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Industry Insights Special Report: Moving Past 2022 and Looking Ahead to 2023

 

Industry Insights Special Report: Moving Past 2022 and Looking Ahead to 2023

January 2023

By Tim Gundlach

As a leading logistics service provider, PGL does more than move cargo for our client/partners. Much of our “value add” is in keeping them advised of current conditions and offering our best advice on what we see coming that can have an impact on their business. As such, thank you for watching and allowing us to share some thoughts on what lies ahead.
First let’s discuss 2022…

It was another highly challenging year for all of us involved in the global supply chain. The story of 2022 cannot be told without discussing “Black Swan Events”. “Black Swan Events” are defined as an unpredictable event that is beyond what is normally expected of a situation but that has potentially severe consequences. The truth is that “Black Swan Events” are nothing new to the logistics business. However, the frequency and severity of facing so many events within such a short period is unprecedented and a “Black Swan event” in itself. In 2022, these events included things such as Chinese covid lockdowns of entire cities, massive port and rail congestion, actual or threatened labor strikes, geopolitical events such as the war in Ukraine, blockage of the Suez Canal, etc. All of these events would have profound consequences on their own, but when combined caused additional layers of complexity resulting in a “bull whip” effect going from one extreme to another in a short period of time.
As we enter 2023, let’s examine the current status of the two of the major modes of international transportation:

Ocean Transportation:
With the sudden rise in capacity and drop in demand, rates have plummeted reaching near pre-pandemic levels. With the abundance capacity, Steamship Lines are increasing blank sailings to help mitigate further collapse in rates. Labor issues have been pushed down the line for now, and rail congestion issues are clearing up.

Air Freight:
Air Freight volumes ended 2022 with nine consecutive months of decline. Some of the factors leading to this decline are related to the return of supply on the ocean transportation mode as a more cost-effective option for non-urgent or low valued merchandise. The drastic fall in ocean rates is pulling many shipments back to the ocean freight mode. Additionally, the return of increasing capacity via belly space on passenger aircraft now that travel recovery is gaining momentum. Although considered weak by the pandemic era, performance in many regions remain 85% above the pre-covid levels.
Looking to the future, the following are thoughts on what we might expect on the industry and the major events that impacted us in 2022.

Ocean Freight:
Demand should remain well below 2022 level at least until major retailers have cleared out the stockpile of inventory carried into 2023. Growth in capacity can be predicted accurately with an increase in fleet growth by ship builders to the tune of 7% in each of 2023 and 2024; however, it could in fact be as high as 10% if projected vol of fleet scrapping doesn’t take place as expected. On-time performance, which has shown improvement in late 2022 due to a clearing of the port and rail congestion, will continue improvement only hampered by the increase in blank sailings again adding some level of schedule unpredictability although at a much lower level than 2022. Pricing should remain near current levels with some industry experts even predicting a rate war between carriers sometime in 2023.

Air Freight:
For air cargo, the first part 2023 continues with decreased demand due to the economy and increasing supply with the resurgence of passenger travel. Normally, one would expect rates to decline under these conditions however, fuel and inflation are expected to push back resulting in a slow stabilization and the return of near pre-pandemic pricing.

Rail:
There are many challenges facing the rail industry in 2023. One of the biggest is how to improve service and address labor issues. Both shippers and unions are pressing Congress to pass legislation that would give the Surface Transportation board more regulatory authority.

Economy:
Although predictions by financial institutions vary greatly, most have agreed that some degree of recession is on the horizon. Global growth in 2023 is expected to be below 2% which would result in one of the weakest years in nearly four decades. Experts disagree on the severity of the recession and the timeframe for recovery; however, many US companies are now announcing mass lay-offs as a precautionary cost saving measure driven by the weakening economic forecasts.

Labor Strikes:
There were 374 worker strikes started in 2022, representing a 39% increase over 2021. To name only a few there were actual or potential strikes by US Longshoreman, Portuguese rail workers, Airport Workers in the UK, and lockout of tugboat crews in Australia. Fueled by anger over working conditions and high inflation, the low employment rate and worker shortages gave workers more leverage, but this isn’t the whole story. One of the biggest factors was led by wins of other labor unions. The belief being that conditions were right and if your labor union doesn’t secure its biggest raises now, they are leaving money on the table.

