Content
1. Introduction
2. Evolution from trading from loose cargo to usage of containers (Malcolm Mclean)
3. Freight forwarders
4. Documentation in International Logistics
5. Evolution of Ocean Freight quotation of shipping lines and use of technology for this
6. Impact of Covid on Shipping Industry
7. Profit and Loss cycle of shipping lines
8. Future of Containerized International Logistics
9. War between shipping line and freight forwarders
1. Introduction
In this blog we will discuss how the evolution of Internation Logistics took place in terms of first container movement/ freight forwarding / Ocean freight and so on till today.
Today more than 75% of international cargo movement is done by Ocean in terms of volume.
When we read the history of different civilizations – Mesopotamia, Egypt, China, Roman and Indus Valley civilization, there are many facts found by archeologists which give proof of trading through Ocean route. In past the ships used to track stars and moon for getting direction and today with all technologies, sailing has become more easy for Vessel carriers. Its been so easy now to contact buyers / sellers in different locations and plan the exports within minutes.
2. Evolution from trading from loose cargo to usage of containers
Again if we go in past to see the shipping process, years back the transportation that was done by ships having only option to carry loose cargo, for which the cargo movement was tough and was usually carried by ropes to in and out of the ships, later the same cargo was picked by labours / potters to be moved further. It was time consuming with chances of damages of cargo and had many other challenges in terms of efficiency.
Later on one day, a smart young American entrepreneur of 21 years of age thought of having a standard size container for carrying the cargo. His name was Malcolm Mclean who can be rightly said the “NEWTON” of containerized business who brought this revolution in International intermodal logistics. Though containers came in usage in a small volumes in different sizes from around 1920’s but Mclean is said to be the first to make container movement commercial and on 26th April 1956, first time containers sailed from Newark to Houston. In 1956 in US ports Loading of cargo by hand on ship costed approx. $5.86 a ton then whereas with containers it costed just 16 cents a ton to load a ship. This resulted to approx. 36 times cost reduction. This reduced the extra cost for vessel on land while it’s a saying – “The vessel earns dollars only when she is at ocean”. We Owe much more to Malcolm Mclean. Though there was struggle before adopting but it is wisely said “A right decision by one man with a strong will and right focus, can change the history of whole mankind”. It was only after 1980 that containerized cargo movement got its pace.
The below image shows how container movement is done today
This changed the complete logistics system globally. Containerized movement gave the greatest boost to International multimodal business. Cargo handling became much easier and the volume started growing up
The new vessel were built as per container handling / storage, while old and new ports started using / placing new equipment for container handling.
Even for containerized movement, it was tough for an exporter or importers to handle all the logistics part, including getting rates from major lines, get vessel details etc. Since exporters have their specialization in manufacturing or trading, they needed support for the logistics part of business. Here came the role of a freight forwarder.
3. Freight forwarders
The local middleman between vessel owners and exporters came to be known as freight forwarders who used to take Ocean freight rates from different shipping lines and provided it to the exporters or importers and provide service for documentation and other logistics support. It became a good business and freight forwarders began to expand the presence to different countries for better growth in business. This business is more profitable with better insights of global information which could be gained best by global physical presence. (We have discussed in details about freight forwarding , please click here to read)
4.Documentation in International Logistics:
Also with time the receipt of goods came to be be known as the Bill of Lading –
It’s the document for “ownership of cargo”, it can be said as bill of receipt of cargo with all cargo details given by Shipping line to exporter / seller and same document is needed at destination for cargo release. Its submitted by importer / buyer to shipping line or the bank. Presently many shipping lines are even using digital Bill of Lading which is softcopy version.
(Different type of Bill of Ladings will be discussed in next blogs)
As time passed, there rouse a need of guarantee of payment between exporters and importers at different countries which lead to use of Letter of Credit – it’s a guarantee given by banks of origin and destination for payment to seller on behalf of buyer after meeting the pre-agreed requirements. (We will discuss the documentation part in detail in next blogs)
5. Evolution of Ocean Freight quotation of shipping lines and use of technology for this :
Conventionally and historically the ocean freight rates was given by shipping line to freight forwarders who would add there profit margin and give their rates for sellers / buyers. Earlier The shipping lines quotation were not accountable with on time space on vessel / exact market demand, earlier the shipping lines would check the rates of other competitor shipping lines get market feedback and quote there rate accordingly in the market , the shipping lines used to file the rates , per customer wise which could have a small variation as per there customer volume thus the rate filing and deciding the rates, was a cumbersome process for liner sales team. Also Shipping lines were completely dependent on freight forwarders to get the business and market intel.
