Challenges in the logistics business will always occur but will shift. If last year (2022) the business was mostly controlled by shipping lines in view of lack of (vessel) space, this year (2023), the logistics business would be mostly controlled by cargo owners, according to Hesty Rosmawaty, President Director of Gateway Container Line (GCL). How does GCL respond to it?
The logistics and supply chain business last year (2022) and amid the Covid19 pandemic outbreak, in general, was totally in chaos. The Covid-19 pandemic has affected the global logistics and supply chain with severe disruptions, sudden demand changes, and massive plant shutdowns. The global logistics disruptions stemming from the COVID-19 pandemic have impacted businesses and consumers as the flow of consumer goods into key markets.
The major logistics disruptions create a ripple effect across global supply chains that ultimately cause goods to pile up in storage, impacting ships on their way to ports — in the form of diversions or delays as they arrive at major transit hubs, restricting global trade flows and limiting access for businesses to import products and refill their inventory stocks.
Logistics provider capacity issues, inflation, shipping delays, increased freight costs, depleted inventory levels, labor shortages, and demand peaks drive discussions and require attention.
Hesty affirmed those challenges last year, summering them into two key interrelated factors that colored the business. On the one hand, there was a volume increase; on the other hand, a space shortage took place massively.
“The simple explanation is that when the availability of transportation fleets is limited, while the demand for delivery of goods (volume of goods) has increased, all logistics business actors compete to get space for the transportation fleet. As a result, the transporters’ (shipping lines) bargaining position is very strong in determining the freight rate. That is why the freight rate skyrocketed last year,” she explained.
But business challenges also create opportunities. Reports have said that the chaos benefited many logistics providers and shipping lines. Many logistics providers and shipping lines, of course, made income record.
“Apart from those challenges, there was a fact that the year 2022 is the golden period of the logistics business, proven by some revenue and net profit records,” Hesty affirmed.
Hesty noted that the logistics business performance in 2022 was mostly determined by the supply and demand imbalance, in which demand grew higher while the supply was stagnant due to some conditions. “In 2022, the demand, I mean the cargo volume, increased significantly, while the availability of sea, air, and land transportation fleets has not yet reached normal conditions. As a result, the price offered has increased tremendously. Cargo owners had no choice except to take the offer at whatever price,” noted Hesty.
But, coming to the year 2023 or even late 2022, the story has been changing. The supply chain bottleneck that stalled the global supply chain is now virtually nonexistent outside of a few key factors and markets, and those should disappear in the first quarter of 2023.
Goods purchased and shipped at higher prices would likely be sold before Q1 2023, and the downstream effects of drastically lower shipping costs should become apparent in 2023. With this, freight rates have fallen to near pre-pandemic levels.
However, due to the lingering effects of inflation, rates won’t fully return to 2019 levels despite falling quickly now. For example, the Freightos Global Container Index depicts rates at $1,400 in early 2020, with little change in prior years going back to 2017. Container rates peaked at over $11,000 in September 2021 but have dropped over 80% to just over $2,100 last month (March 2023).
Hesty underlined that this year (2023), the challenges still came from the space but with contrasting conditions. “This year, the space (fleet) availability has been normal, even oversupply. This is because, apart from the addition of an active fleet (e.g., ships, airplanes), the volume of goods has actually decreased. So now, the situation is reversed. The owner of the goods is more flexible in determining the logistics service partner.”
“So, this year is in contrast to last year. Last year, the challenges were coming from how to get space, while this year, the challenges will come from how to get volume,” she said.
Record
Amid the Covid-19 pandemic, the logistics sector has experienced a faster recovery than other sectors. The sector’s fastest recovery significantly impacted the logistics providers’ financial statements last year.
The last two years were fantastic for the logistics industry. Ocean carriers made enormous profits. The year was also good for logistics intermediaries. ECU Worldwide surveyed 800+ freight forwarders worldwide and found that the considerable majority of freight forwarders grew their revenue between 33- 48%. Major growth drivers were related to increased freight prices and new customer acquisition.
Hesty affirmed this, saying GCL created a record for the company’s history. In 2022, GCL booked revenue of Rp 400 billion, supporting the company’s net profit of Rp 40 billion.
Market Expansion to Meet Target
Projections indicate that the logistics market is expected to grow at a slighter slower pace than in 2022 as the economy enters a pronounced slowdown and market moderation seen in the second half of 2022 spills over into 2023. According to IMF, the market is projected to grow by 3.1% y-o-y
Slowdowns will be more pronounced in Europe and North America, which are expected to see much weaker growth below the global average. North America is expected to grow by 2% y-o-y, while Europe will increase by just 0.6% in 2023. The Asia Pacific region will drive the market (5.7% y-o-y), which is expected to see strong GDP, manufacturing, and retail industry growth in the coming year. As described by the IMF, “Asia remains a relatively bright spot in an increasingly lethargic global economy.”
However, though the projections have indicated a slowdown, GCL still targets a 10% growth. GCL is confident that it can meet this target by optimizing all its business lines. How?
“Other than sea freight export-import, we will try to optimize the air Freight and domestic divisions. This is assuming that there is a normalization of the availability of the fleet of ships, with decreasing demand, “Hesty explained.
She further said that GCL focuses more on penetrating the market by opening new branches. Some of the locations that were under target include Makassar, Yogyakarta, and Bali. “We are preparing to open branches in those regions. We are still finding more and more information on them. But, surely, Makassar is the most potential, and it is our top priority, “she said.
Hesty underlined that improving human resources, both hard and soft skills, through training (coaching) remain the key to realizing the target. “This is essential. As a service provider, qualified human resources play a key role. Qualified human resources will be able to provide better service to customers. ”
Another thing that is on focus is improving technology infrastructure. Currently, it is a necessity to be able to maximize the potential of technology, including in improving service to customers.
This article was published in ISG Print Magazine April 2023 Edition.