Global Conflict:
The Russia-Ukraine conflict has affected the global logistics market on every level. The war has impeded the flow of goods, fueled cost increases and product shortages, and created catastrophic food shortages around the globe. Russia has been destroying Ukraine’s agricultural infrastructure, thereby disrupting the entire supply chain. The Black Sea and Azov Sea had been blocked by Russia, and the Ukrainian grain shipments were hijacked in the early months of the attack. In July, Russia and Ukraine signed a United Nations (UN) deal to unblock Ukrainian grain exports from three Black Sea ports to ease shortages. Despite the deal, Russia attacked Odesa’s seaport with cruise missiles hours after signing the deal. The uncertainty has had a snowball effect on supply chains across the globe.

China Covid Lockdown Policies:
China has reversed its pandemic policies. Even with a 30-40% decline in orders, logistics managers are still having to warn clients of delays in their factories being able to complete orders. This is because with the reversal of these policies, there is now a massive wave of infections impacting the labor force there. Some projections have this as high as 75% of labor being impacted and unable to work. As we enter Lunar New Year celebrations where migrant workers return to their hometowns, the further spread to more rural areas seems imminent. This is already impacting the major Chinese ports. Continued disruption after the Lunar New Year holidays are expected but should gradually improve as China’s population develops some immunity to the virus.

Global Protectionist Strategies:
More and more countries are implementing, or considering implementing, protectionist strategies to stem exports and protect domestic needs. The Chartered Institute of Procurement and Supply (CIPS) says the trend is one of global concern. It has identified food and oil as common targets for protectionist schemes, but that the range of product categories affected is expanding. These schemes are intended to offer protection during a crisis, but the continuing rise in their adoption can have a huge impact on the freight forwarding industry.

Nearshoring:
The wave of crises that arose over the last five years –from COVID and the China-US trade conflict, to high inflation and the Russian invasion of Ukraine– gave pause to developed economies in the West who have for long been overly dependent on Asia as a source of raw materials and cheap, manufacturing power. Consequently, the terms “nearshoring” and “friendshoring” gained prominence. A recent survey conducted by Capterra which surveyed 300 Small to Medium sized businesses show that 88% plan to or are currently switching at least some of their suppliers closer to the US in 2023. The big lesson for manufacturers in 2022 was: to not put all of their eggs in one basket. Many are considering a “China +1” policy meaning to continue sourcing from China but to also have other suppliers in other countries to diversify risks.
In conclusion: We view 2023 as not the end of the pandemic era, but perhaps the beginning of the end and a return to something resembling a new normal. However, we should remain diligent in remembering lessons learned with one key takeaway: “Always expect the unexpected”. PGL will do our part to keep you updated. As always, my colleagues and I remain available to discuss your particular needs or concerns at any time. We are here for you, please let us know how we can help.

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China’s “New Normal”: Managing Manufacturing & Supply Chain Expectations for 2023

 

China’s “New Normal”: Managing Manufacturing & Supply Chain Expectations for 2023

January 2023

On the heels of China abandoning their “Zero Covid” policy, businesses and investors are expecting a surge of Covid cases that will likely cause manufacturing and supply chain disruptions in the first half of the year, if not longer. Savvy businesses will make moves to mitigate the impact of these issues, but it’s not all bad news, as we will explore here.

The two major factors that will have the greatest impact are labor shortages and disruption in logistics.

For the workforce, the challenges come in the form of a spike in Covid cases leading to lost hours availability and technology implementation which could be more difficult to institute with skilled workers to install and maintain this technology being in shorter supply.

When it comes to logistics, trans-pacific trade has evolved to address the impact of Covid in general. The global supply chain shifted from “just in time” logistics and instead implemented “just in case” logistics. This has lead to an industry-wide scramble to obtain warehousing stateside, thereby adding cost. In addition to this, we can expect higher freight pricing and extended timeframes.

To stay ahead of potential supply chain disruptions, companies should explore these three options:

  1. Inventory materials and plan ahead. Whether that’s stockpiling raw materials or key components, having greater-than-usual stock on-hand can make the difference when it comes to keeping manufacturing online.
  2. Identify alternative suppliers. Doing this work in advance and having “Plan B” conversations can help grease the skids if your primary supplier hits a roadblock.
  3. Invest in technology. Simply put, automation, while not an antidote, can have a significant impact on mitigating the effects of the unknown.