With time Shipping lines started investing in technology and after 2017 few of the fore-runner shipping lines started giving rates through their website which was same for same set of customers and can be viewed by everyone. This created a situation where market was informed of rates of a particular line and this increased the interest of exporters and importers to directly deal with shipping line since they had an option know to check rates directly and plan their business.
Later for few shipping lines the Ocean freight rate quotation was on real time basis depending on different parameters – like space on vessel, demand from the market, forecasting from past data etc. For example – The rates are fluctuating in the same way as the rate of airline tickets depending on number of vacant seats and demand from customers.
Maersk has been leading in this and other lines are following it in terms of evolution of Ocean Freight quotation given by shipping line to their customers.
In shipping industry, any shipping line cannot be said to have a monopoly but yes, top 2-3 lines can create a change in freight and space availability for different trade lanes.
Presently approx. 45-55% of Containerized business is handled by only top three shipping lines. (Maersk, MSC, CMA-CGM)
6. Impact of Covid on Shipping Industry
There was massive turn around in shipping industry seen during pandemic in 2021-2022 when the Ocean freight increased drastically giving enormous profits to shipping lines. The reason for the quick rise in ocean freight was abrupt decrease in supply of containers and increase in demand of exports. Due to sudden global lockdown the containers got stuck at different locations and shipping lines were not able to move them out due to lock down effect, thus the supply of containers got decreased and demand remained the same. International logistics is a business which is a basic necessity to keep the world running. At this stage the shipping lines increased the Ocean freight, which rose to even ten times of pre pandemic level. The profits made by shipping lines were near about to world’s largest e commerce companies and surpassed many conventional profit making industries.
On one side the shipping lines made enormous profit, while on the other dark side the buyers and sellers made losses or their profit was reduced and this impacted the GDP of nearly all the countries.
But there are times when shipping lines make losses which are not shared by others thus at times of profit its there complete share. Its also important to understand the profit and loss cycle of shipping line.
7. Profit and Loss cycle of shipping lines
Regarding profit and loss cycle of shipping lines there are also times when shipping lines bleed on losses due to decrease in freight, many shipping lines gets bankrupt and there are times when they make profit due to supply and demand mismatch of global trade, Pandemic was the time for them to make profit which was the highest and sharpest profit rise in global history known till date.
If we analyze the trend, we can easily see the cycle of profit and loss of shipping lines.
As per the conventional trend and my understanding, when shipping lines make profit, they start buying larger vessels and a time comes when there is more space on vessels compared to the demand of cargo. With more supply and same demand the competition grows within different shipping line – leading to cut throat competition to reduce the freight, they start making losses and few shipping lines either go bankrupt ( Example – In Feb 2017 Hanjin shipping was officially declared as bankrupt by South Korean Courts) or are acquired by other big shipping lines and there are fewer shipping lines left globally- at this stage of cycle there is less space on vessel as compared to demand for cargo exports, with higher demand and lesser supply – it leads to profit of shipping lines.
And this cycle of profit and loss continues. Below is the pictorial representation of profit and loss cycle of the shipping lines for recent past years
8. Future of Containerized International Logistics
The future of International Logistics seems to be more exciting with each day passing with good amount of job generation/addition of new technologies/on time freight rates etc. The future seems too dazzling. With the record profit earned in last 2 years, they are planning to make investment and strategies their business that can bring enormous changes in global supply chain. Historically the competition within shipping lines was on having more number of vessels but in future this will change to better service/technology and customer retaining capabilities.
Counting on the addition of new technologies, the aim for many shipping lines for Ocean logistics future is to have direct contact with exporters and importers and bringing more simplicity to container logistics – similar to that of an e commerce delivery packet, which can be ordered by an online click, for example- Today A Person sitting in USA can book 26 Metric ton of cargo from China within just few minutes with all the activities to be done by Shipping line, including container booking, stuffing, customs clearance etc.
9. War between shipping line and freight forwarders
As shipping lines are trying to do business directly with sellers and buyers after removing the middle man – freight forwarder. It would be long fight between freight forwarders and shipping line as it would be very tough for a shipping line to provide the same service and loyalty to a customer as provided by a freight forwarder. As discussed above, approx. 45%-55% of international cargo is handled by only 3 lines, which involves thousands of exporters/importers and few hundreds of freight forwarders. The ratio of 3 is to few hundreds, seems to be very high and giving a personal touch to all exporters and importers by shipping line will be a tough game.
The USP for shipping line is for services in Ocean doing big activities with long term planning while for freight forwarder there USP is for services on land for which smoothness is gained by experience, more number of ground staff, and ability to do numerous small activities with precision and mostly short term planning which is per shipment wise.
For shipping line its a reason for growth and expansion but for freight forwarders its matter of survival.
As explained by Adam Smith in “Wealth of Nations” – Healthy competition and free market will find its equilibrium in its natural way. Lets’ see what the future brings.
