AIR FREIGHT
The air cargo market continues to experience robust growth, driven by increasing demand and various disruptions, like the one in the Red Sea. The industry has witnessed six consecutive months of double-digit growth from December 2023 to May 2024. The resurgence in global airfreight demand has led to a rate surge and heightened anticipation for a strong peak season in late Q3 and early Q4.
In July, average spot rates reached $2.66 per kg, marking a 20% year-on-year increase and a 13% volume rise. This surge can be attributed to buoyant e-commerce activities and a low demand base in July 2023. Notably, spot rates on the Middle East-Europe and Central Asia-Europe routes experienced a significant increase, surging 126% in the last week of July, driven by disruptions in the Red Sea region and unrest in Bangladesh. Rates to Europe and the US from South Asia also increased substantially, with services from Bangladesh and India recording rates of $4.59/kg and $3.54/kg, respectively.
A recent IATA and the Association of Asia Pacific Airlines (AAPA) analysis highlighted a strong performance in the Asia-Pacific region, with 16.4% and 17% growth year-on-year volume growth, respectively. Africa-Asia trade saw a remarkable 37.5% increase, while Europe-Asia and Middle East-Asia flows climbed 20.3% and 15.1%, respectively.
The capacity crunch in the air cargo market is evident. Airlines are adding new capacity to meet the rising demand. From January 2023 to June 2024 (18 months or 1.5 years), Airbus and Boeing delivered 278 widebody aircraft, with Turkish Airlines, Condor, Qatar Airways, and Air France-KLM among the leading recipients. However, despite these additions, cargo load factors have not yet fully recovered to pre-Covid levels, particularly for Middle East and Asia Pacific-based carriers. The load factor for Asia Pacific carriers, which account for nearly 30% of total international air cargo, averaged 45.6% in the 18 months leading up to May 2024, compared to 53% pre-Covid.
The peak season in late August is expected to increase demand and rates. The Baltic Air Freight Index for the week ending 29th July indicated rising rates, with Europe-bound services from Bangladesh and India up 178% and 161% year-on-year, respectively. Spot rates from Southeast Asia to Europe and North America more than doubled compared to last year, at $3.85 and $5.78 per kg, respectively.
Suggestions:
- Book Early and Plan Ahead: Anticipate peak seasons and high-demand periods. Booking air freight services well in advance can secure lower rates and ensure space availability.
- Utilize Multiple Carriers: Companies should diversify their carrier options to ensure flexibility and reliability. Building relationships with various carriers can provide alternative options during disruptions. This can be easily done with the help of 4PL operator like Wiima Logistics
- Focus on Critical Routes: Prioritize air freight for high-value or time-sensitive shipments, particularly on routes with significant rate increases. This can help balance cost with service reliability.
ROAD FREIGHT
The European road freight sector faces a complex and challenging landscape characterized by fluctuating freight rates, rising operational costs, and significant regulatory changes. Here is an exhaustive update on the key developments:
Falling Freight Rates Amid Rising Costs
The latest European Road Freight Benchmark report highlights a notable decline in road freight spot rates, which have begun to normalize after prolonged volatility. The report indicates that low levels of consumer demand have driven these spot rates down since Q2 2023. The Le Shuttle Freight service has seen a 4% drop in traffic for the first half of the year, with just under 602,000 trucks using the service compared to 624,435 in the same period last year. The operator attributes this decline to a weak economic environment in the UK and fierce competition from ferry operators. The first quarter was particularly challenging, with truck numbers down by 6% year on year. Although the decline was less severe in the second quarter, the outlook remains uncertain, with June figures showing a 5% year-on-year drop.
However, easing supply-side pressures has led to a marginal increase in spot rates by 3.5 points from the last quarter, standing at 127.7 points. Year-on-year, this represents an increase of 0.8 points. In contrast, the contract rate index fell to 127.1 points in Q2 2024, down 1.3 points since Q1 and 0.7 points year-on-year.
Despite the stabilization in rates, haulers are grappling with escalating operational costs. Labor, maintenance, and insurance costs have significantly increased, with labor costs rising by 7.3% compared to last year. This cost surge is particularly burdensome for small and medium-sized enterprises (SMEs) in the sector, which struggle more than larger companies to attract and retain drivers due to their limited resources.
Port of Felixstowe’s New Booking System
In the UK, haulers are expressing significant concerns over the port of Felixstowe’s new container booking system (CBS), which is currently undergoing a 12-week trial. The new system introduces fines for amendments made within 12 hours of a booking for import containers, which could substantially increase costs for haulers. The port operator has promised to incorporate feedback from the trial period before the system goes live in October, but haulers remain apprehensive about the potential financial implications.
Regulatory Demands
Road freight stakeholders have presented a series of demands to the European Commission to address the sector’s challenges. These include measures to ease access to the driving profession, enhance training, and provide realistic CO2 standards for HGV operators. There is also a call for an EU-coordinated gap analysis to evaluate the grid upgrades needed to support the additional power demand for electrifying heavy-duty transport.
In Germany, industry associations have urged the federal government to support the electrification of heavy-duty transport through subsidies and grants for purchasing electric fleets and expanding depot charging infrastructure. Without substantial government support, medium-sized transport and logistics companies may struggle to achieve the transformation by 2030.
Suggestions:
- Optimize Routes and Loads: Use route optimization software to minimize fuel consumption and reduce operational costs. Efficient load planning can also improve delivery times and lower expenses.