Is China’s delayed pandemic too hot to handle for your business? If so, relocating some or all of your production to Vietnam can be a viable alternative. Due to their proximity to China, affordable workforce and well-developed trade agreements, many are finding this option attractive.

So what is the good news, you ask? There are reasons for optimism in the future, taking the form of relaxed travel and quarantine restrictions, allowing for the exploration of new partners that has been limited since the Pandemic began, and, perhaps best of all, lower cost of doing business with expected moves such as tax breaks, government incentives, and free trade agreements.

Though the situation isn’t without its challenges, if the last few years have taught us anything, it’s that business keeps moving, and PGL is here to keep your business moving. Visit ShipPGL.com, and let us help you find peace of mind with your logistics and supply chain concerns.

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Industry Insights – December 2022

 

Supply Chain Industry Insights

December 2022

By Tim Gundlach

In the United States the biggest concern for November was the possibility of a rail strike on the West Coast. As a result, most ocean cargo was diverted to the Gulf and East Coasts. This shift helped clear the port & rail congestion issues for the West Coast ports and inland rail yards, but shifted those issues to the Gulf and East Coasts. To add to challenges on the East Coast, on November 10th, a late-season tropical storm increased in strength and became Hurricane Nicole. The hurricane made landfall near Vero Beach, Florida then made its way up the East Coast impacting the ports of Miami, Tampa Bay, Jacksonville, Savannah, and Charleston before weakening into a tropical storm and heading back into the Atlantic Ocean.

Simultaneously, the world’s economy continued to slow with steamship lines & airlines pulling capacity from Transpacific routes. The reduction in demand outpaced the reduction in capacity which resulted in a continuous drop in rates for both air and ocean transportation. The increase in blank sailings then began to manifest itself in other ways, like ports becoming clogged with empty shipping containers. The Port of New York and New Jersey were forced to threaten ocean carriers with potential penalties to accelerate the removal of the empty containers which numbered as high as 200,000 in July of 2022.

On November 14th, the Australian supply chain became an area of focus as the nation’s largest tug-boat operator planned a crew lockout over a bitter 3 year pay dispute. This planned lockout would have prevented harbor-towage employees from working, and would result in disruption of operations at 17 ports across Australia. On November 17th, Australia’s Fair Work Commission announced that the lockout would not proceed as planned.

In northwest China, a deadly fire led to the death of 10 people due to “zero-Covid” lockdown measures. Protests spread to major metropolises across China. On Dec 3, it was announced that there would be an easing of testing and quarantine rules.

In Korea, On November 23rd trucker unions began a nationwide walkout causing estimated daily losses of about $224 million USD. This is the second major strike in less than 6 months by thousands of truckers demanding better pay & improved working conditions. On November 29th, the South Korean Govt took the unprecedented step of involving tough strike-busting laws after failing to reach a deal with unions. This marks the first time that a South Korean administration issued an order to force transport workers back to their jobs. As of December 5th, the strike organizers said that they would defy the order.

Back in the US, the rail strike was delayed by the Brotherhood of Maintenance Way, pushing it back to early December. Meanwhile, more than 400 business groups joined in pleading with Congressional leaders for quick action. Although President Biden and Democrats had been unwilling to block a strike in September, this time they felt that they had no choice but to act. As of December 5th, Congress is introducing legislation to keep workers on the job.

Here is what we can expect as we enter December:

  1. We expect continued slow demand to continue with flat or declining rates until early January when there may be slightly higher demand due to the Lunar New Year which will take place on January 22, 2023.
  2. Various labor issues are likely to continue in parts of the globe.
  3. In China, although there is some easing of the zero-Covid policy, the next few weeks could be difficult for the Chinese economy. With the significant risk during the winter months just prior to the Lunar New Year Holiday, further restrictions would probably be imposed nationwide again impacting manufacturing and cargo transportation.
  4. Transportation related issues due to the Ukraine conflict remain unchanged.

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Crating Tips from PGL

 

PGL Crating Tips with Sean Connolly

November 2022

Here’s a PGL Crating Tip: be as specific as possible!

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DHLE Video

 

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Industry Insights – November 2022

 

Supply Chain Industry Insights

November 2022

By Tim Gundlach

The effects of the Covid-19 pandemic continue to be felt in the global supply chain. As a result of unpredictable sourcing and transit times, the reliability of traditional “Non-peak” and “Peak” seasons in logistics is no longer applied. The global supply chain shifted from “just in time” logistics and instead implemented “just in case” logistics. The end result is warehouses becoming choked with products in preparation of the upcoming holiday season.

