that started towards the end of 2020
is set to continue.
The State

Of
Shipping

Pre-2020
The State Of Shipping Pre-2020

Any review of 2020 must take into account the state of the shipping and
freight forwarding industries pre-2020.

2019 was a challenging year for global shipping. Problems were caused by:

Tensions between China and the United States

A trade dispute between Japan and Korea

Uncertainty in Europe caused by Brexit

Complaints from various nations about Indian tariffs

The prevalence of protectionism

Slower growth in trade—between 2010 and 2019, trade grew 1.1 times
faster than GDP, slower than in previous decades, which many saw as
evidence that the popularity of globalization was waning.

These problems and tensions were soon dwarfed by the spread of a global
pandemic that rocked the world.

COVID-19 dominated the freight forwarding and container shipping industry

throughout 2020, and its impact is likely to be felt well into 2021 and beyond.
At the same time, to say 2020 was a year of blanket bad news for freight
forwarders would be misleading. More accurately it was a year of two halves,
with the majority of the first half dominated by the negative effects of the
COVID-19 pandemic.

The second half of the year was more positive. Many economies bounced
back from the effects of lockdowns designed to slow the spread of the virus,
leading to a strong recovery that’s expected to last in 2021.

1.
2020: The Year Of The Pandemic

The seeds of COVID-19 were sewn in 2019, but its impact was felt worldwide
in 2020. Few countries and industries escaped its effects, with the shipping
industry, like many, forced to make fundamental changes.

In March and April, fears about the scale of the pandemic reached a peak.
Production orders were canceled, demand for shipping fell, and carriers
halted sailings. Passenger aircraft were grounded as international travel
(regarded by many as a means of spreading the virus) was put on hold.

Freight forwarders could no longer offer their customers as many options

when it came to moving air freight in the belly of passenger planes. Supply
chains were interrupted, many broken altogether. Losses were reported by
shippers, carriers, and freight forwarders. The pandemic had a tight grip on
most nations, and any hope of a vaccine was a long way off.

Shipping’s Symptoms Of The Pandemic

Reduction in Volumes
A sharp drop in demand and volumes in March and April caused container
operators to reduce their capacity by up to 20% in the second quarter of
2020.

2.
Clogged Ports & Overflowing Warehouses

With orders canceled at short notice, blank sailings (sailings that are voided
by carriers) became the norm. Ports and terminals were clogged with vessels
in the wrong place at the wrong time, with nowhere to go and no demand
for their cargo.

Warehouses overflowed with unwanted goods. It was the same for

import-cargo storage areas. Vessels were diverted, crews trapped at sea with
ports refusing to accept cargo or let seafarers disembark. The risk of
spreading the infection was high, and many ports had no room on their
quaysides for more vessels or in their container terminals for more boxes.

Reduced Capacity

With orders canceled, carriers took the predictable and sensible step of
reducing their capacity. It was a move that was to become a theme of freight
forwarding throughout 2020, for both air and ocean carriers. Container
shipping alliances were united in their capacity-cutting strategy—and the
result was inevitable.

Higher Shipping Rates

The price of shipping rose dramatically in 2020. Double-digit cost increases

were not popular with businesses, but they were a predictable outcome of
the industry’s strategy to protect itself from losses by reducing capacity.
Consumers were warned they’d face higher prices as clogging at ports and
wider problems in global shipping took their toll.

July and August saw the biggest shipping rate rises due to a surge in
volumes. Shipping lines held the upper hand over cargo owners in
negotiations, pushing up freight rates across all international trade lanes.

3.
This spike in rates was driven by a combination of:

Very high demand for container freight

Post-lockdown restocking

Limited air freight capacity

High demand for in-home goods

Emergency need for PPE (personal protective equipment)

A severe shortage of containers

TransPacific routes from Asia to the USA witnessed the biggest rise in

demand. Volumes grew by 10- to 20% compared with 2019. Container ship

charter rate tracker The Harpex Shipping Index more than doubled between

July and December 2020, reaching levels not seen since before the economic

turmoil of late 2008.

Container rates also swelled thanks to rising demand for enterprises that

normally transported their goods aboard passenger aircraft. Many planes

were still grounded at the end of 2020, their only hopes of taking to the skies

again in vast numbers dependent on the success of vaccines.

In the final few months of 2020, prices for containers from China—the

world’s busiest nation for containerized goods— become three-to-four-times

higher than had been the case earlier in the year.

