The last year has been one of the most turbulent ones for the worldwide Fashion & Lifestyle supply chains. Covid, Brexit, lack of sea freight capacity, the Suez incident with the Ever Given, the energy crisis, overstretched parcel and express networks and scarcity of workforce are all contributing to higher costs, poorer performances and high uncertainties. Brands, retailers and producers are all struggling with the effects. Although many are hoping that a quick return to ‘normal’ is around the corner, the signs are not looking good. In fact, the Supply Chain Crisis, as it is now being called, seems to have a lot of structural components in it. In order to adapt to this new reality Fashion & lifestyle supply chains all over the planet need to take steps in big parts of their business models.
When it comes specifically to sea freight, it is clear that many businesses suffered greatly from the high rates and poor availability. Sending containers from Asia to Europe or North America has been an enormous challenge for many and there are hardly signs of this going to change any time soon.
Many Fashion & Lifestyle businesses are SME businesses, but even the bigger ones among us are in fact too small when it comes to securing good contracts with the shipping companies. Recent history has proofed that even the contracts that some of the bigger businesses had did not help them at all. With 3000 to 5000 TEU a year you are a giant in Fashion, but a dwarf for any shipping company, meaning contracts are not always honored.
Another thing which becomes painfully clear is that the sea freight industry is very old fashioned in the sense that it has a vague cost structure. It is non-transparent and is rather unreliable in its performance. Anybody who tried to do a benchmark or has studied an invoice from a forwarder will acknowledge that this is not how they do business themselves. There have not been any big changes in the way we all deal with sea freight, but the problems and realities of today seem to start disruptive and welcome changes in the way business is done.
Adapting from this new reality and speeding up existing trends, the IAF, together with Greenway Logistics is developing a new concept for dealing with sea freight from Asia. The 4 most important elements of this approach are:
1. Procurement at the source was a small trend already before last year, but developments have rapidly pushed this forward. Numerous businesses are now shifting their procurement to Asia, instead of working with one of the many forwarders in Europe or North America. These forwarders are often too small to make any difference; in fact, they are often just small agents from the perspective of the Asian shipping giants. There are of course large worldwide operating forwarders, but their problem is the often that they are organized in a national or regional way, meaning small local sales teams that cannot influence the big corporate decisions and slow procedures. In general sea freight operators cannot offer the agile solution that is required today with swift switching options to air, rail and even road freight when relevant. With procurement at the source at least one, but sometimes even two steps, are eliminated, leading to lower costs, better speed, focus and better overview. Also, by working with not just one but multiple carriers, a healthy benchmarking system is also added.
2. Sailing guarantees have been a big issue with many businesses experiencing that their containers where actually not being shipped, despite high prices. Here too, the system of working with multiple carriers at the source makes the difference. It is key to be in the daily dynamics of the market to secure the containers with the highest sailing probability.
3. Buffering at the source is a process that helps some businesses with dealing with capacity and lowering costs. The essence is that you can choose to leave produced goods in Asian warehouses as a buffer. So if you don’t need the (entire) volume yet, or if you have some lead time to play with, it can be worthwhile to stock part of your volumes at the source harbor and wait for better rates, postponed payments of duties and freight, better consolidation possibilities etc.
4. The consolidation of shipments with your colleagues/competitors was already very worthwhile before this crisis. In fact, some Industry Associations were already building up their own consol boxes and volumes by having their member companies work together. In general, there are huge savings to be found in this concept, since the financial breakeven point between LCL and FCL, and the lack of transparency in consolidation results at forwarders have contributed to an existing reality where the Fashion & Lifestyle industry is shipping around 30% of air in its containers. The more branche consolidation is reached, the better this number will get.
Recently the IAF, together with Greenway Logistics, has invested in a first set up in Asia to enable the above. This means that a team of specialists, supported with a huge network, is now enabling us to deliver on all elements of the concept. This means that any member business of any IAF member country association now has access to these services. After a period of testing it is clear that the potential is huge, both in savings and reliability, as well as in sustainability; as consolidation is also the best way to lower CO₂ levels in logistics.
Looking towards the future it is now about the immediate solving of problems, but also the building up of volumes. These will enable us to strengthen our position and work towards more consolidation in more countries, and towards contracts as well.
If you are interested in learning more about this concept for your business, please contact us.