Navigating the Commoditization of International Freight: nothing good comes easy in life it is said when service is turned into a commodity

A service is not a commodity – or at least is not supposed to be treated as a commodity. The reason is that when you buy a commodity, you make something out of it – you buy aluminum and you make bikes, or you buy plastics and you mold them into toys. A service is something you buy to support the actual product you sell – in our case, it is to move your product safely, timely, securely and economically. This service does not only impact the cost of your product but also the experience of your customer for the transaction they do.

International logistics and transportation are a service at its core.

In general, logistics has always fluctuated in price in the past based on the supply/demand of vessel space, trade, trucker availability, and so on. During Covid, these fluctuations got more marginal, and customers were all told the same by the operators – “we are full, we cannot match demand, so we need to increase the price not one fold, or two, but ten or twenty.”

This situation of overdemand with limited supply in transportation has brought the understanding for some importers/exporters that transportation services are getting treated as a commodity. And today, for many, a “service” of the past is the “commodity” of today. There are multiple reasons for this besides pricing.

Since digitalization started, many companies focused on cost-cutting, which impacted service quality. Many large companies started to stop assigning sales representatives, dedicated customer service teams, or even any person for many of their customers. Customers are told to utilize the “digital tools” which failed and continuing to fail to handle exceptions. So, once the right value to the customers is not given and prices went up in an extraordinary fashion, customers’ perspectives changed, and today we see this trend of commoditization of freight. According to the Drewry World Container index, we can see fluctuation of ocean freight has been more marginal even following the post-pandemic normalization. Unfortunately, commoditization of freight is making the interactions among companies more transactional than relational.

Being represented just as a number on a companies’ portfolio doesn’t give customers the right message either. This has been said: keeping a grudge and going after carriers for cheaper and cheaper prices is also not the right path to take.

But what is the right path to take? As usual the right path is the one that requires more effort and patience. Rather than keeping a grudge, communicating with service providers, setting the right terms and conditions of working together – not only for today but also for future is the key. The old school, face-to-face relationship building and committing on both sides is the other. Obviously, we all take down some of those bridges, but we do need each other at some point in the future. Service providers need consistency from their customers to sustain their business in times like this, so that customers can also be supported once the economy comes back and global demand increases.

As it is often said “nothing good in life comes easy”. Opting for the easy route is seldom the best choice. Instead, fostering robust partnerships and focusing on sustainable practices will likely yield the most beneficial results for all parties involved in the long run – whether in shipping or any industry.