Examples of Freight Rate Rises in 2020:

The price of a 40ft container from China to Europe rose from $1,500 in

October to over $12,000 in December.

4.
Smaller containers saw equally dramatic price hikes, with the cost of a 20ft
container rising from $800 in the summer of 2020 to $3,200 at the end of the
year.

Such price rises were commonplace across the world of shipping as a result
of the disruption caused by the pandemic—and container freight rates
remained high up to the end of 2020.

International Borders Closed To Commerce

At the beginning of the pandemic, many countries closed their borders and
restricted both travel and transportation. The aim was to curb the spread of
the coronavirus and prevent health services being overwhelmed.

Such measures directly impacted international trade, hampering supply

chains and restricting the transportation industry on land, sea, and in the air.
Border closures generated a level of uncertainty the world had not seen for
many decades.

Air Freight Severely Restricted

Many passenger jets spent the majority of the year grounded, reducing
opportunities for freight forwarders to use their holds to transport shippers’
goods. IATA reported that in the first eight months of 2020, the availability of
cargo-tonne kilometers was more than 25% down on 2019 levels. This
contributed to predictions that the air freight market would contract by 13%
in 2020.
5.
Goods and Seafarers Stuck in Limbo
When shipping stops, economies stop. And 2020 saw many sailings
cancelled. Nations across the world recorded dramatic falls in sales, and
many forced their people to live under lockdown restrictions. The world’s
50,000 tankers and cargo carriers employ 1.6 million seafarers. Many crews
were trapped on their ships during the worst days of the pandemic, or in
foreign hotels unable to get home.

More Cargo Rolled

2020 saw a sharp rise in rolled cargo—the term used for freight that can’t be
loaded onto a vessel as scheduled due to lack of space aboard that vessel.

October 2020 saw the rolled cargo rate increase to 29%, up from 22% at the
same time the year before. The Port of Singapore, the world’s second-busiest
port, saw rolled cargo increase to over 31% in October.

Shortages of Equipment
The disruption to supply chains and shipping caused by the pandemic
resulted in a lack of containers in the right place at the right time.

In the latter half of the year, some container vessels sailed from Asia to
Europe without their full load of boxes due to a shortage of empty
containers in China. There were not enough boxes at depots to meet
demand, yet empty boxes were sitting on quaysides and in depots in ports
across the world.

As of December 2020, the container availability index compiled by Container

xChange revealed that availability levels across China were still at record low
levels. The report blamed the shortage on the pace of increase in demand
after months of blank sailings.

6.
Shippers and freight forwarders using the most lucrative TransPacific trade
routes secured the lion’s share of available containers. Meanwhile,
forwarders struggled to access boxes for other trade routes, particularly
those between Asia and Europe.

Carriers took steps to address the equipment imbalance, temporarily

suspending bookings, and filling vessels with as many empty containers as
possible. To deter bookings, European exporters to Asia were asked to pay
more than $5,000 per 40ft container to ship in December 2020, and many
carriers refused to accept export bookings until mid-January 2021.

Desperate shippers were prepared to pay the higher prices, but carriers still
struggled to get deliveries made on time with ports clogged. Some reported
containers remaining untouched in ports for over a month.

The Container Availability Problem

A survey carried out by Container xChange suggested that even with recent
advances in container logistics technology, empty containers remained
unused at depots for an average of 45 days per year. The rate was higher in
the two key areas of lowest container availability: In China, the average time
containers remain empty is 61 days per year. In the United States it is 66
days per year.

7.
Clearly, this is an area in which further logistics data and technological
advances can help ports, carriers, and freight forwarders provide shippers
with a more efficient service.

Shipping’s Response to the Pandemic

The shipping industry reacted quickly to mitigate the impact of initial falls in
revenue caused by the pandemic with losses more than being offset by:

Lower costs from reduced sailings

Lower fuel prices

Higher freight rates (up 4.4% year-on-year)

Any fears that the pandemic would put the brakes on international
commerce were short-lived. The virus merely shifted the focus of consumer
buying habits on a scale not seen for over half a century. Service industries
fell by the wayside as public places were forced to close. This triggered
demand for products, particularly ones for the home, led by the United
States market, even though it was experiencing negative growth.

