Cargo consolidators turn to FCL as global market dynamics change

Source: The Loadstar
Date: 24th October 2023

The pandemic-linked supply chain disruption undeniably boosted the niche less-than-containerload (LCL). 

But the then acute equipment and vessel space scarcity problems seem to be fading in some regions as ocean capacity far outstrips demand, and freight rates are now lower than pre-covid levels.

With the LCL downtrend becoming more pronounced, more focus will be on full-containerload (FCL) bookings to sustain volume levels.

The move comes after September LCL volumes fall 4% month on month to 1% below a year earlier, despite incremental contributions from Fair Trade.

Sequentially for the month, there was a broader decline across the key geographies of APAC, Europe, Americas and India.

However, not all companies are reporting the same trend. Some said LCL was a strong part of its business. One source said that they have to push LCL product more than in the past, and it’s been an eye-opener.

But there is also a structural reason – shipments are smaller. The real KPI is the number of invoices and to key that number of shipments.

Other sources are also seeing a marked slowdown in LCL demand. The short-term outlook for cargo consol activity remained challenging, with cargo owners wanting more resilient shipping options that have faster transits and equally competitive rates.

Certainly, shippers are increasingly choosing full-containerloads (FCL) due to the allure of lower freight rates. Consequently, the demand for FCL shipments is poised for continued growth, driven by faster transit times, reduced risk of damage and greater flexibility.

While this turnaround is being seen across global trades, it has particularly impacted the India-Europe tradelane, given the scale of the market.

India-Europe FCL contract rates have cooled further this month, hovering at $600 per teu for bookings from Nhava Sheva/Mundra to Felixstowe/Rotterdam, an 8% decline from end-September levels, according to market data. Further, the continuing slide has seen West India-Mediterranean rates crash 30%, to $550 per teu, from $800 three weeks ago.

It is believed that LCL market could tighten further in the near term.

One source agreed that the LCL segment had lost the momentum acquired in the aftermath of Covid-induced supply dysfunction. With lower destination charges and other inherent advantages, it only drives value for shippers to convert LCL shipments to FCL.

Additionally, with increased air cargo capacity and airline rates cooling or levelling off, some LCL customers have also had an opportunity to gravitate to airfreight, especially for priority shipments.

Although consol cargo handling is a more complex logistics mode, with multiple consignments packed into one container under a single contract of carriage, LCL service – priced by the cubic metre – is generally seen as more lucrative because of higher cumulative freight and other ancillary collections.

At the height of Covid lockdowns, LCL became a hotly sought-after solution among Indian retailers for their sourcing in smaller lots.

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