Juan Gimenez has been involved in the shipping and project logistics business for almost 42 years. Now retired, he shares his thoughts on the current market, disappointed with how project freight forwarding in Spain has developed over time. The situation was bad enough even before the Covid-19 pandemic.
It is likely that my thoughts on the Spanish market share similarities with other countries, given that this line of business is global and ruled by common custom of the trade. Logistics is international in every aspect.
I was 24 years old when I joined the exciting and adventurous business of shipping in 1978. Then, it was truly a profitable trade, somewhat disrupted when containerisation overtook general cargo/breakbulk shipments as the dominant shipping method.
Over the years it just became a box rate, regardless of the commodity handled. This, to my mind, is a great mistake and high-value cargo ought to pay more. In fact, container rates in general ought to be increased regardless of balanced or unbalanced trade lanes. Each leg should be profitable.
Shipping and logistics related business is a specialised trade, the nuances of which are not taught academically but nourished and learned by years of sheer experience.
Concurrently, new technology has made it possible to handle heavy and oversize items considered impossible in the early 1970s.
Once upon a time, shippers and service-paying parties valued companies and individuals with such thorough know-how, entrusting their shipment to them.
Further risk
Freight pre-paid meant what it said. Today, this has been distorted to ‘freight to be paid’ or ‘will be paid’. Regretfully, the need to provide financing services has burdened logisticians with further risk.
Shipping has, as such, changed drastically owing to many reasons, among them: excess competition; the ease of starting a freight forwarding company lacking the required knowledge and management skills; acceptance of absurd financing policies with shippers, driving down margins; and auctioning complex project shipments involving unilateral terms and conditions imposed by the awarding party on the lowest bidder.
Commerce requires competition, provided that all acting parties maintain a commonsense attitude. Risks must be valued but too often they are under-priced in the hope that nothing goes wrong.
Large, medium and smallsized companies have ventured into project and heavy lift forwarding as a means to improve turnover and profitability. Containers alone do not make ends meet, unless fulfilling the simple rule of handling thousands of units with low margins.
Even so, it does not always make sense. I have normally favoured lower volumes with bigger margins. Then again, each company has its own policies.
Domino effect
With respect to my last 21 years involved and acting in this specific business, this trade line has steadily deteriorated into an unbearable situation, with a domino effect hitting ocean carriers and other relevant third parties.
It is no wonder that so many companies are in the red, while others have closed down. I recall my mentor saying: “If you are a billionaire and want to become a millionaire, put your money down on shipping.” How right he was.
Commerce requires competition, provided that all acting parties maintain a commonsense attitude. – Juan Gimenez
Even though margins, markup and profitability rely to a great extent on supply and demand (without ignoring singular or unique situations with respect to a given technical capacity), too many contenders are approached, thus spoiling what ought to be a decent business transaction.
Lowest possible rates
The main heavy lift carriers are thereby receiving the same cargo offers. Our revenue or source of income is not dependent purely on commission, as is the case with brokerage. It is about subcontracting all services in the logistics chain at the lowest possible rates, and charging within reason for liabilities and risks, including for one’s own network and capacity.
In most cases, Spanish EPCs and other project-related parties tend to auction their shipments seeking the lowest quotations, often ignoring the financial stability of the winning party. The bottom line is the main priority.
It follows that the preparation of logistical proposals with handling methods are taken for granted by shippers, knowing that they will be submitted free of charge. Why?
It boils down to, “it is not so much what you know, but who you know”. Added to this, good manners should not be spared; very rarely does the shipper announce who will miss out on the next bidding round. Unmistakably, the market dictates what kind of rate can be achieved, although how much longer can service providers continue to struggle?
It is going to be a dreadful future ahead if our community does not react. – Juan Gimenez
Pushing back
Unless logistics service providers, with support from the carriers, can push back collectively, the situation will not improve. I feel that it is obvious from our dealings that intervention is needed.
Most shippers of project cargo should and can pay more to a reasonable degree. For far too long the logistics sector has been taken for a ride. I feel that it is a mistake to hear from colleagues and carriers going through bad times that it is all to do with challenging market conditions – a load of rubbish. Overall, rates ought to increase by at least 25 percent. We are all to blame for giving in to ridiculous levels.
Shipping is a vital, serious and complex business that is not properly valued and where there is no consideration of what it takes to render a given service. It is going to be a dreadful future ahead if our community does not react.
This article has been taken from the August/September 2020 edition of HLPFI.