Slow and Steady Change

Despite the spike in demand seen in July 2020, shipping carriers were wary
of the impact a fresh wave of the virus might have. As a result, resources
were re-deployed slowly. Blank sailings were replaced with extra-loaders
(more vessels), but many disrupted supply chains found it hard to adapt.
Empty containers weren’t available where they were needed (in the Far East).
Inland infrastructure was over-stretched.
But a second wave of coronavirus infections in the second half of 2020 had a
far less devastating impact on global freight volumes than the first wave.
Maersk, the world’s biggest container shipping line, reported that it had
recovered faster than expected after the pandemic halted trade around the
world, benefiting from higher retail sales in the United States:

“The second wave of coronavirus infections has had relatively

limited impact on trade volumes.”

Shipping executives warned in late 2020 that any recovery in freight rates
brought about by rising imports into the USA would be adversely affected by
new COVID-19 restrictions.

Other Side-Effects of the Pandemic

As already mentioned, the pandemic didn’t stop consumption. It shifted it

from services to products. During the first 8 months of 2020, the retail sector
recorded 44% growth in revenues and the fashion sector a 27% rise. The
knock-on effect was a boom in demand from shippers wanting to import and
export goods.

9.
 “The surge in volume has been well beyond what anybody

predicted.”

The Wall Street Journal reported in September 2020 that the Port of Los

Angeles—the United States’ largest ocean container gateway— had

experienced the busiest August in its history.

German carrier Hapag-Lloyd AG also reported a large increase in demand in

the USA for imported goods from Asia, with US retailers Walmart and

Amazon driving that demand.

The global pandemic also presented shipping with opportunities to help with

the response to the outbreak. Carriers played their part in transporting

much-needed PPE to healthcare providers across the world. In 2021, the

shipping industry is set to have a key role to play in transporting vaccine

doses to countries all over the world (see Part Two of this ebook).

The Industry’s Pandemic Response: A Summary

Quick Decisions

At the peak of the crisis, the container shipping industry acted fast to protect

itself, cutting capacity and reducing costs to maintain profitability. This led to

severe space limitations for shippers and delayed delivery dates.

10.
Essential Adjustments
To cope with pandemic-related disruptions, key players in shipping and
freight forwarding adjusted key elements of their operations, including:
Finances
Safety procedures
Working practices

Changes To Border Controls

In response to the trade problems caused by the pandemic, many
governments (via their border agencies and their port and customs
authorities) introduced emergency reforms to keep trade flowing while
ensuring their citizens had the best possible protection from the virus.

11.
The Overall Impact of 2020 in Statistics

The global freight forwarding market is predicted to

contract by 7.5% in 2020 compared with 2019.

Ocean based freight forwarding in North America is

expected to decline by over 12% in 2020, while the air
freight market will see a 9.5% fall.

The aviation industry took a bigger hit from the pandemic

compared to ocean freight. Between March 2019 and
March 2020, air cargo volumes around the world fell by
nearly 20%.

The number of scheduled passenger flights declined by

69.9% in the week starting May 4, 2020 compared with
the same week the year before.

Global maritime trade is predicted to contract by over 4%

in 2020, the drop almost entirely due to the pandemic.

12.
COVID-19

A Wake-Up Call for an

Industry Needing
Transformation?
COVID-19 sent shockwaves throughout shipping networks, ports, and supply
chains. At the same time, retailers and cargo owners realized that the
pandemic was exposing serious weaknesses in their global supply chains.

The pandemic could have spelled disaster for the shipping and freight
forwarding industries, as, for a while, the situation was critically challenging.
Overall though, the year has been far less apocalyptic than many predicted
at the start of the pandemic.

Above all, the challenges the industry faced during 2020 highlighted the need
for international shipping to be prepared to change and ready for change.

The year ended with new strains of coronavirus emerging in the United
Kingdom and South Africa, bringing fears of yet more disruption to the global
economy and supply chains in 2021. Uncertainty is the enemy of every
market, and that’s what the shipping industry faces. Much depends on the
impact of new waves, strains, and mutations of the virus, as well as the
effectiveness and availability of vaccines.

13.
 “The global shipping industry will be at the forefront of efforts

towards a sustainable recovery, as a vital enabler of the smooth

functioning of international supply chains. The industry must be

a key stakeholder helping adapt ‘just-in-time efficiency’ logistics

to ‘just-in-case’ preparedness.”

IMO 2020–Shipping and the Environment

The changes and challenges the shipping industry faced in 2020 came not

only as a result of the pandemic. At the beginning of the year, new global

regulations came into force, reducing the permissible level of sulfur in ships’

fuel oil.

