Table of Contents
1/ The U.S.-China trade war: Past, present and future
2/ IMO 2020: The cost implications of new regulation
3/ Freight Technology: What will drive the industry in 2020
4/ Sustainability: How to increase your focus Summary
A Tale of Endurance in the Face of Adversity
In 1914, when Ernest Shackleton and his team of 28 sailors set out on their 1800- mile journey to cross Antarctica on the Endurance, they envisioned a tough, heroic challenge—not what is now known as possibly the greatest story of human survival.
Two months into their expedition, the Endurance encountered packed ice and became stuck. Hoping that a change in weather would free the ship, the sailors found ways to keep themselves sane and waited. For nine months.
When it was clear that the ship wasn’t going anywhere, the sailors thought the ice floe they stood on might drift north to safety, so they made camp. For three months.
When the ice floe broke underneath them, they piled into their lifeboats, sailed for a week through rivers of ice, and landed on Elephant Island, whose only inhabitants were penguins and seals.
Yes, the story goes on.
The closest hope of rescue was 920 miles away, at the nearest whaling camp. So, Captain Shackleton and five men sailed another two weeks, where they made landfall on the wrong side of the island, and hiked for 36 hours across uncharted, mountainous terrain.
When they found help, it took another three months to rescue the remaining sailors at Elephant Island. All 29 men who set out with the Endurance lived.
Why is this story so relevant for shippers now?
Heading into 2020, shippers face an Antarctica of their own—a volatile landscape of economic and sociopolitical upheaval that is likely to create greater complexity and costs at every turn. From tariffs to technology, it’s clear that we’re operating in a new landscape that demands evolution. The digitalization of trucking logs. Increasing tariffs on countless Chinese goods. New sulfur emissions regulations that could increase the cost of ocean freight by more than 20%. Greater calls for environmental sustainability by governments and consumer alike. And much more.
Whether you’re an Amazon shipper or managing logistics for a mid-sized organization or enterprise, the process of moving freight is changing for all involved. And navigating this potentially treacherous terrain requires solid information and best practices to guide you.
This article explores four of the noteworthy issues Sino Shipping believes will have a significant influence on the way freight moves in 2020 and beyond. In the pages ahead, we’ll dive into each topic with the goal of not only providing visibility into the complexity of these issues, but to also offer actionable solutions for proactively engaging with each opportunity in the coming year.
Happy reading – and bon voyage.
Chapter 1: The U.S.-China trade war: Past, present and future
In March 22, 2018, President Trump announced tariffs on up to $60 billion worth of Chinese goods1 , signaling that trade tensions between the U.S. and China would result in more than just talk. As of October 2018, the U.S. has levied a total of $250 billion in tariffs applied exclusively to China. In response, China has levied a total of $110 billion in tariffs applied exclusively to the U.S.
In Game of Thrones vernacular, winter is coming.
With these new tariffs taking effect in 2020, shippers need to—and are already trying to—get ahead of serious potential cost increases and capacity crunches. According to a recent article from The Wall Street Journal, loaded shipments to the Port of Los Angeles increased 6.6% year-over-year in September. Los Angeles is the busiest seaport in the U.S. and a critical entry point for cargo originating in China, indicating that shippers are racing to move goods in ahead of the tariffs. At the same time, realestate brokerage firm CBRE Inc. has recently reported that available warehouse space fell for a 33rd straight quarter, as vacancy gets filled with the supply that may have been shipped ahead of demand.
Yet, despite their agility, some proactive shippers are beginning to experience higher costs and express concerns about capacity. Quoted in that same WSJ article, Philip Damas, director of Drewry Supply Chain Advisors Ltd., notes that, “Capacity is insufficient. Importers are not very happy because they’re struggling to get their cargoes moved in time [and] the prices are twice what they usually are.”
While the full repercussions of the trade war can’t be known yet, shippers are already feeling the initial effects of challenged profit margins and the resulting pressure to raise consumer prices. But to understand where we’re headed, we must first look at where we’ve been.
