News digest. 16 Nov
What goes around comes around: years of underinvestment in airfreight are now resulting in decrease in volumes and the sector’s inability to battle congestion.
Although strong demand for air has taken off, it is not quite clear where exactly it is heading. Judging by the fact that global load factors fell by 1.5%, it is on the way to the abyss of an uncertain future. There is a lot of congestion in the EU (volumes out of Europe fell 10%), across the Atlantic, and in Asia, and many charters are being refused. It is the price that the whole industry has to pay for years of neglect of the investment in air and handling cargo. In fact, this devastating crisis has occurred for the first time in the last 25 years. The logistics industry is in desperate need of more staff – not only airport operators. The off-airport movement of cargo is worsened by a shortage of thousands of truck drivers in European countries. The air rate is currently double from what it was the same time a year ago – $14/kg from China to the U.S. West Coast. Yet, even this significant increase does not make airfreight more expensive than the transportation of goods by sea. On the contrary, many companies are trying to make up for a lost time by shifting goods that normally move by the ocean to air. If before the COVID, the average price to move air cargo was about 13 to 15 times higher than the one by the ocean, now it is only 3-5 times more expensive. However, both sectors are equally affected by the disastrous schedule reliability. The congestion in Frankfurt is causing major delays in other airports. The last nail in the coffin was the introduction of the Union Customs Code, which, according to experts, is a big omission during the peak season. With the growing prices, it is inevitable that service levels will go down, and the challenge will push for months ahead. To address the situation, local partners are teaming up to provide additional space for shortages and refuse short-time working to increase the availability of the employees. However, since the drivers’ shortages are not solved, the measures will not be a game-changer. There is now a new veil of uncertainty regarding the relations between independent hauliers and self-employed drivers. The UK government is advising to abstain from the services of the latter claiming that it could result in the traffic commissioner revoking their license. The customers are asked to go to agencies but instead, limited companies, are choosing to go to Germany rather than work through an agency because by doing so they instantly get a license uplift or extra drivers.
In the meantime, the implementation of the shocking container dwell fee in the Ports of LA and Long Beach has been postponed thanks to the progress that has been made in shedding long-dwelling containers. However, the initiative still will be implemented later in November because all the collected fees will be spent on programs designed to enhance efficiency, accelerate cargo velocity and address congestion impacts. Europe sees some changes too as some of the companies previously stated that they would omit congested Port of Hamburg reinstate their loop call, although the relief is not expected any time soon. As for the previously announced shift to tech and research, the first results did not make us wait. The Blue Essence has become the first offshore certified USV that can launch an electrically remote-controlled underwater robot at the Port of Rotterdam. Personnel can be moved from high-risk offshore environments to a control room onshore, reducing the CO2 footprint by 95% compared to traditional research methods. The trend for technological development does not overrun the trend of acquisitions and partnerships as this week sees new ambitious plans. Maersk sets its eyes on South Africa by tapping into a partnership with freight transportation company Grindord and taking 51% of shares. The step follows Maersk’s recent a long-term strategic partnership with wind turbine manufacturer Vestas for all containerized transport. Meanwhile, Wan Hai Lines knows the drill of the growing influence of the shipping lines and hurries to strengthen its positions by purchasing one of its chattered ships. The move is justified – the current context of tight capacity requires vessels that are at an immediate availability and this is where second-hand ones come in handy.
Apart from baring all the pain points of the industry, the crisis has definitely accelerated the development of facilities that used to be unimaginable. A bright example of it is the existence of the trains between the major sea ports along the New Silk Road, a phenomenon that used to be a distant dream but a reality now. The data shows that container transport by rail between Europe and China has grown by 25% in 2021. Experts say that is mostly driven by food transport. The Georgia Port is betting on the rail to and announces the operation of the second set of new rail tracks at the Port of Savannah. It is a part of the plan to invest $34 million into the port to help it expedite an additional 1.6 million TEU in capacity the delivery of which will be split into two phases.
