News digest. 3 Sept
Fasten your seat belts, we are taking off into the peak season and it promises to be turbulent
Ocean freight turmoil, production delays, and air capacity shortages caused by numerous restrictions have long been the omen of the approaching peak season. For the air sector, it has come a month earlier than expected taking many companies off-guard. Instability and unreliability are forcing many carriers to withdraw their capacity agreements and start quoting daily or weekly rates based on a spot basis only. Airlines are increasing rates by the day and westbound cargo rates have risen significantly in a week. Rates from China to the US west coast surged to more than $10/kg with rates to the US also disrupting capacity to Europe. Overall, they have increased by 112% from pre-Covid levels in August. Consequently, the capacity crunch is becoming more severe, so experts expect the chaos to be back shortly.
However, for Russian airfreight, it may be a moment for recovery or at least, a breakthrough that will lead to stable improvements. Local observers predict an 8% to 13% increase in the share of cargo traffic with the revenues possibly reaching $152bn. Meanwhile, there is a strong flow of newcomers such as smaller operators that decided to focus on charter services to make the most of the situation and as the result strengthened their presence in the industry.
Not only Russian air companies are on the rise. Geodis has taken a lease on a new freighter to operate between Amsterdam, London, Chicago, and Hong Kong. It will also serve the China – Europe route during the peak season. The decision to charter their own freighter aims to provide service at a more reliable schedule especially in such chaotic times.
Previously booming China-Europe rail volumes clocking a massive 52% increase in first-half volumes are now under the threat of a drastic 30% reduction in capacity in September. The cause of it is the delays at Kazakhstan border crossings and congested European gateways. The latter is also going to worsen due to another upcoming strike by German train drivers. In addition, following the increase in ocean freight rates, rail operators have announced general rate increases between $600 and $1,500 per 40ft container from 1 September. DB Cargo Eurasia will be the one sorting it all out mostly, as it is currently leading the game of China-Europe links. On the bright side, it has already launched five new connections in this direction.
Although there has been a massive trend of such big conglomerates as Walmart and Home Depot planning to ship their own containers, experts are skeptical about the long-term effects of this strategy. The economic situation is too dodgy and does not play in their favor – chattering vessels by themselves will only bring immediate relief. The current situation is driven by too many factors for the chosen approach to be the solution.
Ocean freight rates have been on the rise for 19 consecutive weeks. The recent updates show an increase in major East-West trades by 2.1% reaching $9,817 per 40ft container, although various freight sources report that the real price paid by shippers is way higher. Rates on Eastbound Transpacific lanes surged 4% or $393 to $11,362 from Shanghai to Los Angeles. However, from New York to Rotterdam they dropped 1% amounting to $1,142/FEU.
Port congestion is not the only cause of the drastic rise. It is now mostly up to the antiquated rail and road infrastructure on the West Coast that is preventing the efficient removal of containers out of the port. The Port of LA is currently facing a daily 30% no-show rate for truck appointments.
Strikes have not only washed over Europe. After HMM’s management pushed to resume discussions regarding the seafarers’ union strike, they voted to fire again. They have also claimed that HMM did not comply with the Maritime Labour Convention, and KMTC Line, Korea Line Corporation, SK Shipping and H-Line Shipping joined the protest.
Another player on the blacklist is Amazon. Climate activists have called the e-commerce giant on ship pollution. They underline that when the industry is determined to achieve a more sustainable future, big retailers and their shipping companies simply have no excuse to not invest in cleaner ways of doing business. Other companies that have become targets are Target, IKEA, and Walmart that previously expressed the initiative to transition to 100% zero-emissions cargo shipping vessels by 2030.