The trade war to date: Battle by battle
March: The U.S. imposes global 10% tariff on aluminum; 25% on steel
April: China imposes countermeasure tariffs on $3 billion worth of U.S. goods. Goods include: Meats, fruits, wine
July: The U.S. imposes tariffs on $34 billion worth of Chinese goods Goods include: Machinery, vehicles, chemicals (targeting industrial sector) China responds with equal measure. Goods include: Vegetables, fish, other animal products
August: The U.S. imposes tariffs on $16 billion worth of Chinese goods Goods include: Machinery, motors, vehicles China responds with equal measure. Goods include: Chemical products, coal, oils
September: The U.S. imposes tariffs on $200 billion worth of Chinese goods at 10% (increasing to 25% January 1) Goods include: Consumer goods such as food, tires, luggage, electronics China responds with tariffs on $60 billion worth of U.S. goods Goods include: Furniture, industrial chemicals
How you can plan ahead ?
While the trade war has received a significant amount of media coverage, organizations need practical measures to absorb the increased costs. Waiting simply isn’t an option. Now is the time for shippers to analyze and optimize their supply chains. Here are some ways to prepare for tariffs and other changes that could impact your bottom line:
1 – Negotiate pricing and purchase agreements with your suppliers. While this might seem like a long shot, suppliers are also significantly impacted by decreases in demand and need to be flexible to minimize the corresponding impact to their businesses. Selling at a lower price or on different terms is better than the credible threat of losing a client to a competitor in a different country.
If your supplier or seller is a related party, there might be flexibility in accounting methods which allow the transfer of costs from one party to another, reducing the overall cost of goods used to calculate tariffs.
Additionally, if the seller is a middleman trading company, the First Sale rule might be applicable. First Sale is the price paid from the middleman to the manufacturer, and can sometimes be used as the base price to calculate corresponding tariffs.These approaches to restructuring your sales and purchase agreements could provide much needed relief to offset the additional cost of tariffs.
2 – Leverage data and information in all ways, always. Data is key to understanding the true, fully landed cost of goods and analyzing alternatives. Having accurate and timely cost data on hand allows you to assess the full costs to bring a product to market—from development, to manufacturing, to marketing and selling the product to the end consumer.
Shippers should leverage technology to assess the lifecycle value of a product, inclusive of new tariffs and taxes, to make more informed cost-strategic decisions. Technology has also made it easier than ever to stay informed of pending tariffs and regulatory changes, thereby giving shippers the ability to adapt.
3 – Move up inventory to buy time while you shift your supply chain. A number of importers have moved up shipments in anticipation of the January 1 tariff increase, taking advantage of the window to procure at a 10% tariff. Other shippers are planning on building inventory at the current, relatively “low” tariff rates while developing new suppliers. Remember, not all of the ~$515 billion of Chinese imports have been impacted, and it remains to be known if all Chinese imports will eventually be affected by tariffs and at what rates.
4 – Assess supply chain and manufacturing processes to look for inefficiencies. While it’s always a good time to increase the efficiency of any operation, the increased costs that have accompanied the trade war make this a crucial time to assess all supply chain expenses. From making the most of warehouse space to replacing manual tasks with automated technology, there are a number of ways to gain efficiency in your supply chain.
5 – Defer duty payments by storing imports in bonded or foreign trade zone (FTZ) warehouses. Needless to say, 25% tariffs on goods can add up quickly and have significant effect on working capital. You could benefit from significant working capital relief by storing your imported goods in bonded warehouses and pay duties weeks or months later upon retrieval. Shippers interested in this option should expect demand for bonded and FTZ warehouse storage in the U.S. to increase in the months ahead.
6 – Enhance your record-keeping and documentation to ensure you can claim Duty Drawback for corresponding goods. Duty Drawback is the refund of duties, internal revenue taxes and other fees collected upon importation. This occurs only when previously imported goods are exported or upon the destruction of goods under U.S. Customs and Border Protection supervision. There are structures where the importer can sell Duty Drawback rights to an advisor—who would own the right to claim the drawback upon export.
7 – Assess all the potential long-term effects before making permanent changes. Regulatory changes that have significant impact on your bottom line an feel overwhelming. As a result, it may seem enticing to quickly switch the entire direction of an organization, but being overly reactive may not pay off in the long term. As noted above, the full effects and duration of the trade war are unknown, so many shippers have chosen to focus on flexible options at their disposal and optimize current processes to make their supply chains more diversified and nimble.