Suddenly the world which could not move products fast enough just as quickly faces a dramatic drop off in global demand due to global inflation and recession concerns as well as concern of escalation of the conflict in Ukraine.

The most recent concern in the United States was the potential for longshoreman and rail strikes. This routed cargo away from the West Coast, sailing to alternative ports on the Gulf and East Coasts. This influx of containers created berthing delays and port congestion in those areas. As of this video, US rail and labor unions are threatening a strike as early as Nov 19th, 2022.

So what’s next?

The short answer is nobody knows for certain… and it depends on how issues shape up on topics like West Coast port labor fights, Gulf and East Coast port congestion and the geopolitical arena with regard to the world economy, energy shortages in Europe, and the state of conflict in Ukraine.

Overall, we are confident about a few things going into November: (1) Ocean and air rates should remain flat or decline in the next month (2) The US Govt cannot allow labor strikes to occur as it would be detrimental to the US Economy (3) Port congestion and chassis issues should improve in time. (fingers crossed)

As always, PGL remains available to discuss particular needs and-or concerns at any time, in our continuing effort to assist in mitigating risk to our partners.

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Qatar Humanitarian Aid: PGL & Warriors Ethos Care

PGL has been working closely with Warriors Ethos Care to help the refugees in Qatar.

Qatar

Warriors Ethos Care is a Veteran non-profit that stood up in a short time, mostly by combat Veterans who have served in Iraq and Afghanistan. The humanitarian disaster is quickly unfolding on so many families who served alongside U.S. service members and in the capacity of the Afghan government (military, lawyers, judges, etc). This puts them and anyone related in dire risk. With over 550,000 refugees fleeing since January, tens of thousands have found themselves in temporary transitional locations such as Qatar, Kuwait, and European military bases. The U.S. military isn’t equipped or prepared to sustain so many refugees for prolonged periods of time. Warriors Ethos felt that they must and should do something.

“These are people who believed in the idea of Freedom; who took risks with us to try to see Afghanistan become something better. We couldn’t allow these poor people to be forgotten. Our Warrior Ethos as Veterans is to protect and care for those in need. It’s our responsibility to see beyond the color of their passport, and try to help those who helped us for so long.”

Warriors Ethos Care quickly worked to get much-needed supplies, yet faced challenges to deliver them. Companies like PGL, Hypori, and Intelligent Waves stopped what they were doing, without hesitation, to assist.

“Can you imagine trying to ship 12 pallets of materials into a Middle Eastern country, clear customs, deliver them to a military base, and get them distributed to those in need? We can’t do this alone; we need more companies like PGL to step up and help us make a difference!”

PGL and Warriors Ethos Care has successfully delivered 30,000 hygiene kits (containing toothpaste, toothbrushes, shampoo, soap, and lotion), 10,000 feminine hygiene pads, and 5,000 packs of baby wipes to Qatar Airbase.

Qatar Airbase Qatar Airbase 2 Qatar Airbase 3

 

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Small Parcel Savings Through DHL Partnership

International air freight shipments represent an area of savings for both importers and exporters, but establishing weight breaks poses a challenge for many companies.

For smaller international shipments including samples, prototypes, components, and finished goods, at what point does your company ship parcel vs. air freight through your forwarder?

At what point do minimum charges from your freight forwarder make sense based on the shipment weight and trade lane?Typically, there are four pricing components to any door to door movement. These components include origin pickup and handling charges, air freight charges, customs clearance charges, as well as destination delivery charges.  Your forwarder may or may not itemize these charges on your invoice, but these charges make up the quote of any heavyweight international air shipment.  Also, since the air freight charge is typically affected by pricing weight breaks, it’s important to take into consideration that minimums may also be applied to each component.  These minimums have a substantial impact on determining whether parcel or air freight is the most economical routing decision.

Through our partnership with DHL Express, and as a DHL Authorized Reseller, PGL now has the ability to perform a weight break analysis in order to advise our clients on the most economical method of shipping international air freight.

