In December, Drewry published on their blog this article describing four significant disruptions likely to happen to shipping in 2022.
I feel these are right on target for the business, and will affect international shippers of all sizes, and intermediaries, such as brokers and freight forwarders.
I’m especially concerned with disruption in the resale of blocks of container space. Drewry’s discussion of MQCs (Minimum Quantity Commitments) indicates that contracts being tried out will require the MQC to be evenly spread across the year. This will be very hard for most forwarders to meet. While some of the business is of the level-quantity, just-in-time sort, lots of other shippers have seasonal blips in their demand. Those seasonal demands cannot be supported by regular fixed-quantity shipments; inventory costs would balloon, jeopardizing the business.
I’m using the word ‘seasonal’ in a time-series sense, not a climate sense; there is a lot of business that experiences ups and downs in demand, not related to weather, but to the needs of their customers. Clothing retail offers an example; summer wardrobes need to be brought in in early spring; winter clothes in late summer. Christmas tree lights and trees themselves are only needed in September-October to be ready for the Thanksgiving to Christmas buying period.
Smaller brokers and forwarders usually exist because they can provide special services to smaller shippers. They need to get access to space in order to help these shippers. Having to purchase on the spot market exclusively will mean that many small shippers will be handicapped.
But we cannot expect the brokers and forwarders to provide inventory consolidation services for the shippers who have these seasonal needs.
I recommend reading the brief article provided.
Drewry – Browse Recent Opinion Articles – New disruptions to supply chains in 2022 and how international shippers can respond
This complaint from freight forwarders is starting to resonate. It appears the major container carriers are gradually refusing to sell bulk space on container ships to brokers and forwarders, instead making them buy on the spot market.
One of the issues is to determine whether the liner companies are favoring large brokers and forwarders with discounted contracts, to the disadvantage of smaller brokers. Are there sweetheart deals? I am betting that for sure there will be space available from large brokers to smaller brokers. Price discipline is notoriously hard to enforce.
Is it anti-competitive to offer spot prices? No, I think not. Is it anti-competitive to offer different prices to different groups? Quite possibly. It’s worth a review by government agencies and regulators.
In competitive economics, fairness is not a principle; however, in political life it could be seen as unfair to drive out of business a group of substantial size who provide customized services of a very precise nature in a niche, to some shippers. Those skills may have value to society as a whole that are not captured in prices. That’s where regulation comes in.
The second article explains nicely the difference between a truck freight broker and a truck dispatcher.
Dispatchers work for and represent owner-operator truck drivers, trying to get loads for them at a higher price. Shippers pay the trucker, and dispatchers get a commission from the trucker.
Truck Brokers work for shippers, trying to get them a lower price. They bill the shippers and pay the truckers directly.
Currently, only brokers need to get a license from FMCSA and obtain a $75,000 bond, ostensibly to protect shippers from being paid if there is non-performance or damage. Dispatchers are not covered by the federal bonding requirement.
Dispatchers claim the additional regulation is unnecessary, but they have not been able to attract any political attention to their cause. Various approaches have been tried, including the latest one from the first article.
While the STB has been mandated by Congress to make a clear definition of a broker, there’s no timeline for that happening. Dispatchers would like to have clarity that their status is legitimate, and without a bond. They claim that by representing the trucker herself, they are definitely not brokers.
Some dispatchers may be a bit shady, perhaps overcharging truckers and not providing definitive paperwork to the trucker. Clearly, shady business practices shouldn’t be tolerated, but requiring a bond isn’t going to weed out cheating dispatchers.
John Gallagher, Washington Correspondent Wednesday, December 15, 2021