Some shippers have already moved manufacturing operations to regions not affected by the current trade war, such as Southeast Asia. This move is not new, but the trade war has certainly increased the number of companies relocating their factories. Also, some companies may continue to produce individual ingredients or components of goods in China, then send those parts to countries not affected by tariffs to produce the final products. As expected, these changes have consequences on infrastructure in Southeast Asia, and will increase IntraAsia traffic, causing more congestion at major ports.
Other shippers have found that securing capital from a lender to buy time while growing could be a smart move. Clearly, there isn’t one right solution for all shippers, but focusing on the long-term effects of each decision will help any shipper navigate the new landscape.
Chapter 2 : IMO 2020: The cost implications of new regulation
The heavy fuel oil that powers most ships contains sulfur, which produces sulfur oxide (SOx) emissions following combustion in the engine. These emissions are extremely harmful to both humans and the environment, causing respiratory problems, lung disease, ocean acidification and crop damage.
In response, in 2016, the International Maritime Organization (IMO) mandated that all merchant vessels must reduce their sulfur emissions from 3.5% to 0.5% by January 1, 2020. This significant emissions reduction represents a tremendous challenge for the proprietors of the over 50,000 merchant vessels in the world, one-third of which are cargo ships. At the same time, shippers will begin to feel the impact of the impending 2020 deadline as carriers begin to pass on the cost of their chosen solutions to their customers—and those costs could be very significant for carriers and shippers alike.
Mother Nature Strikes Back A recent report published in Geophysical Research Letters found that the high volume of lightning strikes along major shipping lanes, which is nearly double that found in other waters, is caused by sulfur emissions from ships.
The IMO has progressively tightened regulations to reduce sulfur oxide emissions from ships since introducing such measures in 2005. But a study presented to IMO’s Marine Environment Protection Committee (MEPC) in 2016 increased the imperative for action with a startling finding: “By not reducing the SOx limit for ships from 2020, the air pollution from ships would contribute to more than 570,000 additional premature deaths worldwide between 2020-2025
Options for carriers
At present, there are three ways for a vessel to become compliant with the regulation:
- Switch from heavy fuel oil (HFO) to marine gas oil (MGO). Although MGO is the easiest and quickest fix, it is expensive and supply is limited.
- Install scrubbers to clean heavy fuel oil and bring sulfur emissions down to acceptable levels. The cost of installing scrubbers ranges from $5-10 million, depending on the size of the ship. Also, scrubber technology is nascent and fluid; there is not yet one kind of scrubber that has become the industry standard.
- Build a new vessel to burn liquefied natural gas (LNG). This step would really only apply to new vessels, as the cost of retrofitting a vessel to burn LNG would be prohibitively expensive. Carriers may combine any one of the above options with slow-steaming. This is the practice of slowing down ships to conserve fuel, which will increase transit times and further strain capacity.
How you can plan ahead ?
Junichiro Ikeda, president and chief executive of Japan’s Mitsui OSK Lines, recently told The Financial Times, “We’re all going to go bust” if carriers are unable to pass on the estimated $50 billion of additional fuel costs to customers. In the past, carriers have been less than successful in doing so, as illustrated by a cumulative net loss of over $1 billion in Q1:18 for the industry, resulting primarily from a spike in fuel costs. That said, analysts are predicting that shippers can expect:
- Ocean carrier costs to increase by at least 10-20%
- Capacity to reduce by 7-8% as carriers install scrubbers on existing vessels and build new ships
Shippers should remain very aware of the IMO regulation and prepare themselves for rate increases. Here are some tips to get ready for the effects of the new regulation:
1/ Consider your freight allocation mix, and partner closely with your freight forwarder to assess mode and pricing options. For example, shippers who have additional space in a given full-container-load (FCL) shipment can participate in flexible programs where the forwarder uses structured data to identify and match demand for capacity. Similar to how carpools work, the forwarder buys that space back and sells it to other customers who have the same route.
2/ Invest in modern technology/platforms that provide greater supply chain visibility and control to ensure your operations are as efficient as possible. While shippers can’t influence the rollout of new regulations, they can ensure they have full visibility into the productivity and efficiency of their supply chains. This makes it much easier to combat delays and minimize the risk of unexpected costs.
