Special to the AJOT Mike Short, president of global forwarding, C.H. Robinson
Now that the fireworks are over and New Year’s resolutions are set, it’s time to prepare for global shipping in 2020. And that means looking at ongoing trends and changing regulations. One thing’s for sure, freight forwarding never has a dull moment.
Before we jump into expectations for this year, let’s set the stage by looking at some of the top events in 2019 that may have affected global shipping strategies around the world.
Geopolitical uncertainties
From the ongoing Brexit discussion to the China-U.S. trade war and the trade conflict between Japan and Korea, these and other disruptions caused serious challenges to the transportation industry.
Preparation for International Maritime Organization (IMO) 2020
While the latest revisions didn’t go into effect until January 1, 2020, preparation for the changing IMO requirements was well underway in 2019. The requirement to reduce sulphur oxide emissions from 3.5% to 0.5% was a drastic change that will likely continue to affect shipping costs and capacity availability.
E-commerce expectations
With the growth of ecommerce and high-tech products flooding our markets, air freight is a go-to mode of transportation for many shippers—any time of year.
To best understand how these and other mode-specific changes will affect your 2020 shipping year, let’s break them down by service.
Ocean service in 2020
In the past, ocean shipping followed the basic law of supply and demand. When demand increased, rates went up. When demand decreased, rates dropped. This often occurred regardless of carrier profitability. But that is changing, which could reshape expectations for 2020.
Carriers controlling capacity
Today’s ocean carriers are quick to withdraw capacity when demand changes. By adjusting the amount of equipment available, ocean carriers are better able to ensure demand remains tight enough to protect their profits. This is a successful technique because there are fewer ocean carriers than in the past, allowing for a quicker reaction when supply and demand shifts.
Increasing carrier costs
While ocean carriers can control capacity to help ensure rates remain compensatory, we can still expect some level of imbalance due to the IMO 2020 mandate, which increases carrier costs.
Driver and drayage capacity shortages
California Assembly Bill 5 (AB-5) went in effect on January 1, 2020, which limits the use of classifying workers as independent contractors rather than employees by companies in the state. This may affect the availability of the number of dray carriers in the busiest ports. This in turn can drive drayage costs up.
Air service in 2020
Last July, we posted about ongoing uncertainty in the air freight market. The good news is that air freight service has stabilized a bit since then. While we’re predicting a somewhat stable air freight market for the year, this could obviously change if there is some catalyst that changes the speed products need to come to market.
Stable demand expectations
We expect demand for air freight to remain stable for the time being. Many organizations continue to focus on managing expenses and are looking for cost effective, efficient options for delivering on short timelines without breaking the budget.
Capacity to hold steady
Capacity will also likely remain stable. Most new capacity is coming in the form of lower deck. Pure freighter capacity will continue to move based on market yields that make sense from a carrier standpoint. There may be some capacity growth in off-market locations, based on passenger demand.
Customs compliance in 2020
It’s always smart to have a customs compliance program that aligns with your business goals, which is especially true this year. Customs and Border Patrol (CBP) has several customs changes slated to take place in 2020, and now’s the time to prepare. If you haven’t reviewed your customs program recently, our customs compliance checklist may help.
CBP moving away from ITRAC data
According to CBP, they will be eliminating Importer Trade Activity (ITRAC) reports in favor of the Automated Commercial Environment (ACE) system. If you don’t already have an ACE portal account, now is the time to get one to ensure all your customs data is available to you when you need it most.
CBP’s continued focus on compliance and enforcement
CBP will continue to scrutinize tariff classification and valuation in an increasing post-summary environment. As the United States Trade Representative (USTR) continues to provide exclusions, many importers will depend on brokers to submit refund requests via post summary corrections (PSCs) or protests. CBP often requires additional data and/or documentation to ensure that tariff classifications and valuations are correct. It is imperative that you maintain a high degree of confidence in your compliance program and can substantiate any post summary claims with CBP.
Increasing Importer Security Filing (ISF) penalties
Throughout 2019 we saw CBP issuing more ISF penalties for inaccurate and/or untimely submissions. This will likely continue and could become a growing issue in 2020.
Disruptors affecting the industry in 2020
While certain trends and regulations only directly affect a single mode or service, there are still plenty that affect freight forwarding in general. Looking at 2020, it’s probably safe to say that the following disruptors will continue to affect the year ahead.
Broadening of sourcing locations
While there may be an end in sight to some of the trade war uncertainties, the initiative to broaden sourcing locations beyond China will likely continue. Southeast Asia has already seen clear benefits of this and will likely continue to see manufacturing growth in 2020.
Switching sourcing strategies can also bring risks, including capacity availability, infrastructure support, and geopolitical stability. While China will continue to be the largest exporter into the United States, we simply cannot deny the trends that continue to show volume shrinkage from China.
Accelerated evolution of technology
Significant investment in technology and transportation platforms continue to accelerate across the industry. Beyond private equity groups, well-respected and established providers like C.H. Robinson are making investments that will reshape logistics. These growing technological investments will continue to create value across the supply chain.
While this opens new options for shippers and carriers alike, you may likely need to spend more time researching which technology option is the best fit for your own organization. After all, the right technology offers tailored, market-leading solutions that work for supply chain professionals and drive supply chain outcomes.
Prepare for the year ahead
Overall, 2020 will be a great year for strategizing. Continuous improvement efforts—including a close look at service levels and mode choices—will help reach your short- and long-term supply chain goals.
Looking for a provider that can help in the coming year? C.H. Robinson has a global suite of services backed by technology and people you can rely on that will make 2020 preparations smooth and effective. Connect with an expert today.
