In the first part of this series, we discussed the reasons why global forwarders rely on consolidators to support their less than container load (LCL) shipments. We now look at the challenges, threats and opportunities facing consolidators in the near future.
The challenge for any consolidator in building any new LCL trade lane between two port pairs is getting a baseload volume or anchor customer. A baseload volume or anchor customer is shipment volume that a forwarder or consolidator can rely on through thick and thin, rain or shine to arrive at the container freight station for loading on a daily or weekly basis. The easiest way to do this is to focus on clients that can offer stable, regular volumes on a certain port pair and to get them committed on long term contracts at below market rates. Once such volume has been secured, the service can now begin as a regular business, albeit an unprofitable lane.
The next phase is to get other clients to join on this regular baseload at margins that push the consolidation box into profitability. For most port-pairs, it’s a huge challenge getting regular volumes from one port to another if either port is not a transhipment hub. The easiest way is to route their cargo via such hubs instead.
The growth to a mature LCL service is to provide a direct connection bypassing the hub altogether, which means building a high share of demand on specific freight corridors to obtain lane density, which in turn can command lower prices from carriers since there is now a regular scale and volume of cargo flow.
The goal of any LCL network is one where the forwarder’s network sets up more direct routings and the port pair weans itself off its reliance on any one transhipment hub. One way to build a profitable tradelane is to concentrate spending on key carriers and focus on high-margin clients, but there are trade-offs to balance: higher paying cargo usually comes at the expense of volume, and high volume at the expense of high margins.
The LCL market is facing some threats from other transport modes, such as rail between China and Europe. Road freight is emerging as a serious contender and alternative to sea freight between Singapore, Malaysia, Thailand, Vietnam and China. Transit times by truck overland from Singapore to Thailand can take two days with lesser customs requirements, while the same journey by sea from Singapore to Bangkok can take four days if you factor in port congestion and more stringent customs clearance formalities. Short-term drops in overall LCL market growth globally may tend to benefit consolidators because smaller and larger forwarders may scrap their own weekly service offerings and co-load more of their volumes with a consolidator that can offer a dependable, regular service.
A longer term threat is that as existing volumes grow along port pairs, the easier it is for global forwarders to create more of their own internal LCL services by pooling their own cargo, thereby taking that volume away from consolidators. After all, most basic LCL services only need to be done on a weekly basis to meet most clients’ transit time requirements.
As forwarders grow and take more of their regular lanes in house, LCL consolidators have to find other ways of supplementing their growth. Some have resorted to going after the shipper market directly, bypassing their forwarder customers. This requires strategic calculation and finesse with managing the risk of fallout should there be repercussions from doing so. As markets become more fickle and as price transparency becomes more prevalent, this seems the most effective way of mitigating the impact of falling LCL business from a forwarder. The other way is to move upstream and take over ownership of or management of a CFS so that the costs can be pooled and margins can be squeezed elsewhere while maintaining their relationship proximity with the forwarder.
For co-loaders, routing cargo through transhipment hubs is critical to ensuring maximum container utilization and regular weekly frequencies. The most popular transhipment hubs in Asia are Hong Kong, Busan and Singapore. Singapore is mainly used as a hub for cargo originating or arriving in South-East Asian countries while Busan serves as a hub for cargo originating or arriving in Japan, Korea or Taiwan. Hong Kong is a gateway for China but also straddles what Busan and Singapore cover, overlapping from time to time but never truly dominating.
Each transhipment hub, sometimes even within a single forwarder, competes against the other for cargo to tranship at its port by offering rebates to origin offices and in turn collecting the rebate plus an operating profit from the destination office. Some co-loaders, in a bid to reduce internal competition, have designated certain hubs for certain segments of their Asia-Pacific region so there is no overlap.
Consolidators can make themselves relevant to the large forwarders by focusing on exotic lanes, provision of dangerous goods cargo services and providing regular reliable and dedicated weekly services (regardless of the weekly profitability of their boxes). LCL perishable cargo transported in reefer containers remains a frontier development for consolidators, but it is unappealing due to the seasonality of transporting fruits, flowers and vegetables and the varying temperature requirements of such cargo. This results in a lack of a regular baseload volume which is the first jigsaw piece for any consolidator to build their LCL service around. For that reason, airfreight direct service is more commonly used as a preferred alternative due to rapid transit times, dedicated perishable facilities at both origin and destination airports and quick clearance to ensure freshness.
A more realistic option for LCL development is through the sea-air/air-sea product. This is a more natural evolution of the LCL product and offers a third option in between the conventional air or sea freight choice for the customer. Most sea-air/air-sea products move through hubs and can be used effectively to manage costs on the go by savvy supply chain managers. Dubai and Singapore are popular gateways for cargo transiting between U.S. and Europe going back and forth to Asia. However, the product itself is not very popular due to the perceived complexity surrounding it, and it has traditionally been used as a last resort triggered by the occurrence of a crisis or major disruption to global supply chains.