A modern platform also makes it much easier to plan strategically; shippers can optimize deliveries around changes in demand, taking advantage of high capacity to reduce costs. With proper infrastructure, shippers can move more cargo when the price is right and then store that additional product assuming the cost of warehousing is less than that of shipping at a later date.
3/ Stay continually informed of potential changes to regulations. Many shippers feel that there is a lack of publicity about this critical issue, making it more difficult to question price increases. Taking an active role in staying up to date on industry news through the IMO’s website, carrier announcements and Freight Market Updates arms shippers with the necessary information to ask the right questions.
The IMO’s efforts to reduce emissions should be applauded. It takes a strong collective effort to introduce regulation that is likely to have such a positive impact on the environment and our quality of life. Changes to regulation also signal an opportunity for shippers to assess their approaches to moving cargo as new technology makes it easier to optimize supply chains, rethink infrastructure use and take advantage of costsaving alternatives.
Chapter 3 : Freight Technology ; What will drive the industry in 2020
Consumers used to be almost entirely dependent on what was available at the local corner store. With the rise of e-commerce, there are now countless options available with just a tap. And, you can probably get it delivered tomorrow (or, in some places, by afternoon!).
This frictionless, online shopping experience requires a dynamic network of planes, trains, boats, warehouses and countless other variables. Technology is the connector that makes it all happen.
Aside from changing the ways shippers and carriers respond to the retail landscape, technology has increased the level of visibility into each step that comprises any given supply chain. Better location tracking, advanced geofencing and the rise of blockchain are just a few of the ways people are rapidly adopting technology to monitor and consume data. And there’s no sign of slowing down anytime soon.
Major advances and trends
Here are some of the recent noteworthy innovations taking hold and promising to continue growing adoption across the freight and logistics industry:
The Internet of things (IoT): A network of devices connected to each other through technology, IoT is a large reason the freight industry has rapidly progressed digitally. To put things in perspective, a report from Grand View Research found that the global IoT fleet management market size should reach $16.86 billion by 2025, up from $942.6 million in 2015.
IoT makes it easy to collect data and immediately transfer that information to dashboards, tanks, containers, and just about anywhere else. Shippers utilize this technology for efforts such as real-time tracking, providing end-to-end visibility to ensure they’re able to respond as soon as a delay occurs. Not only do shippers use IoT technology to track shipments, but they also use it to monitor goods within each shipment. Information on temperature, humidity, pressure and other factors is recorded and transmitted digitally to alert users of any changes. This is huge for predictive maintenance, making it much easier to prevent delays and unexpected costs.
Warehouses get an upgrade: Technology is used to optimize space within warehouses to increase efficiency. Product details and shipments are tracked digitally, providing an endless source of data to use for restocking products and planning growth. Companies also use data to plan for new warehouses, basing decisions on spending patterns and larger behavior trends.
Blockchain technology: A digital, decentralized public ledger of all transactions in a business network, blockchain improves real-time data sharing. And because each shipment involves a number of transactions, blockchain could provide the perfect platform for increasing visibility while significantly reducing the inefficiency of countless calls and faxes that accompany a non-digital platform.
Although nascent, blockchain has already been introduced by carriers such as Kuehne + Nagel to ease the sharing of weight data for ocean shipping containers.4 Maersk teamed up with IBM to create TradeLens, a blockchain project used to capture data on the many events that occur throughout a shipment’s journey.
According to an article published in FreightWaves, “One TradeLens trial reduced the transit time of a shipment of packaging materials to a production line in the United States by 40%.”
Electronic logging devices (ELDs): Beginning on December 18, 2017, all truck drivers switched from paper books to ELDs when logging their hours. This mandate meant stronger enforcement of federal hours-of-service rules, resulting in improved labor practices and overall road safety. Truckers can now use a single trucking app for HOS logs, vehicle inspections and route playback.
Geofencing: Using Global Positioning System (GPS) or Radio Frequency Identification (RFID) technology, geofencing creates a virtual boundary. In essence, it’s tracking what you customize to your specific needs and the intricacies of a given route. With fleet management software, the user gets a notification if a truck enters or leaves that boundary. This technology helps to prevent theft, track shipments, manage time and assess key performance indicators. has increased the level of visibility into each step that comprises any given supply.