PGL Parcel Delivery Vehicles

By performing this in-depth analysis, a routing guide can be established to both improve transit times and reduce cost.
Often, PGL’s analysis generates up to a 25% savings through direct cost improvements and suggests improved routing decisions, which allows our clients to become more competitive in today’s business climate.
PGL, one of the only international freight forwarders with a competitive lightweight and heavyweight international air freight solution, is uniquely positioned to assist our clients with these cost saving measures.

Through DHL Express’ door-to-door system, PGL’s international parcel solution includes customs clearance at much lower rates than offered through a traditional air freight service.

Once an analysis is complete, PGL creates a DHL Express account number for our clients under our heavily discounted pricing umbrella.

Established in 1969 as an international parcel carrier, DHL Express has the largest and most comprehensive parcel network in the world. Their door-to-door service is available in over 220 countries and territories, and boasts some of the fastest transit times in the industry. The relationship between PGL and DHL represents a tremendous value for our clients. Solutions can be customized and scaled whether you are a small startup or a Fortune 1000 company.
 
 
About the Author

biopic.kujawaChris Kujawa
Director of DHL Services
Chris.Kujawa@shipPGL.com

With 15 years of experience in logistics, Chris manages PGL’s DHL Authorized Reseller service. He also assists the PGL sales team in their efforts to provide solutions focused on efficiently managing international parcel movements. Read Full Biography 

 

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Air Freight: How To Place An Order and What is Entailed

Freight forwarding is the process of managing the shipment of international imports and exports. While that sounds simple enough, there are often tons of customs regulations, tariffs, and duties required for every shipment. This amounts to a lot of paperwork, slowing down the shipping process, and often costing the shipper an arm and a leg.

An air freight forwarder can help mitigate that risk and reduce shipping costs to a minimum. Essentially a freight forwarder is a broker that gets you the best possible deal on shipping, and then oversees the actual transportation of goods form port-to-port, or even door-to-door if such comprehensive services are necessary.

Air freight forwarders make sure that your goods arrive at their destination in mint condition, at the agreed upon date of arrival. They account for and reduce any delays that occur en route. They also take advantage of pre-existing relationships with carriers, and batched shipments for greater bargaining leverage. What this means to the client is that they can achieve far better rates than a sole shipper ever could.

They also acquire and organize all necessary documentation so that your goods can easily clear customs without the slightest hiccup. They plan the safest, most efficient route for your goods, and provide a one-stop service for the client to make payments, ask questions, or express concerns. If you are seeking door-to-door air freight, here is how to place an order and what is entailed.

1. Find A Forwarder

Finding a reputable forwarder is often as simple as asking the right questions and paying attention to detail when selecting among several choices. Call no less than four freight forwarding services for free quotes. A good forwarder will be highly organized, and willing and able to quickly provide any information or referrals in order to earn your business.

Compare forwarders not only on price but on services offered. One forwarder may charge more, but may offer greater security or better services than the lowball offer. Always ask for referrals, check their licensure, and ask about the company’s years in service and operations.

2. Insure Your Goods

Once you’ve found a freight forwarder, they should advise you on how to acquire proper insurance for your goods. You can choose from several types of coverage, and each coverage has a unique set of requirements.

For instance Replacement Cost Protection will completely reimburse the value of the cargo, but a complete list of items in the shipment must be provided. Other types of coverage, such as basic liability, offer reimbursement for an agreed upon amount per pound.

3. Acquire Documentation

Finally, your air freight forwarder will help you acquire and arrange all the necessary documentation, information, and signatures needed to get your shipment through customs. This includes inventories, bills of lading, customs documents, and carrier contracts. Be prepared to provide information about yourself, the recipient, and the shipment itself. Even for confidential cargo, your forwarder can help you manage the shipment with discretion.

By now you should have a good idea how to place an order with a freight forwarder for a door-to-door shipment. While the process is complex, developing a good relationship with an honest, reputable freight forwarder will help ease the cost and the stress of shipping goods overseas.

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When To Go Through An Air Freight Forwarder To Ship Your Goods

Perhaps you are at a point in your career where you are in need of outside help to ship your goods. Not only do you want to ship your items in a fast, quality and safe manner, you want to work with individuals or companies that are professional and skilled in the air freight forwarding business. If this is how you feel then you are not alone, as more and more people are turning to air freight forwarding to ship their goods. Not only will they ship your goods for you in a timely manner, they will give you peace of mind that your goods will be taken care of from origin to destination.

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