Crisis in freight markets creates risks for retailers

With recent retail sales figures showing the largest increase for twelve months, LCP Consulting, a leading specialist in supply chain and logistics, is warning that the combination of uncertainty in forecasting retail sales volumes and the ongoing financial crisis in the freight industry will create risks for retailers.

The consultancy says that as the high street approaches its busiest time of the year, retailers will need to manage their international logistics with more care than ever before to avoid service impact trading risk and costs affecting margins.

Alan Braithwaite, Chairman of LCP Consulting and Visiting Professor at Cranfield said:

The risk for retailers will be when carriers are forced to remove further capacity to address their continuing financial crisis and this combines with better than forecast sales. This will undoubtedly put pressure on availability as carriers of all kinds will not hasten to put capacity back in the market or to re-adjust from their slower and less reliable services.

Reliability in international shipping in decline

LCP Consulting research also found the financial crisis has seen the reliability of international shipping decline - as ships have been slowed, ports and container transloading has increased and shippers' cargos may simply be left behind. The consultancy says that while there is no statistical evidence that retailers are consistently late with their orders and supplies for Christmas, there is already some anecdotal evidence of this.

Alan Braithwaite said:

In some cases ocean carriers are cancelling contracts in an effort to improve rates and some are trying to impose unilateral increases in the market. This practice is also evident in the air cargo sector with recent announcements from Lufthansa. Retailers need to be aware that for freight operators the concept of customer care is no longer a priority in their current challenged state.

Further confirmation of freight industry woes...

Speakers at the recent Global Distribution StrategiesEurope 2009organised by Transport Intelligenceall confirmed the scale of the economic challenge in the freight sector arising from the downturn.

For instance, revenues have fallen further than the volume as freight rates have become extremely competitive. Major lines like Maersk have lost 2 per cent in market share and companies are posting unsustainable losses. Speakersat the conference confirmed that both the shipping lines and the specialist air cargo operators have mothballed capacity with an indication of as much as 10 per cent of capacity exiting and shipping lines collaborating on capacity. The general conclusion is that this adjustment is not yet enough to correct the very low market rates. Asset operators remain extremely challenged and are having to raise cash or use reserves.

Research by LCP Consulting also demonstrates the scale of the economic challenge for the freight industry. The consultancy found:

Ocean and air freight volumes for the first quarter of 2009 were down by as much as 20 per cent versus same period last year. This picture seems to be consistent around the world, although the scale of impact seems to be larger in some countries/regions than in others and is difficult to square with a lesser decline in economic statistics.

UK port traffic volumes had a 19 per cent decrease versus the same period last year, while European ports range from a 13 per cent decline in Hamburg to more than a 30 per cent fall in Barcelona.

Some of the American west coast ports, as expected, show equal falls of around 20 per cent versus previous year..

The more extreme cases, and also a root cause to traffic slowdown in western ports, can be observed in Taiwan where exports were 60 per cent down in January versus the previous year.

Chinese exports are reported to be 23 per cent down versus last year, with an excess capacity of 35m TEUs at Chinas ports.

Air freight volumes follow a similar trend, as latest global figures revealed a continued decrease in volume versus last year, running at similar levels to sea freight

Little sign of recovery...

Sebastian Scholte, Head of Marketing for the specialist Aircargo operator Cargolux, confirmed that there had been slight levels of increased activity in September which suggests the bottom had been found rather than pointing to a recovery.