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Ocean freight consolidators turn on LCL relief valve

Less-than-containerload services offer forwarders and their shippers an alternative to more expensive air freight and full-container transport services, industry experts say.

Ocean freight consolidators are riding a wave of less-than-containerloads (LCL) in recent months as the coronavirus pandemic leaves more freight forwarders beaching full containers.

Also known as neutral non-vessel-operating common carriers (NVOCCs), these logistics services providers resell container space to forwarding companies with cargo volumes from shippers which are too small to fill an entire 20-foot or 40-foot container on their own. While a consolidated container may include a multitude of forwarder cargoes, it is generally grouped according to destination.

LCL service is also attractive to forwarders who want to avoid subjecting their shippers to more costly airfreight transport for cargo that is not necessarily urgent.

Michael Troy II, chief development officer, Troy Container Line [Courtesy Photo]

“We have definitely seen a rise in LCL requests,” said Michael Troy II, chief development officer of Red Bank, New Jersey-based Troy Container Line, in an interview with American Shipper. “Many shippers that normally move cargo through FCL and air services are now looking to alternative solutions to meet deadlines and move cargo in these times.”

Klaus Jepsen, group CEO of Hoboken, New Jersey-based Shipco Transport, told American Shipper that his NVOCC is receiving increased interest in LCL service from forwarders.

“We are basing it on the fact that there is pressure on air cargo capacity due to the cancellation of pretty much all commercial passenger flights offering cargo capacity and since what cargo freighter capacity is available has become very expensive,” Jepsen said.

“We also sense that our customers — the freight forwarders and their customers, the BCOs [beneficial cargo owners] — are placing smaller orders to ship them at higher frequency,” albeit with an ocean container service, he said.

Troy said his NVOCC has witnessed an increase in requests for volume shipments, which would normally ship in a 20-foot or 40-foot container and are now being priced through an LCL alternative if the cargo needs to move the same week.

“We are working with our clients and vendors to be able to accommodate these shipments and provide sailing schedule opportunities that our freight forwarding clients are not able to access otherwise,” Troy said.

Another option

ECU Worldwide, one of the largest neutral NVOCCs, has experienced COVID-19’s ripple effect on ocean cargo volume shift since the pandemic’s emergence in China in December.

Tim Tudor, CEO of ECU Worldwide [Courtesy Photo]

“When China first extended their New Year celebration, volumes were already being affected as cargo departures from China were the first to drop off,” said Tim Tudor, CEO of ECU Worldwide.

“Throughout February, other countries actually saw volumes increase, somewhat offsetting the shortfall from China. So, we have seen this ebb and flow of cargo drop-offs and increases as the virus spread throughout the world.”

In recent weeks, ocean container carriers have announced a couple hundred canceled sailings over the next several months due to the diminished international freight traffic caused by the pandemic. Canceled sailings are used by these carriers to avoid a free fall in freight rates and reduce undue operations costs.

At the same time, the ocean carriers have announced incremental rate increases of $50 to $80 per TEU about every two weeks since mid-March, which industry experts say are sticking.

“I can see rates going up for 20-foot containers and driving more traffic to LCL,” said Joseph Saggese, executive managing director of the North Atlantic Alliance Association (NAAA), a forwarder-based shippers association.

The increased rates for 20-foot containers reduces their profitability for forwarders and pushes shipments of that size into 40-foot boxes in the form of LCL, Saggese said.

NVOCCs are immune neither to the impact of canceled sailings nor to rate increases, but are highly adept at finding reasonably priced space across liner services for their consolidated boxes.

“Our team works daily to find a recovery option in the weeks where our traditional schedule is not available from the carriers,” Troy said. “We are able to leverage our relationships across the industry, so we have contingency plans in place if the first option is not available.”

Troy Container Lines, for example, ordinarily books its LCL containers with the same carriers on a weekly basis. “We usually book our LCL freight up to six weeks ahead of time to give our carrier partners a clear indication of what volume we are expecting during certain times,” Troy said.

New LCL services

Both Troy and Shipco have announced new direct, weekly LCL services in recent weeks from the U.S. to various overseas destinations.

“We have successfully launched new services to Switzerland and Qatar since mid-March, and we are focused on continuing to grow to meet the demands of our client base,” Troy said.

Klaus Jepsen, group CEO of Shipco Transport, speaks to CFS employee. [Courtesy Photo]

Jepsen said Shipco has worked with its WorldWide Alliance partners to offer more direct services to destinations that previously passed through transshipment hubs. The NVOCC has also reduced cutoff times at origin and improved availability time at destinations, as well as promoting port pairs where Shipco offers two, three and four weekly departures as opposed to one.

“We are responding to the need for a faster service for freight that no longer can pay for airfreight by introducing express LCL services to and from the U.S.,” Jepsen said.

In late March, ECU Worldwide, one of the world’s largest neutral NVOCCs, started an LCL express service, XLERATE, in partnership with ocean carrier Matson Navigation from Shanghai to nine container freight stations (CFS) throughout the U.S. via the Port of Los Angeles.

“Since our XLERATE product is a CFS-to-CFS service, this allows our freight forwarding customers to avoid the requirement of clearing cargo in Los Angeles and arranging an expensive LTL [less-than-truckload] delivery from Los Angeles to the door of their customers located in the central and eastern part of the U.S.,” said Spencer Strader, ECU Worldwide’s director of U.S. imports.

“Given COVID-19’s impact on many importers’ warehouse receiving operations, having the final mile in local hands builds flexibility in cases where the normal delivery process has changed due to reduced hours at receiving locations,” he said.

Riding out the pandemic

“Time will tell if volumes will rebound when business starts getting back to normal,” said Vince Argenzio, ECU Worldwide’s U.S. CEO. “The expectation is that it will be a slow return and losses experienced in the early part of the year won’t be made up.”

He added, “There are definitely companies feeling the pain. Those that were quick to act and take measures to reduce their exposure will make it through these difficult times.”

Jepsen said in times of global economic downturn it is not uncommon for smaller ocean freight consolidators to discontinue services. Some large forwarders with their own NVOCC services may be compelled to co-load with others.

“It is hard to predict how or if the market will rebound,” he said. “Everything we do is tied to the economy, and if global trade drops by 5, 10 or 15%, then no doubt this will be felt by the NVOCCs as well.”

“I think being a large, global company will insulate us more than being isolated in a single country or region,” ECU Worldwide’s Tudor said.

Chris Gillis

Located in the Washington, D.C. area, Chris Gillis primarily reports on regulatory and legislative topics that impact cross-border trade. He joined American Shipper in 1994, shortly after graduating from Mount St. Mary’s College in Emmitsburg, Md., with a degree in international business and economics.