DHL exec addresses challenges related to Asia-originated logistics issues

In some recent correspondence I had with a friend at global express delivery and logistics services provider DHL, the subject of the logistics-related issues coming out of Asia was front and center, to be sure.

Citing a recent article from CNBC, the DHL official observed how shipping to and from Asia has become a severe issue for some U.S.-based companies, as shipping costs have significantly increased. And, in some cases, the cost to ship goods from Asia to the U.S. has risen to 27% for small appliances, 41% for large appliances and 62% for assembled furniture as per the CNBC article.

“That shows how these shipping costs cut into the margins of retailers as sales prices have not (yet) gone up so drastically,” he explained. “Some commodities shipped from the US like agri products, secondary raw materials like waste paper have also suffered from these increasing shipping costs. In some cases, the question is been asked where does it no longer make sense to ship at these prices and I am anticipating that some importers or exporters have already reduced volumes where the margin just does not allow to cater for shipping costs experienced.”

As for how DHL’s customers are dealing with the current situation, he observed that it can only support to maximize the usage of capacity in the market.

“In that regards we are working with carriers to use Shipper’s own Containers (SOC) to avoid those slots on vessels moving empty, and we help customers with solutions in the U.S. to avoid cargo being stuck in the ports by trans loading and moving with domestic trucking solutions,” he said.

To get further insight into this situation, Jim Monkmeyer, President, Transportation, DHL Supply Chain, answered a few questions for Newsroom Notes, which follows below.

LM: How have the rising costs of ocean container shipping impacted/affected shippers' approaches to capacity management efforts?

Monkmeyer: The capacity issues in the market are creating challenges for everyone throughout the supply chain right now. There do not appear to be any “silver bullet” solutions that companies can apply to weather the storm, as many regions are facing issues with disruptions and /or a lack of transport or container capacity. Shippers are warning customers of longer lead times, shifting supply and shipping air where feasible. In the US, for example, the challenge is being exacerbated by a lack of warehousing and inland transportation capacity, due to the high demand for inventory and ongoing hiring challenges.

While some shippers are trying to streamline their inventory flows – through traditional measures like consolidation and better forecasting enabled by technology – the reality is that the high demand across most product categories is forcing many to absorb the higher costs just to secure the capacity and, where possible, to pass them on. The environment is benefitting forwarders and shippers who have well-established relationships and longer-term commitments with carriers, which is providing that access to the capacity. In the near-term, we see high potential for some importers to start reducing orders for certain goods, particularly where it is more difficult to pass price increases on to end customers.

LM: Is reducing volumes, as a result of margins not covering shipping costs, becoming more of a common approach, at the moment?

Monkmeyer: We are seeing this taking place. According to a recent report in CNBC, in some cases the cost to ship goods from Asia to the US has risen to 27% for small appliances, 41% for large appliances and 62% for assembled furniture. That shows how these shipping costs cut into the margins of retailers as sales prices have not (yet) gone up so drastically. Some commodities shipped from the US like agricultural products and secondary raw materials (i.e. waste paper) have also suffered from these increasing shipping costs.

LM: As a follow-up the question above, is that concern being tabled by shippers, due to Peak Season and the need to rebuild inventories for things like back to school and holiday shopping? 

Monkmeyer: At the moment, we are not seeing any radical shifts in inventory strategies relating to peak season – in fact, many shippers are simply focused on managing the pricing challenge while still prioritizing getting their goods onto ships (or in some cases, diverting to airfreight). However, one of the approaches deployed last year by many retailers to manage the peak season challenge (which was different, but also related to capacity) was to try and manage/influence demand, primarily through timing promotions to smooth out orders through peak season. We could imagine similar tactics being deployed this year – using creative promotions to move inventory on hand and smooth out peaks in demand for product categories that still need to be imported.

Back-to-school is largely not as much of an issue as most of the inventory will have already been sourced and brought into the market. The principal challenge there will remain matching demand to the last-mile capacity and predicting customer behavior for omni-channel (i.e. how much demand needs to be serviced via retail networks, and how much via e-commerce).  

LM: What measures are being taken by shippers and carriers/logistics services providers to address the current situation, in the form of bulk agreements to secure capacity, surcharge adjustments, and key shipper prioritization, among others? 

Monkmeyer: DHL Global Forwarding is supporting, for example, by helping our customers to maximize the usage of capacity in the market, such as working with carriers to use shipper’s own containers (“SOC”) to avoid the slots on vessels moving empty and providing solutions in the U.S. to avoid cargo being stuck in the ports by trans loading and moving with domestic trucking solutions. Shippers and forwarders are chartering vessels, and using zone skipping in the U.S. to drop shipments into last mile and parcel networks at the last possible moment in order to minimize delays.

**Needless to say, a whole host of global supply chain challenges remain intact, based on DHL’s observations. The aforementioned analysis from Monkmeyer confirms that, too. Things are different now, of course, but shippers and services providers are stepping up to roll with the changes and get freight to where and when it needs to be.