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In the last 3 years, there have been major disruptions in the logistics sector and therefore in world trade, which first started with the covid-related closures in mid-2020, then continued with the closure of the Suez Canal in March 2021, and finally due to the Russia-Ukraine war.

This situation showed how important the supply chain is for especially for companies in the logistics sector, manufacturers, traders, buyers and therefore governments. It has led to great changes in the way how people see the supply chain.

Many companies that were not ready for such changes and were inflexible had very difficult times, and many companies had to close down simply because they could not deliver their products to the consumers.

 At the beginning of covid, especially the biggest container operators, expected demand decreases due to reasons such as countries closing their borders and starting to take precautions in this direction. However, over time, there was a demand explosion for logistics, as people and states tried to stock up, and people brought their demands forward with the expectation of inflation causing logistics demands and prices to reach record levels.

The Global Container Freight Index, which was stable at around USD 1400 for 5 years until the first quarter of 2020, was found to be USD3100 at the end of 2020. Due to the above reasons, it reaches USD6700 at the end of the first quarter of 2021. While relaxation is expected at this level, on the contrary, when we come to September 2021, it broke a historical record by reaching USD11000 levels.

At this stage, while many companies had difficulty fulfilling the agreements, they had to find new routes and alternative transportation methods. Although some sectors turned to air cargo, the rate of meeting the demands remained at only 4% due to costs and capacity problems. When we consider that over 85% of world trade is carried out by sea transportation. These alternatives have not been very effective in eliminating the problem.

Sea freight rates remained at 9-11k levels until March 2022. One reason for this was that large container operators turned the situation into an opportunity, while another reason was that the demands were pushed forward and piled up. After March 2022, a breakout occurred, and a decrease was realised to today's USD 3100 levels.

No decrease is foreseen up to these levels. The reason can be considered as the cessation of demands depending on the expectations of recession and the swelling of stocks due to previous behaviours. The biggest logistic companies reported that have seen a 20% drop in ocean freight orders for the months of September and October.

On the one hand, this decrease is expected to remain at an average level even if it does not continue, on the other hand, prices are expected to decrease a little more due to the capacity increase planned by the large ship operators for 2023.

But no matter what, we have realized in these last 3 years that expectations could change in a very short time with a new crisis that may arise at any moment. Therefore, especially manufacturers and traders must keep their operations departments very strong. Here are the most four important issues that companies should do:

Firstly, the operation departments must be very strong and communication must be maximized. They should communicate more with all relevant stakeholders; instant notifications should be made and feedback should be received. It may be possible to prevent great losses by solving a problem in a fast and interactive way with communication.

Secondly, frameworks of the contracts should be more flexible than rigid. Contracts that are made very rigid, could lead companies both seller and buyer into very big losses in such big crises that we see often nowadays. Stakeholders can sometimes resolve issues by agreeing with strong communication, even if it is out of contract.

Thirdly, the importance of digital transformation. In such constantly changing environments, it is very important to continuously calculate and update costs interactively. Since the way of doing business is regularly changing, digital transformation is of great importance to prevent mistakes. Of course, while doing this, I don't think that the human factor can ever be completely taken out of the equation. As we mentioned above, the plans drawn for solid frameworks can cause more damage than profit.

Finally, regulations need to be followed very closely. Today, every country can make sudden regulation changes because they want to protect its citizens. On the other hand, the world is in a great test against Climate Change. So, many regulatory changes can be made for this. Companies that do not take precautions in time for all these changes may find themselves in very difficult situations.

Emre Bahcivan
A.Trade Operation Manager