A Mixed Picture for the Air Cargo Market

Speaking at the TIACA Air Cargo Forum, Accenture’s Seabury Cargo consultant commercial manager, Sander Schuringa highlighted the current headwinds facing the air cargo sector but also pointed out reasons to stay positive.

Schuringa noted air cargo demand had fallen around -5% year-on-year in August, the Trans-Atlantic supply ratio dropping back to 2019 levels with yields declining, signs of slowing U.S. air trade, continuing lockdowns and bottlenecks in China, and the impact of economic headwinds on air cargo.

August demand was down year-on-year (y/y) on most major trade lanes with volumes down -15% from Asia to North America, -6% from Asia to South America, -15% intra-Asia and -9% from Asia to Europe, he said. The only major trade lane showing y/y growth was the Trans-Atlantic where demand climbed 10% to North America and 3% to Europe.

Schuringa said there was no longer a supply-demand balance. Capacity was now growing at a faster rate than demand each month which has meant lower load factors and rates. Capacity is up by 8% since the start of the year, he added.

However, there are some positive aspects looking outside of the y/y figures. Schuringa explained that total air cargo capacity was still down around -6% compared with pre-COVID 2019 levels while air trade is up by 5% compared with two years ago. Airline freighter capacity is up approximately 9% on pre-COVID levels, integrator freighters are up around 29%, but bellyhold space is down around

-29%. Freighter capacity overall now represents around 63% of total market capacity compared with around 50% pre-COVID.

Another emerging trend Schuringa highlighted was the entry into the market of ocean shipping lines with air cargo operations. Although ocean shipping lines had doubled their capacity since the start of the year, they still only represented around 0.1% of the market. He also pointed out that in that time, integrators had added five times more intercontinental air cargo capacity than ocean shipping lines active in airfreight.

Source: Air Cargo News

Falling Volumes will Adjust Eventually Says Ocean Carrier

Paired with a weak global economy, Hapag-Lloyd’s CEO Rolf Habben Jansen expects container rates to be in decline for some time. “Global demand is definitely slowing down at the moment, especially on the East-West trade,” says Habben Jansen on Thursday during a press conference. He said the question was when the market would stabilize and pointed out, “coming from the level where we were, it is not entirely unexpected.”

With the fall in volumes greater than the economic decline, Habben Jensen predicts that volumes will rise again. “We just need to see when that will rebound again, because no matter how long you look at it, it is very clear that the global economy is not down 10 or 20 percent. Things need to settle, and we are going through a transition period. The question is how long that will take,” he said.

He does not expect the fall in demand to be as strong next year as it has been in recent weeks. Instead, Habben Jensen anticipates that recent weeks’ decline in volumes “will recover – at least to some extent.” He said the size of global inventories were key to freight market development, however, it was not clear to what extent high inventories or weak underlying demand accounted for the fall in demand.

Habben Jansen believes the price development will adjust in the long run. ”In the end, it is very difficult to predict rates on the short term, but if you look a bit ahead – and also if you look at it historically – it is very unlikely that rates in the long run will remain below the cost level,” he said.

Source: ShippingWatch

IMF Chief Says Global Inflation is Likely Nearing its Peak

The global rise in consumer prices could be peaking, Kristalina Georgieva, managing director at the International Monetary Fund said. She warned that inflationary pressures could prove more persistent than in the past given heightened geopolitical tensions and a fragmentation in global manufacturing supply chains.

“We actually think inflation is going to be harder to bring down to the desirable level of around 2%. Why? Because the drivers of deflation are not only supply [and] demand disruption, but also a changing cost structure that comes from the realization that, no more, we make economic decisions only on the basis of cost.”

In response to severe disruption during the COVID pandemic, businesses have pushed to source supplies from closer to home. “Supply chain security also matters. If we are going to see diversification of supply chains, that inevitably is going to put some upward pressure on prices,” Georgieva pointed out.

Source: Supply Chain Brain

Carriers Face a “Hard Landing” on the Far East-North Europe Trade

Spot rates have nosedived on the two main East-West trades due to low cargo demand from China. “The general expectation that the bullish liner market was going to ‘normalize’ in the second half of this year and in 2023 has proved to be incorrect,” Alphaliner said in its newsletter.

