Freight Forwarding Update Air and Sea rates
Sea freight: Ocean freight rates have soared during the pandemic, particularly on transpacific and Asia-Europe trade lanes. Due to the high demand and box shortages throughout 2020. We believe prices will stabilise but at high levels, and we should begin to see this plateau after Chinese New Year.
The high level of spot prices will impact contract rates in 2021, contracted rates are currently three to five times lower than FAK spot rates, and whilst contract rates haven’t climbed as fast, they have increased over the last few week. Buoyant demand, tight vessel capacity and congestion at certain key ports will keep prices high and these creeping costs will impact future pricing slightly so clients need to be aware for forecasting supply chain costs.
In 2018 carriers began controlling the capacity in the sea freight market by using blank sailings to ensure there wasn’t too much capacity and therefore keeping spot rates from dropping. This trend will remain and we do not expect prices to go back down to 2019 levels.
The other issue contributing to rising rates has been the misalignment of empty containers with demand in export locations. After struggling with excess containers for much of 2020, Los Angeles Port is now facing an equipment shortfall. Availability has dropped by 50% and this box shortage, added to the labour shortage due to an outbreak of Covid-19 is causing supply chain chaos at US west coast ports. The port of LA is the leading gateway for the trans-Pacific container trade and we are expecting further instability before things settle back down on this route. This pattern is repeated elsewhere.
Equipment shortages have also been reported at ports in China and Asia although this is more common at this time of year for major Chinese export markets, we expect Chinese New Year to be the turning point with equipment reaching normal levels hence hopefully some price stability on the horizon.
Air freight: Following the positive news that Miami International Airport finished 2020 with a record year for cargo (thanks to the last quarter peak season surge). We look at the prediction for airfreight in 2021.
The downside of 2020 was rates, and even with belly capacity slowly being re-introduced, air freight rates are expected to remain high and unstable into 2021.
We have seen air charter increase by 50%, this is partly due to the sea freight issues – and whilst charter is mainly being used by the energy, automotive, aerospace and marine industries, we are we are seeing more enquiries from UK retailers who are looking at this option to protect their supply chain.
In an example of the rate increases, a typical charter, pre-Covid, from China to the EU would have been about $300,000. We reached multiple levels of that with quotes of $1.5m into the EU, or $2m into the US. It was the search for PPE contributing to this race to the top, fueled by Governments. In the future capping rates may prevent this happening again.
We anticipate passenger flights will resume in the second half of 2021 as vaccinations roll out. But it will be short haul, domestic and leisure to return first, and this presents less belly capacity, passenger airlines will only slowly re-introduce international widebody services.
Until core long-haul international travel and the belly capacity that comes along with it returns, rates will remain high and capacity will remain an issue throughout 2021.
As freight forwarders we hope recent events will encourage a shift in airports cargo versus passenger investment. With a focus on cargo’s economic value, long term investment in cargo facilities is overdue. The value of air cargo moved every year is $6trn, which is more than the value of tourism. So, the value to a country of people coming in and spending money is not as high as the value of the cargo they are sending to the outside world via airfreight.
Airports that invest in a cargo infrastructure and good connectivity will be able to diversify. The past 10 months have shown that airports with an income based on 95% passenger revenues are struggling. Whereas the ‘freighter and cargo friendly’ hubs around the world had a strong year in 2020.
So if an airport can have a good sectoral balance between low-cost airlines, cargo and traditional full-service carriers, they will be much more cushioned from an economic shock and we hope to be much more cushioned form soaring and unstable rates.