If the above are driving what’s now, keep an eye out for these advances that promise to deliver what’s next:
Unmanned aerial vehicle (UAV) adoption: While there is much to be worked out from a regulatory perspective, UAVs have the potential to transform the freight industry. An early version of a drone built by Boeing will be able to carry hundreds of kilograms of cargo within a 15-30 kilometer radius, positioning it well for last-mile deliveries.5 There’s not much for shippers to leverage now, but it’s certainly something to keep an eye on as investors continue to back the development of unmanned vehicles.
Artificial intelligence (AI): AI works by taking in massive amounts of data and quickly processing it according to a series of algorithms to recognize patterns, providing new insights and minimizing the need for human exertion. For example, predictive software enables shippers to anticipate changing factors such as buying patterns, traffic and weather much sooner, thereby reducing the needs for phone calls and manual tracking. Simply put, AI has endless potential to disrupt freight transportation.
Autonomous trucks: A number of truck manufacturers are investing heavily in self-driving and electric technology. And while the cost of self-driving technology may be too high yet for consumers, it’s likely to roll out widely in the trucking industry soon.6 In fact, some trucking companies have been using the technology to move freight on major U.S. highways as part of pilot programs.7 Aside from reducing fuel consumption, minimizing the risk of collisions and lowering labor expenses, autonomous trucks have incredible potential to increase productivity through actions such as platooning.
How you can plan ahead
Changing the way a company functions isn’t always easy. But when it comes to technology, it’s certainly worth it. Here are three easy ways to continue pushing your business’ digital transformation further, faster, and ahead of your competitors:
1/ Obsess over data, which is key to recognizing trends. But to truly maximize the benefit driven from data, first invest in a tech platform that makes collecting and analyzing easy. From here, leverage the power of IoT to integrate all variables with the primary platform. This integration will make it painless to tie events to accounting, taking what was once a series of disparate processes and combining them into one seamless web that you can leverage with a single login.
The more information a shipper is able to take in and efficiently analyze, the better informed that person will be while making decisions in the future.
2/ Partner with tech-driven suppliers. Choosing suppliers who incorporate technology into their operations will give you greater visibility into the manufacturing process. From alerting you to changes in progress to scheduling shipments on your behalf, modern suppliers can make the origin side of your shipments far more efficient—and enable you to have much greater control in managing consumer expectations.
3/ Tap technologies that enable broad collaboration. State-of-the-art supply chain platforms have made it easier than ever to increase communication and visibility across the many parts of your business. At the same time, some of these solutions can help accelerate the freight forwarding process through automation. For example, once you upload required documents for compliance, your operations team will immediately have access. Also, your accounting team would be able to directly communicate with your operations team in the platform regarding line items and final invoicing. A history of every communication would then be recorded, reducing the amount of unnecessary back-and-forth messages between contributors.
Technology has been a consistent topic of urgency within the shipping industry, especially over the last few years. And for good reason: It has the potential to make trade easier and more accessible for everyone. The key is to embrace it.
Chapter 4: Sustainability ; How to increase your focus
There’s no question that global trade has had immensely positive effects on the world in reducing poverty, creating jobs and connecting communities. But while there are countless benefits to trade, the transportation vehicles that make it all possible carry a considerable cost to the environment.
According to the World Health Organization, the transport sector is the fastest growing contributor to climate-damaging carbon emissions.8 What’s more, international freight transport volumes are expected to more than quadruple by 2050, with average transport distance increasing by 12%.9
Organizations that prioritize their environmental impact not only slow down climate change, but also prevent the exacerbation of poverty due to its effects. And many customers, especially Millennials, see this commitment as very important:
- 66% of consumers are willing to pay more for sustainable brands10
- 76% expect companies to support climate change issues11
Companies that choose to use capital to invest in responsible environmental, social and governance (ESG) practices can also appeal to and improve retention of their employees. According to a study from Cone Communications on the Millennial workforce (which is on track to make up 50% of U.S. employees by 2020):
- 88% say their job is more fulfilling when they are provided opportunities to make a positive impact on social and environmental issues
- 83% would be more loyal to a company that helps them contribute to social and environmental issues
The call for corporate sustainability has never been more important. New regulations, changing workforces and evolving customer demands are just a few of the reasons shippers and their businesses should stand up, and in the process turn sustainability into a competitive advantage.
