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2020: The Year of the Rat and the Global Plague | October 2020

2020:
The Year of the Rat
and the Global Plague

2020 has been a rollercoaster ride for all of us and its still not over. 2020 locked down countries, and disrupted trade, but also created opportunities for change. Here in Japan, a country famous for “Karoshi,” a noun meaning death from overwork, employers opened the door for flexible work schedule, working from home (WFH), and many companies even adopted online signatures over the good old rubber stamp or “hanko.”

And like all other industries, the logistics industry failed to escape the insanity and instability of the pandemic. Capacity reduction for both Air and Ocean, Trade Wars, Imbalance between demand and supply, just to name a few.

The big carriers are currently enjoy strong cargo demand and healthy spot rates on the two biggest East West trades. Looking at the world container index over the past year, it looks like someone was climbing a precipitous mountain. Asia-Europe ocean freight spot prices climbed again last week (Week 40), taking average global prices to a five-year high.

With all that in mind, I approached a few industry leaders in Japan to sit down and discuss, “What’s next?” I know it’s a difficult question without a crystal ball, but what will freight rates for Ocean & Air look like for the next 6-12 months?

Mr. Christian Wolf, Managing Director at JAS, Japan replied, “We see very strong signs that the freight rates are on an upward trend, fueled by a shortage of space. And it looks like the air travel is not coming back into a regular flight operation. This of course is very much depending on the entry policies of Japan.”

He continued, “As long as short-term business travelers have no possibility to come back to Japan easily, the airlines will not increase their flights. The market saw an increase in Freighter tonnage or converted Passenger plane freighters over the recent weeks to cope with air cargo demand and to support the revenue stream for airlines.

After Chinese October Holidays we will definitely go into a peak season that is as well impacted by several tech product launches that is asking for additional capacity. I think we will see a particular strong market for transpacific to US and Europe.”

Mr. Erik Meltzer, Chief Commercial Officer at CMA-CGM Japan added, “Due to the pandemic, lines are adapting to markets, meaning that previous sailing regularity may change and better optimize the vessels capacity. Expecting to still have pressure on space, and sometimes equipment, rates will stabilize out of SE Asia and China. More likely this will create pressure on rates from Japan: expecting Shipping lines to honor nominations, but all exceeding volume will be subject to PSS, Sea Priority, or re-negotiation. Regarding Air, thanks to CEVA, CMA-CGM is able to orientate shippers to find air solution, moreover recently acquired some share in Air Caraibes adding possibility to respond fast with air capacity if needed.”

To this Mr. Meltzer added his industry trend over the next 6 months for the 2 biggest lanes from Japan (Japan / USA & Japan / Europe). “I expect volume recovery, but not up to the 2019 level especially in the Automotive industry (#1 in Japan) and machinery.

Europe, UK and Japan announced free trade agreement recently with suppression of 99% of customs duties. We expect €16.4 billion of additional foreign exchange per year. These agreements will again put pressure on the USA to revert on the The Trans-Pacific Partnership (TPP).”

A big shift in Japan came with the working style of organizations. I sat down with Mr. Masahide Kai, Country Manager of MSC Japan to find out how his organization has changed since the beginning of the year.

“In Japan, we now lead the organization more through a ‘coordinate and cultivate’ approach, rather than the traditional ‘command and control’ model. The trend of digitalization, accelerated by the switch to remote WFH, has changed our working model. Instead of using the traditional top-down approach, we are increasingly adopting the more flexible and decentralized ‘coordinate and cultivate’ approach, which encourages more collaboration and communication.”

When asked about the potential of downsizing the office space with the WFH trend, Mr. Kai replied

“WFH is a trend now but it remains to be seen as to how long such a trend will last. While we are following the trend, we are not making any moves to downsize the office space.” Mr. Takahisa Kashiyama, Deputy Regional General Manager, OOCL Logistics (Japan) shared similar thoughts. Leaving the decision to the business unit manager to decide the working style for each team. The only business unit that could take advantage of the new WFH normal is the freight forwarding team. Custom Brokers are the most affected with the lower volume of work but with the need to print large amount of paperwork.

In Japan, less than 12% of administrative work is transacted online, according to Japan Research Institute.

Mr. Christian Wolf added, “The biggest culprit on working from home is the occasional small talk and bonding we enjoy in the office environment. Working on a fixed rotation schedule we hear as well on certain loneliness from some staff. We also notice sometimes a lack of discipline. People misunderstand a WFH with a day off checking some emails.

“Working style has changed a lot: business travel isn’t possible right now—either going or coming out of Japan. On the other hand some projects move on faster as we engage our clients with virtual meetings. We can also say that we get closer to some of our colleagues and clients.”

2020 was also a catalyst for the development into E-commerce.

The novel coronavirus has forced the nation’s notoriously fussy food shoppers to abandon doubts about online grocery stores, sending retailers such as AEON Co., Asia’s largest retailer, scrambling to meet a surge in delivery demand.

As we just entered Q4 of 2020, peak season is upon us and is a busy period for the industry. High order volumes, sky high customer expectations and surges in E-Commerce orders – it is a crazy time for logistics service providers and shippers alike.

Last week the port of Yokohama published their result for the first half of the year. The total number of containers handled (preliminary figures) at Yokohama Port in the first half of 2020 (January to June) was 1.32 million TEU, a decrease of 12.6% from the same period of the previous year. Both imports and exports decreased due to production adjustments in the manufacturing industry due to the effects of the new coronavirus. Let’s see if that last Q4 rush will make up for the loss we saw in the first half.

In researching this article, my panel of experts did have some opposing views regarding what is ahead, but all were positive when looking at the prospect of 2021 and beyond. Vaccine or no vaccine, we are in this together and the world keeps on turning.

 

ABOUT THE AUTHOR

Wayne Yoshida
Director, SCM Logistics & Transportation
Focuscore Group K.K.

Wayne is an executive recruiter focused on Supply Chain, Logistics, and Specialized in Transportation.

Establish and Leading the SCM team at FocusCore Group where he is a Partner. Board Member of the International Propeller Club of Japan since 2018 where he hosted a handful of events.  With COVID he started a Webinar focusing on Supply Chain and Logistics. He joined CargoNow as a feature editor this year in August. Wayne Yoshida Partner @ Focuscore Group.

 

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