The IMO 2020 legislation was introduced to bring significant benefits for

both human health and the environment. It made it mandatory for the level

of sulfur in ships' fuel oil to be reduced from 3.50% to 0.50%. The directive

applied to all vessels outside designated Emission Control Areas, where the

limit was already 0.10%.

The new limit is predicted to deliver a 77% drop in overall sulfur oxide (SOx)

emissions from vessels, equating to an annual reduction of approximately

8.5 million metric tonnes of SOx.

14.
4.
Freight
Market
Outlook
2021
Freight Market Outlook 2021

From Big Restrictions to a Big Rebound?

16.
4.
Tarek Sultan, Agility’s Vice Chairman, said the company was in a relatively
good position despite the impact of the pandemic, which forced some of its
businesses such as airport services to temporarily close.

“We are very bullish looking into 2021. We believe that there is
going to be significant uptick in opportunity ... many different
sectors of the business will start to recover.”

The Pandemic Will Still Present Challenges - And New

Opportunities

Analysts warn that the shipping industry will likely be subject to wide
fluctuations in fortune during 2021. Much depends on responses to the
spread of COVID-19.

“If the coming vaccines work and the virus is eradicated, people
will again start spending on travel and going out, which means
volumes will drop because the inventory will overshoot.”

17.
In September 2020, IATA estimated that the task of delivering a single dose

of vaccine to the world’s 7.8bn people would require the full cargo capacity

of 8,000 B747 cargo aircraft. Agility Logistics is in talks with drug makers

about transporting COVID-19 vaccines and is expected to do so throughout

2021.

Of course, road and rail could be used to deliver some vaccines, but there’s

no doubt that substantial air-freight capacity will be essential for an effective

global roll-out of vaccines.

Expected Changes and Trends in Shipping in 2021

A Switch From Air Freight to Ocean Freight

The ongoing lack of availability of passenger aircraft to transport goods is

likely to force shippers to consider other options, such as ocean or overland.

As of January 2021, many passenger aircraft remained grounded, and air

freight capacity is unlikely to see a rise in 2021. Much depends on the speed

and success of global vaccination programs.

More Reliance on the Power of Digital

With in-person contact limited by the pandemic, the power that digitization

possesses to help freight forwarders continue their business remotely

became apparent during the COVID-19 crisis.

Necessity is the mother of invention, and that’s certainly been the case for

the shipping industry. Eliminating paperwork and embracing digitization has

demonstrated why the industry must look to adopt new, paper-free ways of

working sooner rather than later.

18.
4.
Further investment is essential to ensure wider use of digitized platforms
and international shipping processes and procedures. Areas where
digitization can be beneficial include:

Replacing paper originals with digital copies

Processing pre-arrivals

Accepting electronic payments

Automation of customs processes

All of the above will help speed up international trade, and can all be carried
out with minimal—if any—close social interaction. This is vital as social
distancing restrictions are likely to remain in place for much of 2021 in many
territories.

But, any increased investment in digital processes will need to be

accompanied by investment in mitigating the risks of breaches to cyber
security systems.

A Change in Status for Seafarers

At the height of the coronavirus crisis, more than 300,000 cargo vessel crew
members were left stranded on their vessels long past the date their
contracts expired. UNCTAD has repeated its call for seafarers to be regarded
as key workers and therefore exempt from COVID-19 travel restrictions.
Expect developments in this area during 2021.

19.
Problems to Persist in Access to Ocean Freight Services

Getting access to ocean capacity was a daily challenge in 2020, and

difficulties are predicted to continue in 2021. Many enterprises found
delivering capacity fell short of expectations last year. The solution could be
further diversification of how shippers access ocean carriers, perhaps via
more use of:

Freight forwarders

NVOs (Non-vessel-operating common carriers)

The ocean spot market

More Uncertainty Over Shipping Rates

The pandemic will have a massive role to play in shaping the dynamics of
shipping rates in 2021. High freight rates are expected to last well into the
year due to continuing disruption and uncertainty caused by coronavirus.
Pricing volatility is inevitable, especially if volumes crash again due to new
strains of the virus causing further lockdowns and other restrictions.
However, blank sailings may help reduce this downward volatility.

There’s a limit though, to how high shipping rates can go, and how long they
can remain at an elevated level. The latter months of 2021 should see a
return to more normalized market conditions, with freight movements more
akin to those seen before the pandemic.