How you can plan ahead
By working with the right partners, reaching your sustainability goals and using your supply chain for good have never been easier to accomplish. Here are three tips to help a company of any size:
1/ Measure and understand your carbon impact. Using a carbon calculator to assess the impact of transportation emissions is a great first step to analyzing and reducing a shipper’s carbon footprint. Ideally, you can measure your carbon emissions monthly and get a picture of your carbon emissions per transportation mode, lane and supplier. Utilizing technology equips shippers with detailed insights at their fingertips, at any time.
2/ Ship carbon neutral. As long as international freight depends on fossil fuels, CO2 emissions can’t be fully avoided. However, companies can ship carbon neutral by offsetting their logistics footprint through third-party certified projects. Carbon offset projects either take CO2 out of the atmosphere or prevent additional CO2 from being released. For example, with Sino Shipping companies can seamlessly offset 100% of their freight emissions and benefit from Sino Shipping carbon neutral LCL services.
3/Turn surplus inventory into effective product donations. Almost every company incurs surplus inventory at some point. In the past, disposing or destroying goods has often been the most common solution for clearing warehouses. But as the need for local and global aid resources is increasing, companies often receive criticism for destroying unused goods or donating goods inefficiently.
Technology plays a major role in improving the coordination of product donations as it is key to understanding what products need to go where, and at the right time. Modern freight forwarders with strong networks can help clients put surplus inventory to good use, positively impacting their communities and unlocking tax reductions.
Summary: Now you know the terrain for 2020. Now start planning
If Captain Shackleton and the crew of the Endurance had known they’d be stranded in the frozen sea for more than a year, you can bet they’d have packed a little differently. So, ahead of a potentially tumultuous 2020, now’s the time to start heeding the forecasts and putting a plan in place to mitigate volatility—from higher import costs to capacity crunches to increasing consumer demands.
As you consider your shipping options and your freight forwarding partners for next year, also consider how those you include in your RFPs can empower you in the following critical areas:
Technology. With increasing calls for cost efficiency and business agility, technologies that provide greater logistics visibility and control are more crucial than ever. Ask your freight forwarder how their technologies will help keep you nimble, lower your costs and drive competitive advantage. At the same time, as calls for supply chain transparency and sustainability increase, emerging technologies can help you demonstrate accountability for materials, as well as reducing emissions.
Infrastructure. Increasing speed-to-market and meeting demand in an “Amazon World” require the flexibility and agility to move product in any market condition, and accounting for exception. Partner with freight forwarders who not only understand how to allocate shipments across modes, but who offer the shipping infrastructure (vessels, aircraft, warehouses, trucks) to fill gaps and optimize your routes, every time.
Expertise. Deep knowledge and experience will always be crucial to the shipping industry. But the implementation of new tariffs and rapidly changing emissions and dangerous goods regulations means it’s more critical than ever to get every detail right. Also, with so much at stake, now’s the time to get more from your partners. Press your freight forwarders for additional value-add expertise and services to keep your shipments moving, from cargo insurance to capital finance to carbon offsetting.
At the same time, with growing regulatory scrutiny and consumer focus on environmental sustainability and corporate social responsibility (CSR), your freight forwarder can be an ally in reducing your carbon footprint and achieving your CSR objectives. It’s worth considering and assessing how your forwarder can help you not only act sustainably, but also become more transparent and accountable in the process.
Sino Shipping is The Modern Freight Forwarder in China
Only Sino Shipping delivers a combination of advanced technology, physical logistics infrastructure and human expertise, providing fast and predictable transit times, visibility and control, and low and predictable supply chain costs to logistics and supply chain professionals across the globe. First to market in 2013 with a purpose-built cloud software and data analytics platform, Sino Shipping today serves more than 10,000 clients in over 110 countries, offering a full range of services, including ocean, air, truck and rail freight, drayage & cartage, warehousing, customs & compliance, financing and insurance—all informed and powered by our software platform. Sino Shipping is the trusted standard for technology powered global freight forwarding and logistics.