In October, there was an expectation of slight softening of container spot rates from Asia to the US and Europe, but shippers appear to have held their nerves and managed to avoid any significant discounting following China’s Golden Week holiday. As per the weekly analysis of the Ningbo Containerized Freight Index, freight rates on the transpacific are being maintained constant due to ship stagnation at the destination port. The number of vessels anchored or drifting in San Pedro Bay awaiting docks in Los Angeles and Long Beach has risen to more than 70 this week.
This has led to spot rates being much higher than expected in the third quarter, contributing to a 126 per cent increase in average spot and contract rates in 2021. While the spot rates are expected to fall next year, the contract rates will possibly rise further.
Throughout next year, the supply will lag behind the demand in the container market. This will change significantly in 2023. This is because there has been a recent surge in orders for new container vessels, which has raised the prospects of excess capacity coming back. But since these estimates are still 12 months away in the future, there can be a lot of changes that can happen in the global supply chains by 2023.
In comparison to sea freight, air freight is placed better to avoid congestion in the coming months. While the airports are concerned that labor shortages will slow handling, the expectation of the air freight is still to perform better than the badly congested sea freight.
Because of the difficulties at sea, shippers are turning to air freight. Ezgi Gulbas, an economist at IATA, agreed: “Shipping’s schedule reliability has dropped from 74 percent pre-pandemic to 32 percent now.” And, when compared to shipping, air prices are at an all-time low.”
Amsterdam Schiphol, where air freight has skyrocketed in the recent past, said, it too is facing labor shortages – but has definite plans to reduce congestion. Covid has dispersed people; some have left the airport area and will not be eager to return soon.
And while the airports across the US and Europe struggle to bring labor back, additional air cargo from China adds to the supply chain bottlenecks. A significant increase in the number of freighters landing at major US gateways is putting strain on every link in the supply chain. As a blessing in disguise, this additional load is now creating great opportunities for smaller cargo-focused airports. With Covid bottlenecks at Chinese hubs easing, the number of freighters heading to the United States has quadrupled in some cases. This puts a significant strain on the available warehouse capacity.
Many of LA’s cargo volumes, for example, needed to be trucked to other ports, but there aren’t enough drivers to handle the loads. As a result, forwarders are under pressure to collect cargo as soon as possible, but their facilities are also full.
So, while the badly congested sea freight can provide a great opportunity for air freight, it is still a long way before the operations are streamlined.
The European Road freight market showed a 4.7 per cent recovery by the end of the third quarter, but it is still 1.5 per cent below pre-pandemic levels. According to the reports, the recovery of European domestic trade is outpacing the rest of the world. While the European market is expected to be 1.4 per cent smaller than in 2019 by the end of the year – the international market will be 1.6 per cent smaller.
Meanwhile, as customers sought to ensure access to capacity, growth in FTL movements outpaced growth in LTL. LTL, on the other hand, is still expected to account for 70.8 per cent of the total market in 2021.
Europe, in general, is suffering from a driver shortage of 400,000, with much of the demand-based in the United Kingdom, a situation that is expected to worsen further significantly by January, when new UK-EU border controls go into effect, followed by the same controls being extended to food in June.
But despite the anticipated challenges for the UK’s road freight sector, the European freight market is expected to expand by 10.1 per cent, from €378.1 billion in 2019. However, it will also have to deal with rising inflation as a result of fiscal and monetary stimulus from governments across the EU.
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