News / Market volatility sees forwarders shy away from long-term deals

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With no end to the prevailing market uncertainty and volatility in sight, forwarders say relationships still matter, but they have become wary of long-term commitments.

“There’s still uncertainty around consumer demand,” said Tim Robertson, CEO of DHL Global Forwarding Americas, adding that consumer behaviour had become less predictable since the pandemic.

“There’s still a lot of uncertainty where volumes and demand are going to go,” agreed Brian Bourke, chief commercial officer of Seko Logistics.

And, said Mr Robertson: “It’s difficult to predict when we’ll see a sustained turnaround.”

Operators have buried hopes that the peak season would revive tepid demand. Mike Parra, CEO Americas for DHL Express, said: “We are planning for a soft peak season,” and Scott Sureddin, CEO North America of DHL Supply Chain, reckons  this year’s peak will be flat compared with last year.

And Mr Bourke noted that inventory and demand levels were not suggesting a spike in business, and volumes were down in almost every sector, in almost every economy, except for some bright spots, such as the medical field.

Mr Robertson thought there would be multiple smaller peaks, rather than one massive event, going forward. “The single peak may be  a thing of the past,” he reflected.

Meanwhile, Mr Bourke is more upbeat on airfreight than on the ocean cargo side. Air was showing some signs of strengthening, particularly in the e-commerce segment, he noted. The rise of AI and quantum computing was also supporting airfreight, thanks to the associated demand for components, servers and racks, he noted.

Another positive signal has been the revival of Chinese exports in recent months, which prompted DHL to increase its dedicated lift out of that market. DHL has registered an uptick in this market, primarily in the B2C segment, and is “adding capacity out of China”, Mr Parra said.

At the same time, companies continue to look for alternative origins to supplement their sourcing from China. Seko has beefed up its presence in Vietnam and Thailand to meet importers’ push in the so-called ‘China-plus-one’ strategy, but it also has its sights on Latin America.

“We’re absolutely looking at all of Latin America as a huge growth opportunity,” said Mr Bourke.

Notwithstanding uncertainty over demand and fear of volatility, shippers have relied primarily on ocean freight to move their imports for this year’s peak shopping season, rather than wait for later signals from the market and ship more by air.

The share of peak season traffic DHL GF moved by ocean this year was up over last year, to take advantage of the steep drop in ocean rates, which have fallen back to pre-Covid levels, whereas airfreight rates remain elevated, said Mr Robertson.

However, shippers were having second thoughts about some routings, said Mr Bourke, explaining: For some customers, the Panama Canal appears to be an increasing risk, as low water levels suggest a potential long-term issue. We’re starting to see a bit of demand to abandon the all-water route,” he said, adding that the direct Asia-North America route via Los Angeles was not regarded as risky  following the west coast labour settlement.

“Many customers are looking to revert there,” he said.

On the other hand, escalation of the conflict between Hamas and Israel could cripple shipping through the Suez Canal, he pointed out.

As concerns about potential supply chain disruption and volatility heavily influence cargo owners’ planning, relationships with established forwarders have become more important, said Mr Bourke.

“We see that relationships matter, more so than technology, when you’ve got challenges,” he said. Technology solutions work well when market conditions are smooth, but with increased challenges, the emphasis on relationships to find solutions also rises, as those are built on trust, developed through execution, he added.

“Digital-first or digital-only forwarders have struggled in this volatile market,” confirmed Mr Robertson.

However, while relationships can unearth solutions to disruption, they are not an automatic route to long-term commitments. Mr Bourke thinks the current cycle has not run its course to give companies a clearer view of where they are – which makes it too early to make long-term commitments.

“Long-term contracts are not as prevalent now as pre-pandemic,” he observed.

DHL is also holding back on extended contracts, said Mr Robertson. We’re very conservative to sign up longer-term deals if it doesn’t involve our network capacity.”

Things remain very much in flux.