Ocean freight involves the transportation of goods via large shipping containers. This transportation method is widely opted by a vast majority of exporters and importers due to its low freight charges and the capacity to carry heavy goods in bulk. Approximately 90 percent of the world’s total supply of goods is transported by ocean freight. In comparison to aircraft transport, ocean freight is a relatively more complicated mode of transport due to different cross-border regulations and variations in the processes. Air transport takes less time in transportation but it is highly expensive. Therefore, air transport is typically preferred only in the situations where specific goods are required urgently. Aircraft carriers can carry only a designated weight and they also cannot carry large containers. On the other hand, ocean freight forwarders are specifically designed for carrying extremely heavy and bulky containers.
Two types of companies/businesses operate in the global ocean freight market. One is ocean freight forwarders and the other is ocean freight brokers. Ocean freight forwarders own shipping vessels and they can directly deal with the companies for transporting goods while ocean freight brokers do not own transportation vessels. Rather, they deal with the forwarders and supply goods to them from different businesses for transportation. Both specialize in their respective businesses and have their respective market presence.
Ocean freight forwarders use four types of modes of transportation that are Free On Board (FOB), ExWorks (EXW), Cost Insurance and Freight (CIF), and Delivery At Port (DAP)/Delivery and Duty Unpaid (DDU). ExWorks (EXW) transports goods to the factory or manufacturer whereas Free On Board (FOB) transports goods to the internal terminal of the buyer’s country. Delivery At Port (DAP)/Delivery and Duty Unpaid (DDU) delivers goods directly to the plant or site excluding taxes and charges and Cost Insurance and Freight (CIF) takes care of the transport to the buyer’s country.
Recent Advancements in the Evergrowing Ocean Freight Market:
The global ocean freight market shows a global container shipping capacity of 8.4 percent and it is likely to exceed the demand growth of 3.1 percent. Currently, the global ocean freight industry is going through an imbalance in the demand-supply ratio which is due to certain global trends. The trends include disparity in overcapacity and financial cycles, the adaptation of cargo to container shipping method, a faster-growing port capacity than trade volume, enhanced demand for consumer focus and technology, and environmental issues.
- The industry is also witnessing an overcapacity phenomenon. Large vessels such as those of 1 million TEU capacity are idle and more vessels of the same capacity are being delivered constantly. This has resulted in more than 6.5 percent of global shipping vessels being idle. This is because many operators have withdrawn their services and returned chartered-in vessels once their lease has expired. All of these decisions were taken to cut losses. As the freight rates return to portable levels, the operators are likely to reinstate their idle vessels that will in-turn create more imbalance. Some imbalances in the current ocean freight market are leading to the need for sustainable development in the industry at a global level and the fluctuating trade-lane capacity is one of those factors.
- The Asia-Europe trade lane is facing the largest capacity and freight-rate pressure with a current gross capacity growth of 89 percent. Such growth is driven by the delivery of new ships that are sized above 10,000 TEU. In the Trans-Pacific trade lane, larger ships are expected to replace small vessels. The Trans-Pacific region and Latin American region are dominated by ships of 7,500 TEU to 9,999 TEU sizes whereas the Middle East and Indian subcontinent are dominated by the ships of 5,100 TEU – 7,499 TEU size. These developments are creating new business opportunities for enterprises that are willing to invest and reap the benefits of changing industry requirements.
- The trade-lane space is also tightening across all the major routes such as APAC to Europe, APAC to Oceania, and APAC to North America. This is leading to a situation where freight rates are going to increase that will gain escalate during the post-peak season due to General Rate Increase (GRI) and Peak Season Surge (PSS) by the carriers.
- On the other hand, free-time has become more significant than ever. Carriers have understood the importance of free-time and how charges could surge through detention and demurrage. This also due to the port congestion and unavailability of chassis in the busy period. However, the scope for reducing the risk factors is still there.
Businesses can maintain a predefined set of Key Performance Indicators (KPIs) including the confirmed time of departure, and percentage of booking as per the booking date. Another important component is the storage costs that can be negotiated at a private inland port for acceptable storage rates.
With emerging economies in the APAC region, the ocean freight industry is experiencing a steady growth. However, other factors such as supply-glut, imbalance in the ratio of idle and working vessels, and tightening trade-lane space are causing worries among the forwarders and freight agents worldwide. Regardless, the rising demand for sustainable development in the industry is also there.