Spot rates have fallen by -77.4% between Shanghai and North Europe since peaking on January 7, according todata published by the Shanghai Shipping Exchange in its Shanghai Containerized Freight Index (see Figure 1). The analyst noted that with “accelerating rate erosions in recent weeks, the market now seems to be heading towards a ‘hard landing’ instead of the expected ‘normalization’”.

It is reported that cargo demand on the main East-West trades has dropped -10% since August. This was supported by Container Trades Statistics data which reported a -7.2% volume loss for the carriers on the Asia - Europe trade that month.

Unlike the Asia - North America trade where average weekly capacity is already down -10.5% year-on-year, the current average weekly capacity between the Far East and Europe is comparable to November 2021. The total weekly capacity in November 2022 increased marginally, by 0.1% to 437,991 TEU.

Source: Alphaliner

November Volumes Level out for U.S. Imports

The November report released by Descartes Datamyne shows U.S. imports stabilized in October, remaining flat versus September. U.S. ports handled 2,220,331 twenty-foot equivalent units of imports in October, a negligible 0.2% higher than the month before. Volume was down -13% year-on-year (y/y), but up 7.2% versus October 2019 (see Figure 1).

The Port of Long Beach recorded a -2.7% decline month-on-month (m/m), Long Beach was down -3.9%. Although Savannah recorded a 5.3% increase in October compared to the month prior, September volumes had dived by -20% as a result of the Hurricane Ian closure. M/M gains were also recorded for Houston; Charleston, South Carolina; Oakland, California; and Seattle and Tacoma, Washington. The Ports of New York/New Jersey saw a -6.3% decline in October compared to September.

The shift of cargoes to East Coast ports has reduced the number of vessels at anchorage or parked offshore of West Coast ports. However, vessel queues have climbed at other coasts. According to MarineTraffic data, the total number of ships waiting off North American ports has fallen below 100 in mid-October in line with declining import volumes. As of November 8th, there were 87 ships waiting, 14% off the West Coast and 86% off the East and Gulf coasts.

According to Descartes’ data, average port delays have fallen by -40% at the top five West Coast ports - Los Angeles; Los Angeles; Long Beach; Oakland; Seattle, Tacoma, from January through October. Average delays at the top 5 East/Gulf Coast ports - NY/NY, Savannah, Charleston, Houston and Norfolk, Virginia, fell by -20% over the same period (see Figure 2).

Source: American Shipper

U.S. Intermodal Providers Fighting to Retain Rail Business in 2023

A slowing U.S. economy and the possibility of a coming freight slowdown has key U.S. intermodal providers turning to aggressive pricing to keep freight on the rails in 2023. Competition is heating up between the trucking industry offering competitive rates on shorter hauls, and asset-owning intermodal marketing companies (IMCs) with a glut of new containers jockeying for market share with non-asset IMCs.

According to the Intermodal Association of North America (IANA), domestic intermodal demand is slipping, with volumes down -10% between March and September. Norfolk Southern Railway reported its domestic loads fell -4% year-over-year in the third quarter, while Union Pacific said its domestic volume fell -3% and parcel shipments on intermodal trains plunged -16% in the same period.

Trucking is providing tough rate competition in a way it hasn’t in years and there are several lanes where the competition is heated. From Atlanta to Elizabeth, New Jersey, for example, an average intermodal contract is saving shippers about $375 per container today, according to the JOC Intermodal Savings Index. If truckload contract rates fall -8%, and intermodal providers attempt to raise rates 3%, then the rail option saves less than $100 per container. Other lanes with stiff truck competition are between Atlanta and Dallas, Chicago and Charlotte, Chicago and Dallas, and Los Angeles and Seattle.

For longer hauls, intermodal shippers should still find significant discounts using intermodal. The JOC Intermodal Savings Index finds most long-haul lanes save at least 25 to 30% compared with trucking, and some save more than 40%.

Source: Journal of Commerce

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