Market fundamentals have been changing rapidly and the costs of transporting goods out of China and many other critical sourcing regions continues to sink amid a sharp economic slowdown in Europe and the United States.
Air freight rates continue to soften, while ocean rates from Asia- Europe have dipped nearly 68% since the start of the year, but remain considerably higher than pre-pandemic levels, with carriers reducing capacity by rolling blank sailings to try and prevent further rate erosions. However, despite their best efforts, rates continue to decline.
OCEAN
The general outlook remains flat, due to the Golden Week holidays in China and the weak demand from Europe and the US, buffeted by inflationary headwinds, resulting from the continuing Russia-Ukraine war, tightening financial conditions, and deteriorating confidence.
Port congestion on both trades continues to be an issue, as it results in longer turnaround time for vessels to return to Asia. Disruption at European ports, including port strikes in Felixstowe and Liverpool and ongoing port congestions at US ports, including Savannah, New York and Houston has encouraged shipping lines to continue with some blank sailings, to restore schedules.
China’s zero-COVID policy continues to impact major manufacturing and exporting regions like Chengdu, Dalian, Guangzhou, Shenzhen and Tianjin, and while port operations are exempt from restrictions, inland logistics have already been affected to varying degrees.
The queue of container ships waiting to enter ports in Southern California has moved to Savannah, where around 40 container vessels have been waiting to berth for an extended period, while in New York, around 15 vessels were waiting lately.
A potential US rail strike has been avoided which, as rail moves 40% of long-distance trade, would have caused massive disruption and delays for the holiday season in December.
Bunkers prices have softened, which is contributing to the rate erosion and we anticipate further reductions, although at a slow pace. UK Fuel surcharges remain high even with fuel pricing softening,
The Suez Canal is increasing transit tolls by 15% from the 1st January 2023, due to inflationary pressures, which had increased costs for its operations and navigational services.
AIR
The reduction in demand, driven by rising costs and inflation experienced across major economies, is creating a slump in export orders for emerging economies, with China’s manufacturing PMI falling to ~49 in August, which signalled reduced export orders, and with it demand for air freight, over the last quarter.
While air freight demand has softened since April this year and remains low, global air cargo capacity has continued to rise and is now 16% above last year – though it is still down on pre-pandemic 2019.
PAX belly-hold capacity, which has been given a further boost by Hong Kong and Japan finally relaxing travel restrictions, is already 23% above last year’s level and will easily cope with any peak season requirements. However, airspace closures due to the Russia/Ukraine war continues to impact capacity negatively.
Increases in air cargo capacity is encouraging, but jet fuel price hikes are the key obstacle to softening of rates to pre-COVID levels.
Travellers are expected to deliver a £35bn boost to the world’s third-largest economy after Japan lifted most of its remaining pandemic-related border restrictions, with carrier responding by added more flights and cargo capacity.
Hong Kong has finally relaxed its strict COVID controls and quarantine rules, which will boost belly-hold cargo capacity and boost the city’s ailing economy, with Cathay Pacific already strengthening its network connectivity through its Hong Kong hub, launching 200 pairs of regional and long-haul passenger flights in October.
After remaining above last year’s levels for the first seven months of 2022, worldwide rates are softening, but still sit 23% above their level, this time last year, despite softening fuel surcharges.
With softened demand and recovering capacity, we are likely to see an aggressive spot market on most trade lanes, with rates likely to remain affected mostly due to jet fuel price hike and service disruptions.
On the Chinese mainland, there was a slight increase in freight rates from major origins including Guangzhou and Shanghai, ahead of the Golden Week holidays, but questions remain over whether rates will pick up, and how long any peak season will last.
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