- Engage in Regulatory Advocacy: join industry associations or groups to advocate for regulatory changes that support their interests, such as easier access to the driving profession and realistic CO2 standards.
- Prepare for New Systems: stay updated on new systems like the port of Felixstowe’s CBS and adapt their booking and scheduling strategies to avoid potential fines. Consider feedback loops to quickly respond to operational changes.
SEA FREIGHT
Recent global shipping disruptions and shifts are creating a highly volatile environment for freight rates and schedules. The Drewry World Container Index (WCI) reported an average rate of $5,736 per 40-ft container. This rate, despite a 1% decrease in the last week of July, is significantly above the yearly average of $3,946.
Spot rates on major routes have seen significant fluctuations. The WCI’s Shanghai-Genoa leg experienced a 1% decline, ending at $7,645 per 40ft, while the Asia-Mediterranean trade dropped 3% to $7,508 per 40ft. Spot rates on the Shanghai-Los Angeles route saw a 3% drop, settling at $6,740 per 40ft. Despite these declines, the overall market remains volatile, with both spot and long-term rates subject to sudden changes.
The long-term outlook for freight rates suggests continued volatility. A recent World Bank study indicated that for each million TEU of container trade disrupted, the Shanghai Containerised Freight Index (SCFI) increases by approximately $2,300 per TEU. This highlights the sensitivity of freight rates to supply chain disruptions, such as those caused by geopolitical tensions and natural disasters.
Port congestion also remains a critical issue, worsened by the ongoing crisis in the Red Sea region. Major ports like Durban, Ningbo-Zhoushan, and Los Angeles are experiencing significant delays, with average wait times ranging from 3.41 to 8 days.
The crisis in the Red Sea has not only disrupted the industry but also led to significant rerouting of shipping lanes, further straining global supply chains. This has increased dwell times and extended waiting periods in key ports, leading to a surge in demand for alternative shipping routes and modes. The shift has even contributed to rising air freight rates as shippers seek more reliable and faster alternatives to ocean freight.
Suggestions:
- Diversify Shipping Routes: explore alternative routes and ports to avoid major congestion points and reduce delays. Using less congested ports can also lead to cost savings.
- Negotiate Long-term Contracts: Secure long-term contracts with shipping companies to stabilize freight rates and gain predictability in shipping costs. This can help avoid sudden rate spikes and ensure budget stability.
- Stay Informed: Keep a close watch on market trends and rate changes. Utilize freight rate monitoring tools or services to adjust shipping schedules and routes in real-time, optimizing for cost efficiency.
RAIL FREIGHT
The rail freight in Europe is experiencing mixed fortunes, reflecting broader economic and geopolitical challenges. Recent reports highlight varying performance across regions, with some notable trends emerging from China, Russia, and Ukraine.
Further east, Russia’s rail freight sector is facing significant challenges despite previous buoyant performance. Russian Railways (RZD) is grappling with a looming locomotive shortage, with projections indicating a shortfall of 1,500 locomotives by 2035. Domestic production capabilities are currently insufficient to meet this demand, aggravated by a lack of lubricants, leading to the suspension of over 50,000 train services. This disruption has doubled delays since 2022, highlighting the severe operational constraints. Moreover, Russia’s pivot towards China following international sanctions has not insulated it from these internal logistical issues.
In contrast, China’s rail freight sector shows strong growth, particularly in containerized volumes. In June, Chinese rail freight hit a new monthly record, with volumes reaching 332 million tonnes, a 6.1% year-on-year increase. Notably, containerized volumes surged, with domestic volumes up 18% and China-Europe volumes up 11%, sending more than 180,000 TEUs to Europe. This growth reflects China’s strategic focus on rail freight as a key component of its economic recovery post-COVID-19. Rates for China-Europe services have climbed by 10% in the past fortnight, with prices exceeding $10,000 per 20ft container, indicating strong demand for these services.
However, Ukraine’s rail freight sector faces significant challenges due to the ongoing conflict with Russia. Due to blockades in the Black Sea, the country has become increasingly reliant on rail freight for its exports, particularly grain. Despite having one of Europe’s most well-developed rail systems, Ukraine’s rail network is hampered by gauges mismatched with European systems. This mismatch requires containers to be transferred at the border, adding delays and costs to the service. Last year saw significant congestion, with approximately 1,000 wagons waiting at the border. Addressing this issue would require substantial investment in new tracks or adaptive wagons, which is currently not economically viable.
Suggestions:
- Form Strategic Partnerships: establish partnerships with reliable rail service providers, especially in growth regions like China. This can secure better rates and service reliability.
- Invest in Solutions to Mitigate Delays: Consider investing in adaptive solutions like transshipment services or container leasing to manage delays and additional costs, particularly for routes with gauge mismatches (e.g., Ukraine).
- Monitor Political and Economic Conditions: Stay informed about geopolitical and economic developments that could impact rail freight. This awareness can help companies make proactive decisions to avoid disruptions.
ABOUT US
Wiima Logistics is a provider of fourth-party logistics (4PL) services. The 4PL service provides the customer with a complete solution for supply chain management, administration and outsourcing.
4PL operations can be described as outsourcing the management and coordination of the entire supply chain – this allows the customer to focus on their core business.
Wiima staff will be more than happy to advise you in supply chain and logistics related matters. Our logistics experts and digital tools will provide you with a winning combination if you are looking for an effective and efficient logistics management setup.
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