Rate Expectations

Logistics Management magazine hosted a very informative webinar on Jan 30th which featured a number of experts discussing managing costs via multiple modes. The speakers presented forecasts of rates and capacity in their respective areas of expertise. They also offered advice to shippers. Here are my takeaways from the webcast:

 

Trucking

  • Large and small  fleets are reducing fleet size but replacing older equipment with newer, more fuel efficient units resulting in not much change in overall TL capacity
  • Flat demand plus trend towards Supply Chain Optimization will delay capacity crisis in trucking industry
  • LTL rates hikes approx. 1-3% in 2014 if YRC survives and could be as much as 7-9% if YRC does not survive
  • Capacity issues may surface in 2016-2017 due to more restrictive regulations and driver shortages
  • Shippers are advised to develop partnerships with a small number of core carriers to maintain service levels if capacity does become an issue

Rail and Intermodal

  • Intermodal volume will grow 4-5% in 2014
  • Railroads continue to improve OR’s on the strength of intermodal
  • Although intermodal demand is up rate increases expected to be modest due to pressure on OTR rates
  • Shippers are advised to have contingency plans in place in the event of rail disruptions due to catastrophic events or natural disaster

Air Cargo

  • Load factors increasing
  • On shoring or Near Shoring trends worrisome to air cargo operators
  • Air cargo rate making differs by geography and capacity is the major factor
  • Fuel costs always a concern
  • Carriers will continue to replace older aircraft with newer, more fuel efficient, planes
  • Carriers will continue to manage capacity to control costs and improve load factors

Container Shipping Rates

  • Global supply/demand balance will not reach equilibrium until 2016
  • Excess supply continues in 2014
  • Rates, especially spot rates,  will be volatile as carriers manage demand
  • East-West rates will fall 1.5% in 2014
  • Global rates flat after falling 5% in 2013. Little change in 2014
  • Risk to shippers is carriers may skip sailings due to volatility but no real capacity shortage
  • Shippers  advised to develop relationships with carriers to ensure access to capacity

Parcel

  • Duopoly enables carriers to raise rates in 2014
  • FedEx + 3.9%
  • UPS + 4.9%
  • DHL +3.9%
  • USPS +2.4%

Importing Due Diligence

Our previous post suggested an annual review of Harmonized Tariff descriptions as a good business practice. Another good practice is to make sure you are taking advantage of regulations that allow importing on a duty free or preferential basis. Here are a few items for your annual customs review. Contact Ad Hoc Logistics if you need help.

 

  • Classification– review annual updates to Harmonized Tariff to make sure your codes and descriptions are accurate. Proper classification and valuation of imported goods are the first step in compliance. If you do nothing else, do this.
  • Duty Drawback– this is a refund of duties paid on imports that are later exported. Record keeping is key here.
  • Chapter 98 of the Harmonized Tariff allows duty free entry of certain categories of goods. Examples are: American Goods Returned, American Goods Repaired or Altered Abroad, and American Components Assembled Abroad.
  • Trade agreements– programs which allow duty free or reduced duty rate entries. There are many agreements (such as NAFTA) in place.
  • Customs rulings– consider requesting formal customs rulings prior to large transactions. This ensures compliance and eliminates uncertainty about imports. Rulings can be requested thru the CBP website.
  • Correcting errors– when an entry mistake is discovered it can be corrected by a prior disclosure to CBP. The formal process is a Post-Entry Amendment/Post Summary Correction. A prior disclosure can help mitigate penalties.

Harmonized Tariff Due Diligence

The International Trade Commission publishes updates to the Harmonized Tariff System of the United States (HTSUS) twice per year in January and July.  Accurate classification and valuation of imported goods are essential. The Harmonized codes and descriptions filed upon entry determine duty rates or duty free status. Harmonized tariff descriptions also give Customs and Border Protection (CBP) information about what commodities are entering the country and determine if any other agencies such as the FCC or FDA also have jurisdiction. An annual review of your HTSUS codes and database update is a good business practice. Contact your broker or Ad Hoc Logistics if you need help.

Carnets

Ad Hoc Logistics is currently advising an engineering company about international trade show and conference shipments. We are researching pros and cons of using carnets and recommending carriers. Contact mitch@adhoclogistics.com  if you have similar needs.

Freight Forwarder Outlook

Let me share some observations about the freight forwarder industry at the end of 2013 based on meetings with forwarders and shippers as well as data from trade publications. Contact us for more info.

 
  • Modal shifts from air to ocean will continue as a cost reduction strategy.
  • Airlines have improved load factor and profitability by cutting flights. This means less freight capacity overall.
  • Air freight forwarders will focus on higher yielding commodities to make up for weak demand and to better utilize existing capacity.
  • Shippers looking for full services forwarder with advanced technology and capabilities but still price sensitive.
  • Mega forwarders have advantage in buying power, capacity, coverage, and variety of services. They may be at a disadvantage in unique local markets.
  • Current ocean freight overcapacity in APAC-US lane leads to erratic rates.
  • Dominated by shipping alliances ocean carriers will reduce capacity and put upward pressure on rates.
  • While current spot rates (ocean) may be low they will rise in 2014.