China Recovery, Pent-up Demand Point to Air Cargo Growth in 2023

Aviation groups said China’s actions to recalibrate its economy would boost trade demand which is expected to spill into air cargo markets by the end of the year. “Once we can overcome the current macroeconomic challenge of inflation and energy costs, the fourth quarter of 2023 and going into 2024 look incredibly positive for the global economic picture in terms of international trade, and therefore for air cargo,” said Glyn Hughes, director general of The International Air Cargo Association (TIACA), during a webinar.

Willie Walsh, director general of the International Air Transport Association, was equally optimistic about prospects for his air freight members. “There is solid ground for some cautious optimism about air cargo,” Walsh said in a statement. “Yields remain higher than pre-pandemic, and China’s much faster-than-expected shift from its zero-COVID policy is stabilizing production conditions in air cargo’s largest source market. That will give a much-needed demand boost as companies increase their engagement with China.”

The Caixin China General Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, returned to growth in February for the first time in seven months. The air cargo industry regards the China PMI as a leading indicator of demand.

Hughs said two significant trade pacts signed last year, the Association of Southeast Asian Nations (ASEAN)-European Union Comprehensive Air Transport Agreement and the Regional Comprehensive Economic Partnership (RCEP), will also speed up cargo demand as economies recover.

“The ASEAN-EU agreement means any carrier from the 10 ASEAN and 27 EU states can fly unlimited cargo operations between the trade blocs with fifth freedom traffic rights,” said Hughes. He added, “(Fifth freedom rights allow) carriers to fly domestic routes within those trading blocs, and from those trading blocs to a third country, which will stimulate additional cargo volume between the two trading regions.”

Source: Journal of Commerce

Analyst Warns Shippers Carbon Surcharges are Imminent

According to Lars Jensen, founder and CEO of Vespucci Maritime, carrier network adjustments to reduce the cost impact of ETS will leave shippers hit with carbon surcharges and fewer direct services from the second half of 2023.

Jensen told attendees at the TPM23 conference in Long Beach last week that while ETS will be rolled out gradually through 2026, the current rule “strongly incentivizes” carriers to modify their networks to add port calls, the costs of which would be passed on.

Jensen noted Maersk had been the only carrier to offer an estimate on carbon surcharges, making it challenging to “put a number to it”. He said, “That already tells us one thing very clearly – all the carriers in the second half of this year will announce carbon surcharges on all trades in and out of Europe, or they will bear the risk themselves. Anyone negotiating contracts into European Union countries needs to take this into account.”

Jensen noted that the UK was no longer part of the EU and therefore, not covered by the ETS legislation. The European ETS forms part of the “Fit for 55” proposals that aim to deliver on Europe’s Green Deal climate law that targets the reduction of net GHG emissions on the continent by 55% by 2030 compared with 1990 levels and to make Europe climate-neutral by 2050. Shipping contributes 13% of Europe’s overall transport GHG emissions.

Source: Journal of Commerce

Possible Rebound in Container Rates and Overflowing Warehouses in March

Container xChange’s March container market forecast indicates an anticipated rebound in container prices. The Container Price Sentiment Index (xCPSI) is expected to be positive by the beginning of March 2023.

The xCPSI assesses how shipping experts around the globe expect container costs to evolve in the future. Approximately 2,700+ industry experts were surveyedand the upward pattern since the last three recordings in early March implies the industry anticipates container prices to rise shortly.

Christian Roeloffs, co-founder and CEO of Container xChange said supply is overshooting the demand for containers. "Due to this, we see ripple impacts like for example, depots working on max capacity (Depots in China for instance working on 90% utilization) and therefore, not being able to accept new clients. This is a global phenomenon now. And that is a struggle for the NVOCCs and shipping lines who want to open new markets," commented Christian Roeloffs, co-founder and CEO of Container xChange.

Roeloffs noted that the process had already started regarding diversification of trade lanes, as evidenced by the uptick in intra-Asia trade. “In the future, the larger trades will suffer a demand decrease so capacity needs to be adjusted towards regions with more sticky demand and more stable rate levels. Supply chains will need to be more resilient in the coming years. These relocation strategies will effectively reduce reliance on one production and supply chain hub to a more diverse, smaller trading pattern,” he said.

Source: Hellenic Shipping News

Hesitancy in Reducing Inventory, Ocean Carrier On-time Performance Still in Question

Slowing demand is putting pressure on European shippers to cut working capital tied up in excess inventory, but ocean schedule reliability has yet to improve to a level where buffer stocks can be reduced, according to a BASF executive.

Carsten Weers, vice president of logistics procurement at the Germany-based chemical shipper, said during a webinar hosted by Hapag-Lloyd that carriers' on-time performance was still well below pre-pandemic levels. Sea-Intelligence data shows schedule reliability improved to 52.1% in January 2023 on the Asia-North Europe trade, from 17% in January 2022. However, this is still considerably lower than then 78% recorded in January 2019.

Memories of recent supply chain outages are still on the minds of shippers and their service providers, according to a Reuters Events survey outlined in a report, The State of European Supply Chains 2023. Although many in the European supply chain sector expressed concern about the prospect of a global recession, the surveys showed a reluctance to to reduce inventories aggressively. Nearly 50% of the manufacturers, retailers and logistics service providers surveyed said they expected inventory levels to increase in 2023.

“The surprising robustness in inventory expectations in the (Europe/Middle East/Africa) region is likely to reflect the fact that high levels of disruption are not yet considered over,” Alex Hadwick, head of supply chain research at Reuters Events, noted in his analysis of the survey findings. “There is a preference to maintain buffer stock so as not to be caught out,” he added.

Source: Journal of Commerce

Drastic Changes to Scheduled Capacity on Asia-North American West Coast

At the beginning of the pandemic, ocean carriers were able to cut capacity to match a sharp drop in demand. However, carriers did not carry out the same corrective action in the last four months of 2022 when volumes crashed. Instead, carriers have adopted a wait-and-see approach, waiting for competitors to blank sailings before mirroring the action themselves. Consequently, there are drastic changes to scheduled capacity leading up to actual deployment.

Sea-Intelligence data showed scheduled deploymentfor Week 7-9 2023, as they were at different points in time for the Asia-North America West Coast corridor (see Figure 1). Schedules that were two weeks out reflected to an extent what the actual deployment turned out to be. Schedules three weeks out had around 10%-20% of “extra” capacity that did not get deployed. Schedules six weeks out had an excess of 20%-40%, except for in Week 9 where it was in excess of 10%-15%.

“This means that in the 3 most-recent weeks, carriers have corrected significant amounts of capacity. The same trend was also seen at the end of 2022 after Golden Week, where there was an excess of 60%-80% of capacity that was scheduled but not deployed,” said Sea-Intelligence CEO, Alan Murphy.

On Asia-North America East Coast, capacity correction occurred less frequently and was not to the same extent as seen on the West Coast.

Source: Sea-Intelligence

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