Ocean and air freight demand softens – uncertain year ahead, says Geodis CEO
Ocean and air freight demand has softened, rates have declined and there is a lack ...
© Jaromír Chalabala
By Alex Lennane
Intense demand for air freight space has led to shippers opting for sea freight as a faster option.
Demand “has gone crazy” said one forwarder, citing a four-to-five-week wait for maindeck capacity from Europe to the US and Mexico.
“I’ve never seen anything like it.”
One source said carriers were turning down expensively priced ‘must ride’ options – “it’s the first time I’ve ever seen that,” said one industry veteran. “Normally, carriers would offload anything for ‘must ride’ cargo. It’s the peakiest week.”
Even bellyhold over the Atlantic has a five- or six-day backlog, with forwarders reporting that they are taking practically any destination and trucking from there – shipments to New York going through Chicago or Houston, for example. The Bangladesh market, which usually cools off by September, is still experiencing delays of four to five days out of Dhaka.
“The issue with capacity seems to be affecting everywhere, with all major trade lanes backlogged – even those that shouldn’t be,” said one forwarder.
Part of the boom has been e-commerce, with European carriers eyeing higher yields picking up e-commerce traffic from Asia and the Indian sub-continent and routing it through Europe before taking it to the US.
“That is knocking out some point-to-point capacity that is normally there,” said one source.
“E-commerce is also two-way, and that accounts for some of the congestion. Bellyhold is very congested into Shanghai – that’s the unusual thing. First, the longevity of this peak, and second that it’s multi-directional – there are two headhauls.”
AirbridgeCargo, which this morning reported 15% volume growth in the first 10 months of the year, attributed some of this growth to “bi-directional flows”.
It said: “Growth was facilitated by increasing bi-directional trade flows on the Europe-Asia lane, where exports from Europe to Asia were nearing the level of volumes from Asia to Europe, with 36% and 37% respectively.
“The freight corridors demonstrating significant growth rates for this period were South-east Asia-North America, South-east Asia-Europe, Europe-Japan & Korea and Europe-North America, with 53%, 52%, 49% and 23% increases respectively, not only for general cargo but for special commodities.”
A spokesperson for Cargolux agreed: “E-commerce definitely has a very positive impact on the air cargo industry in general. Markets are still very strong, right now. We had Black Friday, Cyber Monday, Singles Day et al, and we are approaching the Christmas season.
“Economies are strong and sales are quicker than people can bring up their inventory, which is the main reason for such a strong market. We don’t see much of a slowdown in our operation and we expect 2018 to be strong as well.”
Forwarders are expecting demand to continue for another two weeks (“if your goods aren’t on the shelf by December 10, it’s not worth getting them there at all”). And with priority Christmas mail set to start soon, carrier networks could experience further pressure.
Widebody charter prices are said to be double what they were six months ago, reaching some $400,000 to the US from Europe, with demand boosted by project, relief, military and large corporate charters.
Forwarders are also reporting that China-Europe rail, too, is not much of an option.
“It’s very busy – in fact, overwhelmed,” said one forwarder, who recently opted for sea freight as the quickest option. “There is massively high demand and not enough capacity.”
Freightos reported it had seen air freight rates from Shanghai to New York rise from $4.50 per kg in September to $7 per kg this week – “when space was available”. Another forwarder cited $4-$5 per kg in Asia.
Forwarders have also noted that carriers had adjusted their pricing strategies.
“Lots of air carriers are now working on dynamic pricing. It is ‘pay to play’ right now. Whoever pays the highest, gets freight moved,” said one.
While in ‘normal’ peaks, carriers would stick to BSAs and capacity protection agreements, this no longer applies.
“Revenue management teams in head offices are making the decisions,” The Loadstar was told.
Cargolux has been cited as one of the carriers with a strict pricing system.
“Cargolux has always managed its capacity and pricing in order to optimise the overall result,” said the spokesperson.
“Dynamic pricing is one of several tools Cargolux is using in order react to market demand. With this tool, we strive to always offer customers the most realistic and sensible price structure.”
Forwarders had struggled in previous months to pass on these rising air freight costs to customers, but now “the word has got through”.
“Customers are now understanding that market dynamics have changed,” said one. “They were reticent about paying and tried turning to other providers, but as everyone was saying the same, they had to accept it.
“The word is spreading now. Customers are trying to benchmark and loyalty to carriers is a factor. But some customers still think this is a blip. If it carries on, there won’t be any choice.”
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