That said, 2021 is still expected to be a challenging year. While many

governments continue to finance their citizens’ purchasing power via
furlough schemes, these can’t last forever. Their withdrawal, expected at
some point in 2021, will inevitably have an impact on demand for products
with a knock-on effect on the shipping industry.

20.
Market Volatility to Continue

Volatility is likely to be the watchword for the shipping and freight forwarding
markets in the early part of 2021. Many carriers claimed full order books up
to February, but events of March and April 2020 should serve as a warning
that orders can be quickly canceled if circumstances change.

“We should not forget just how quickly all the USA and
European importers canceled existing purchasing orders with
the factories back in March/April.”

Stricter lockdowns could lead to deeper recessions, higher unemployment,

and spending cuts by consumers which will impact the container industry by
reducing demand. Indeed, demand could still take a hit even if vaccines bring
the virus under control. In such a scenario, consumers are likely to spend
more on the services that lockdowns denied them—such as travel—limiting
the finances they have available to spend on goods.

A New Approach From A New US President?

A new President for the world’s biggest economy is always a time of

uncertainty for global trade. However, Soren Skou of Maersk believes
President Biden is likely to take a more collaborative approach, especially
with trading partners in Europe.

21.
2021: Reasons For Positivity

Ocean and air freight forwarding are likely to see a rise in demand from the
industrial and automotive sectors in 2021. Automotive sales fell by 25-30% in
the first half of 2020. But by the end of the year, the fall for 2020 as a whole
was 17%, a considerable improvement highlighting a path for growth in
2021.

The healthcare and pharmaceutical sectors are also expected to contribute

to growth in freight forwarding during 2021. Worldwide demand for
COVID-19 vaccine distribution is expected to stimulate an increase in
air-freight volumes. Effective vaccines will likely help the return of most
passenger jets to the skies, enabling greater volumes of cargo to be moved
by air.

The air freight forwarding market is anticipated to grow at a compound

annual growth rate of 5.6% between 2020-2024. Ocean freight forwarding is
expected to see a 5.2% rise in the same time span.

Three Pressing Issues Going Into 2021

High demand for empty containers not being met

Limited vessel availability

Congestion in port terminals

Solutions For These Problems

The only sure-fire way to prevent a repeat would be to ensure over-capacity

in all areas of shipping, specifically:

More containers

More vessels

Larger terminals
22.
All of the above will require substantial investment and considerable time to
implement. Who in the shipping industry would be prepared to pay for this
upsizing? Perhaps this is a question to be answered once the worst effects of
the global pandemic are over.

Learnings From 2020: The Importance of Digitization

There’s little doubt that the freight forwarding industry can better prepare
itself for future global predicaments by expanding its use of digital products,
platforms, and services. This year (2021) must surely be a time for the
industry to devote more money and resources towards:

Replacing paper documentation with digitized alternatives

Risk management across the industry

Use of data and AI to improve efficiencies, especially regarding empty

containers

Response procedures to emergencies in transportation and logistics

Future-proofing supply chains

23.
Meeting User Expectations

Consumers have grown to expect transparency, instant gratification, and

comprehensive online management capabilities in all areas of life. Shipping
and freight forwarding must meet these expectations and can do so through
automation and digitization.

Companies that fail to modernize are likely to be left stranded on the

quayside as international shipping sails into a digitized future that makes
international shipping easier and more accessible for everyone.

Further Sustainability Initiatives

The introduction of IMO 2020 (see Part One of this ebook) was virtually lost
amid the panic, confusion, and disruption caused by the pandemic in 2020.
But the shipping industry must not use the virus as an excuse or distraction
to put sustainability plans on the back burner. The industry must continue its
efforts to adopt greener solutions that benefit the planet in 2021 and
beyond.

24.
A Slow Return to Normality?
Few wish or expect to see the dramas of 2020 repeated on quite the same
scale in 2021. But the pandemic is still set to have a major impact on global
trade and international shipping.

At the time of writing (January 2021) the virus is far from under control. Many
of the world’s citizens are in lockdown. Uncertainty is rife. A return to
pre-pandemic normality seems a long way off and heavily dependent on
vaccination programs.

Still, it seems the shipping industry has weathered the worst of the storm.
While volatility remains, shipping has shown it can survive the major
upheaval of a pandemic, albeit with substantial losses in revenue. Now, the
wait is on to see if the coronavirus can be conquered and how quickly the
world can return to some kind of normalcy.

25.
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