Shipping disruption and e-commerce demand driving up airfreight rates
The start of the airline summer season this month is likely to hit airfreight rates ...
© Khunaspix Dreamstime.
By Mike Wackett
The August general rate increases (GRIs) have lifted the Shanghai Containerized Freight Index (SCFI) back to the more comfortable revenue levels normally associated with a peak season.
But the major concern for ocean freight carriers now is how long the increases will hold.
On the troubled Asia-Europe routes, the SCFI rocketed on Friday by $709 per teu for North European ports and by $717 for Mediterranean destinations, reaching $1,109 and $1,119 per teu respectively. This means careful use of capacity management has seen the carriers successfully implement around 70% of their 1 August GRIs.
Moreover, as the H1 results reporting season begins, anecdotal reports suggest that several container lines have “lost the appetite” for a rate war, and have been considerably more resolute in implementing this latest round of GRIs.
There is also an element of the carriers wanting to be seen by shareholders as responsible; taking firm action to address the problem of sub-economic freight rates.
Indeed, NOL’s surprising turnaround in Q2 owes much to a focus by APL on “yield management”, via “better cargo selection”, as well as $100m of efficiency cost savings in the period.
A consequence was a loss of some market share to rivals. APL recorded a 14% decline in volumes in the first six months of this year against 2014 – but it posted its first profit in six quarters.
Meanwhile, initial reports to The Loadstar from Asian sources suggest the GRIs “appear to be holding”, but the next days and weeks will determine the ability of the carriers to hold onto the gains. They will certainly not want a repeat of the July GRI scenario: increases all but eroded in three weeks, taking rates back to sub-economic levels.
Another factor in the carriers’ desire to stop the yo-yo-ing of spot freight rates is the impact it has on contract cargo. One major UK shipper recently told The Loadstar that although he had “contract” rates with a number of carriers built into his budget, he was “under pressure” from his board not to ignore the headline spot rate “opportunities” constantly being offered.
The end result of extreme freight rate volatility is a worsening of service levels as more short-notice cancelled sailings by alliances wreak havoc with supply chains.
Despite the oft-heard perception of carriers that shippers “are only interested in the rate”, there is more and more evidence to suggest that what they really want is good service and good communication, at a reasonable rate.
Comment on this article