Market outlook: Moving with the times

Freight Forwarding
Brian Bourke, Global Chief Commercial Officer of SEKO Logistics, on the implications of the Israel-Gaza war and how companies are adjusting to post-Covid normalisation trends.

"Imagine what a full scale regional war would do to global supply chains,” warned Brian Bourke, Global Chief Commercial Officer, of SEKO Logistics, during a special media briefing on the implications of the war in Gaza.

“It’s not a zero per cent chance unfortunately, it’s something companies have to pay attention to.”

Similar to many other companies, SEKO is monitoring the changing situation in the Middle East very closely with clients, and the likely disruption it would cause to supply chains if the conflict escalated to neighbouring countries.

“Most importantly, what we care about is the health and safety of our people,” he said.

“We have over 65 in our team in Israel and like many companies in Israel we have Israeli citizens working for us, many of which have been called up into the reserves. That has an impact on supply chains because factories are not going to be producing as much, and distribution centres aren’t going to be moving as many goods, causing strains on supply chains – and Israel is going to need to import a lot more than they were before.”

In response to this anticipated demand, SEKO has secured a temporary warehouse in Haifa.

“The Port of Ashdod is currently closed, but the Port of Haifa is working as usual. In fact, there are a number of airlines that still fly into Israel 24/7 despite the fact that many flag passenger carriers have stopped for obvious safety reasons. Ultimately, we are currently mobilising lots of humanitarian aid and relief into Israel today, particularly medical equipment going to the south of Israel. Although we have done shipments into Palestine in the past, currently that’s not possible.”

SEKO has many clients shipping to Israel, a big market, especially for sectors like high-tech, so it will be a challenge, but similar to other conflicts and natural disasters the company has seen around the world, it is still possible to move goods, says Bourke.

The conflict in Israel and Gaza comes at a time when the volatile airfreight market is facing a fresh set of challenges different from the supply and demand shocks during the early days of the pandemic where disruption was caused by lockdowns, followed by persistent peak size volumes lasting for two and half years.

“This is year three of heightened volatility, uncertainty, ambiguity and complexity that has challenged importers, exporters, freight forwarders, carriers – everyone in the supply chain industry from the ports to the drivers,” said Bourke.

“We don’t have congestion but what we do have is a lot less demand for containerised trade, for pallets moving around the country, moving around the world. And even though the volume has gone down, in many cases, the activity hasn’t, so many of our clients are actually shipping as much, if not more than they were before the pandemic, but each individual shipment has fewer containers or pallets, so it creates different challenges and separate challenges, and these are clients that expect the same level and standard of service.”

i) Autocorrection
The cargo industry is seeing an autocorrection in the market with volumes down across many sectors and many geographies following the abnormal peak level volumes during the pandemic.

“Not every sector is moving at the same pace as we saw back in 2020,” explained Bourke.

“We saw a lot of sectors actually accelerate at the start of the pandemic and some shut down while others restarted and surged. For us, we’re definitely seeing some tailwinds and some sectors like high tech is being driven by AI.”

While certain sectors corrected earlier than others, SEKO is seeing accelerated trends in demand for movement of government, defence and medical items.

“These are some of these sectors that we’re seeing increased demand for containerised freight and cargo shipping around the world, in addition to some segments of e-commerce that are certainly starting to rebound, and by rebound, I mean reverting to their pre-Covid trend lines of e-commerce, that are continuing to take a larger percentage of market share of total retail sales,” he said.

ii) Interest rates
Freight volumes are also being impacted by high interest rates that are affecting disposable incomes, which is having a concern among retail and e-commerce sectors.

Because of the continued uncertainty about where volumes and demand are going to go, Bourke says we need to wait and see what happens next.

“We’re going to need to see another full year of what a cycle looks like, and especially wait and see around what happens with the economy and where interest rates go. I still think many companies need a lot more data points and a lot more fiscal calendar months and quarters to make those determinations before more long-term steady contracts are put into place. Many forwarders got sticker shock, especially those that made long-term commitments at the peak of the pandemic on things like charter aircraft,” he said.