Luke Robert consults for SME and MNC clients in navigating trade tariff agreements and advising on industry-wide regulation and the impact of political and economic trends on their supply chains. He is currently with one of the largest logistics MNCs in the world. The views expressed here are entirely his own. www.linkedin.com/in/luke-robert
Go to Source
A massive fire broke out at the Port of Beirut on Thursday, incinerating a warehouse full of tires and oil within the port’s free zone. The same area was heavily damaged in the ammonium nitrate explosion that leveled the central port area and the adjacent waterfront on August 4. According to Lebanon’s civil defense agency, […]
Over the course of the past five days, the Australian Maritime Safety Authority arranged a medical intervention for an injured aboard a freighter in the Indian Ocean. On Saturday evening, the Spliethoff tweendecker Dolfijngracht called for assistance while under way about 1,000 nauical miles off the coast of Western Australia. A crewmember had sustained serious […]
The National Transportation Safety Board (NTSB) has released a Marine Accident Brief about an accident that occurred on April 15, 2019, involving the towing vessel DeJeanne Maria which struck the end of a submerged dredge pipeline while pushing two spud barges to the Gulf of Mexico. The incident occurred on the Mississippi River in Pass […]
Best known as a leading passenger airport serving Germany’s most populated federal state North Rhine-Westphalia, Düsseldorf has become transformed into a vital distribution point, during the COVID 19 pandemic, for medical equipment and other life-saving goods, mostly from China. Gerton Hulsman, managing director of cargo operations, reports that the handling teams are working hard to […]
With close to 100 daily cargo flights operated to a destination network spanning more than 65 cities across six continents, Emirates SkyCargo is delivering essential supplies and commodities to people around the world. The air cargo carrier is currently operating 11 Boeing 777 freighter aircraft, each with a capacity to transport about 100 tonnes of […]
The UK government’s new post-Brexit tariff regime will result in both winners and losers. The new regime is set to replace the European Union’s Common External Tariff from the end of the Brexit Transition Period on December 31, 2020. The UK’s commitment to the ongoing Brexit process and ending the UK’s transition from EU membership […]
DSV Belgium has solid experience in the transport of pharmaceutical products for different customers. With a pharma hub based at Brussels Airport a lot of experience and know-how has been built up over the years. Last weekend, the forwarder handled one hundred million mouth masks, an important milestone for its Belgian organisation that has put […]
Emirates SkyCargo has expanded its weekly scheduled cargo flight operations to cover 75 destinations across six continents. Through its wider reach, Emirates SkyCargo is able to transport essential commodities and other urgently needed cargo more rapidly across the world, allowing exporters and importers across markets to benefit from direct access to widebody cargo capacity. Some […]
Global commercial aviation charter company Albion Aviation Group is reporting that it is seeing a considerable uptake in its professional cargo broker training courses from the current global pandemic crisis and surge in charter demand. “We have completed a number webinar courses for a whole of host of companies, looking to manage their own cargo […]
Operators can continue to use pilots and other crew members who have unable to comply with certain training, recent experience, testing, and checking requirements due to the COVID-19 outbreak in support of essential operations. Additionally, this Special Federal Aviation Regulation (SFAR) provides regulatory relief to certain persons and pilot schools unable to meet duration and […]
Astral Aviation has increased its intra-African network with cargo freighters during the pandemic. While there has been a reduction in capacity to, from, and within Africa, which has been caused by a stoppage of passenger flights and limited frequencies on freighter aircraft, Astral Aviation continues to operate cargo freighters from its Nairobi hub to 13 destinations […]
The U-Freight Group (UFL), with its considerable involvement in eCommerce logistics, says that the latest statistics showing that global e-commerce sales hit $25.6 trillion in 2018 are a further vindication of its decision to enter this sector of the international freight market several years ago. The latest available estimates, up 8% from 2017, were recently […]
Callan Marine is serving as the prime contractor to the Texas Department of Transportation for a maintenance dredging project located at the Bolivar Ferry Terminal, in Galveston, Texas. Work began in May and is estimated to be complete in late July 2020. The project consists of the removal of 600,000 cubic yards of material and […]
Network Airline Management and TAAG Angola Airlines are pleased to announce the renewal of their long-term freighter aircraft contract by an additional 12 months, sealing an ongoing partnership for the foreseeable future. Operating a regular weekly scheduled service from Liege, Belgium, to the capital of Angola, Luanda, Network Airline Management provides a Boeing 747-400F aircraft […]
Qatar Airways Cargo transported 56 SkyCell containers with vaccines from one of the largest vaccine manufacturers worldwide on its scheduled freighter and belly-hold cargo flights for its customer, CEVA Logistics. The 54-tonne shipment consisting of pneumococcal and varicella vaccines were flown from Brussels to Mumbai via the carrier’s hub in Doha on two separate flights. […]
NOAA Fisheries announced Friday that it will cancel five out of its six large-scale research surveys in Alaskan waters this year due to COVID-19. The canceled surveys include the Aleutian Islands bottom trawl survey, the eastern Bering Sea bottom trawl survey, the northern Bering Sea bottom trawl survey, the Bering Sea pollock acoustics survey, and […]