In this week’s Roar: the year in ocean shipping, peak returns season, Just-in-time (JIT) is evolving, clean energy challenges, and what’s in store for 2024.
On the seas, 2023 was all about troubled waters. Geopolitical issues such as those happening in the Red Sea right now, weather, and labor unrest continued to stir things up throughout the year. Specifically, the war in Ukraine caused major changes in shipping routes for crude, diesel, and natural gas, plus bulk dry goods such as coal and wheat. Tensions between the US and China led to the separation of supply chains, labor issues at West Coast ports in the US caused importers to reroute cargo to the East Coast, and an ongoing drought in Panama meant restrictions at the Canal, forcing ships to take longer routes. The good news is ocean shipping remains flexible and has the ability to adapt to changing conditions. Here’s to a better 2024!
There’s a new peak season incoming, and it’s peak returns season. Yes, it’s the time of year when e-commerce spikes, but it’s also the time when retailers have to deal with increased returns. In 2022, the National Retail Federation stated that the retail return rate was 16.5% or about $816 billion of merchandise, but that number increased to about 18% or nearly $171 billion over the holidays. In preparation, this year many retailers are tackling the issue by shortening return windows and charging return fees. But experts warn that this could discourage customers from shopping at those retailers.
While the Just-in-time (JIT) concept became a thing of the past a few years ago, an evolved version is emerging. Pre-pandemic, companies relied heavily on JIT, minimizing inventory to reduce costs and improve efficiency. But the pandemic exposed how vulnerable JIT really was, as shortages of materials and transportation bottlenecks caused production slowdowns. In 2022, companies shifted to a Just-in-case (JIC) model where they stockpiled inventory. That didn’t work — demand cooled, leaving sky-high inventory levels and warehousing costs. Now, JIT is looking attractive again, but with some changes. Modifications include higher safety stock levels and nearshoring.
With maritime trade expected to triple by 2050, the industry is increasing its efforts to transition to clean energy, but not without challenges. More traditional alternatives, such as batteries, are ineffective when faced with huge vessels. Given that shipping vessels have a lifespan of about 25 years, anything built in 2025 or later will need to be powered by alternative fuels in order to meet emissions guidelines. The good news is there is a growing number of alternative fuel options and government policies in place to help support the transition, meaning there will likely be a significant sea-change for the industry in 2024.
What’s in store for Q1 2024? The OUTLOOK by Jaguar Freight has been released. On the seas, ports continue to invest while dealing with geopolitical and market challenges. The air cargo market is holding out hope for things to pick up. Overall, shippers are enjoying rates that have largely normalized since the pandemic but many are wary of what tightening capacity and shrinking inventory will do to rates moving forward. A recent survey shows cyber-security as a top risk on the minds of companies heading into 2024, as well.
For the rest of the week’s top shipping news, check out the article highlights below.