The automotive strikes in the US are also impacting freight volumes. Despite some successful labour negotiations during the summer there is still continued action affecting volumes.

“It is a challenge when you have got the United States, Europe and China all experiencing some kind of post-Covid bullwhip that is really having an impact on trade volumes,” he said.

iii) Consumer spending
Bourke believes that we are not going to see ‘revenge buying’ like we saw during severe lockdowns.

“It is really going to be a slow ramp up. A lot of our direct to consumer clients are launching new products. These new product launches are leading to increased freight volumes, even airfreight at times. But these are anecdotal one-offs, they’re not holistic, they’re not talking about whole industries. It’s really about certain brands that are investing and growing and launching new products, new campaigns, so we’re seeing some green shoots there, but certainly not anything to drive total freight volumes to rebound significantly. All eyes are obviously on the e-commerce peak season, which is still ahead of us, despite the fact that we have our ocean peak season behind us.”

As for this year’s peak season, it will be muted, but Bourke anticipates some green shoots in recovery of e-commerce volumes.

“We are cautiously optimistic for e-commerce volumes to accelerate closer to the e-commerce peak season, typically around the last two weeks of November and the first two weeks of December.”

There are more recovery signs in airfreight in comparison to ocean freight.

“Ocean freight rates have somewhat recovered, but it is not driven by demand,” he said, adding that there have been significant blank sailings by ocean carriers “doing everything in their power to match supply with demand”.

iv) Destocking
For global supply chains and in particular, cargo volumes to return back, he stressed that destocking needs to continue despite the peaks and troughs in volume.

“There will not be a surge like we saw during the pandemic because inventory to sales ratios are still not to the level that they need to be in order to keep goods moving at the pace that they would do normally. But the good news is that for a lot of companies, especially companies that are looking to get rid of inventory carrying costs off their balance sheets, destocking has been successful for many companies through the better part of this year,” he said.

v) Reshoring, nearshoring and friendshoring
In addition to this, there appears to be an ongoing trend of reshoring, nearshoring and friendshoring, creating ‘optionality’ that may be higher in cost but delivers lower or faster lead times.

Bourke said while many still primarily rely on China there is a reshoring trend to the US and to countries like Thailand, Vietnam, Taiwan, Mexico, Turkey and Morocco.

“These six countries are seeing increased demand for goods coming out of these markets as our clients continue to diversify the number of countries that they source from,” he said.

“We’re seeing nearshoring and the China Plus One strategy being implemented but we’re also seeing this concept of friendshoring, which is being driven by not only the tariff disputes but by this bilateral trade world that we seem to have entered versus a multilateral world.”

Nowadays more companies are looking to diversify their supply sources instead of depending on one country or having one warehouse that “services big parts of the world”.

“They want to launch in multiple geographies around the world, at the same time that gives them diversification on their distribution strategy to their end customers. It also gets the product closer to the consumer for faster delivery. That is definitely on the e-commerce side across multiple sectors. We’re seeing increased demand for bookings and pick-ups in countries that are part of the China Plus One strategy, and in particular, in the defence sector we are starting to see a lot more reshoring and a lot more friendshoring, and that is all around reducing risk,” said Bourke.

SEKO itself is continuing its expansion into south east Asia, having recently opened offices in Taiwan and Thailand in response to clients implementing the China Plus One strategy.

“We’re seeing huge diversification and this is definitely on the back of the success of US investing and opening up in Vietnam and other countries in south east Asia. We don’t see this trend reversing anytime soon. But critical to that, it’s China Plus One, China is still at the centre. It’s very difficult to decouple global supply chains from China, from companies that have relied on the sophisticated manufacturing sector in addition to the logistics infrastructure that is bar none one of the best in the world, if not the best,” he said.

This article was published in the December 2023 issue of Air Logistics International, click here to read the digital edition and click here to subscribe.