Global shipping can be considered the backbone of modern commerce. By facilitating affordable and effective transit of shipments across borders, the industry connects businesses to customers and partners around the world.
According to the UN Trade and Development, maritime trade is expected to increase more than 2% between 2024 and 2028. However, the picture has another side as the shipping sector struggles with several challenges.
The pandemic was perhaps the worst time for the industry as constant delays and long backlogs on ports were rampant. While things looked up after the pandemic, they are not great in 2024, with several factors affecting global shipping.
As a business owner, you may suffer due to delays, high costs, and supply chain disruptions this year and beyond. Having a plan to address the crisis is the only way to resolve the impending bottlenecks.
In this article, we will highlight these factors that are risking potential disruptions and suggest solutions for businesses to deal with them.
The Impact of Climate Change on Shipping
Climate change is something every industry is battling right now, and ocean trade is no exception. In fact, there are several ways weather phenomena can affect long-distance voyages and delay shipments.
The High Meadows Environmental Institute notes that the recent decades have witnessed a significant increase in storm incidents. Intense tropical storms hinder the shipping process, from loading containers to transporting cargo.
There are even chances of ships losing containers during harsh storms. Shipping delays are also common during such events. Rising seawater levels damage port infrastructure, translating into losses for the shipping industry.
The El-Nino-induced drought in the Gatun Lake serving the Panama Canal has been a major climate-related incident affecting maritime trade. Fewer vessels are allowed to transit the canal, affecting trade routes and causing shipment delays. Notably, ship transits in the region were limited to only 24 per day as of April 2024, and only smaller vessels were permitted.
Besides extreme weather events, climate regulations are also a problem for ocean trade. The International Maritime Organization (IMO) aims to cut emissions by 80% in 2040 (base year:2008). It is only possible by reducing ocean trade and enforcing regulations on ships.
Clearly, these climate-change-related factors spell tough times ahead for the shipping industry and businesses relying on it.
How Geopolitical Tensions Affect Global Shipping
Besides climate change, the current geopolitical tensions are affecting global shipping significantly. Nearly all container shipping lines opted to cease serving Russian ports after the attacks on Ukraine. In 2024, the Red Sea became the focal area of geopolitical tension.
International shipping routes in the region are at high risk, with Houthi militants in Yemen employing sophisticated weaponry, drones, and ballistic missiles. The UK Maritime Trade Operations reports that 16 vessels experienced hits from missiles or drones, and 33 were assaulted in the region.
In this situation, shipping companies are forced to take much longer trade routes around the Cape of Good Hope. Shipments are delayed by 1-3 weeks and transport costs have increased due to high fuel usage. The sector is also struggling with container crunch due to these delays.
Inflation and Shipping Rates: Understanding the Link
Another factor affecting the global ocean freight sector is inflation, a rampant problem across the globe. There is a complex relationship between inflation and shipping rates. When shipping costs increase, there is a corresponding rise in import prices and core inflation. Similarly, global oil and food prices rise.
On the other hand, operating shipping fleets becomes far more expensive when fuel costs rise. Coupled with the problem of longer trade routes, rising fuel costs make it harder for shipping providers to operate. At the same time, small businesses with limited funds struggle with the ever-rising shipping rates.
Shipping costs surged 150% from December 2023 to February 2024 due to the Red Sea situation. This increase led to rising import prices and reduced supplies of consumer goods and intermediate inputs. Both consumers and manufacturers are already feeling the pinch of inflation in these circumstances.
How to Build a Resilient Shipping Strategy
As 2024 does not seem like the best year for ocean trade, businesses must go above and beyond to deal with the crisis at hand. Building a resilient shipping strategy requires a well-planned strategic approach. Here are a few actionable measures to do it:
Diversify Shipping Channels and Partners
Statista notes that about 80% of global goods are transported by ships. If you trade globally, you will surely have to use shipping services. Right now, that may seem challenging, but diversification can help you build a resilient shipping strategy. Avoid relying on a single route or provider, as it leads to a risk of disruptions.
Using multiple routes and carriers can mitigate the risks of service disruptions and price fluctuations. Also, you have a chance to negotiate favorable terms and rates by leveraging competition.
Opt for LCL Shipping
With most businesses struggling with high shipping costs due to the current crisis, LCL shipping services emerge as a preferred option. Less-than-container load (LCL) shipping gained precedence over full-container load (FCL) shipping during the pandemic. The strategy kept businesses going during the global slowdown, making it a key factor in shipping resilience.
With LCL shipping, sellers can move smaller cargo loads for customers. From a business perspective, this is a wise move because it can lead to cost savings, specifically when operating on a small scale. During the pandemic, sellers saw as much as 60%- 75% of savings when opting for LCL versus air, as reported by Supply Chain Brain.
Moreover, the LCL shipping model lowers the risk of bottlenecks if the cargo gets stuck somewhere. Another consignment in a different ship may reach its destination while other ships are delayed, so it can be beneficial to divide shipments among multiple loads.
Create a Contingency Plan
Even the most well-prepared business may encounter shipping disruptions in the prevailing circumstances. A comprehensive contingency plan is something you must have in your arsenal to respond to unexpected disruptions.
Be prepared for various scenarios such as extended delays, port closures, carrier failures, and sudden spikes in demand. Identify these risks, evaluate the potential impact, and develop a response plan for each risk. For example, you can think of alternative shipping methods if your carrier fails to respond.
A contingency plan can be your savior and offers peace of mind if something goes wrong.
Final word
Despite its efficiency, reliability, and safety, ocean freight isn’t going through its best phase in 2024. Climate change, global geopolitical issues, and inflation are causing hindrances for shipping vessels across various routes.
While the situation appears challenging, business owners can stay a step ahead with a preconceived, resilient shipping strategy. Foreseeing and foreplanning can help you keep your supply chain unaffected even in the worst of times.
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