AIR FREIGHT
The global air freight market has shown remarkable growth so far in 2024. Demand has increased by double digits for eight consecutive months, and even analysts have been pleasantly surprised by this growth. Airfreight rates are surging, particularly on key routes from Asia to Europe and North America. Despite being in what is typically considered a “flat” season, airfreight rates have risen by 20% year-on-year in August, approaching peak season levels.
One of the major driving forces behind this surge is the massive e-commerce volumes from Asia, where demand has outpaced available capacity. Capacity utilization on routes from Asia to Europe, the Middle East, and North America is now at an outstanding 86%-88%, while the return routes show much lower utilization. This imbalance is pushing up freight rates as airlines struggle to accommodate the increasing demand.
The peak season for air cargo, traditionally starting in Q3, is expected to be particularly robust this year. High demand from e-commerce, consumer electronics, and shifts from sea to air due to disruptions in the Red Sea region are driving demand. Forwarders are already adjusting to the situation by raising rates for air cargo on key trade lanes. Rates from North-East Asia to Europe have seen an increase of 30% year-on-year, reaching nearly $4.42 per kg. Additionally, spot rates for airfreight out of China have risen to $9-$10 per kg for consumer electronics shipments, particularly those originating from manufacturing hubs like Shenzhen.
Airfreight providers are responding by adding capacity, particularly on the Asia-Europe route, to meet the growing demand. However, securing capacity remains a significant challenge for shippers, with congestion reported at key transit points in Southeast Asia, including Singapore and Taiwan.
As peak season approaches, shippers are advised to plan ahead and book early to avoid paying premium prices for last-minute space.
Suggestions:
- Plan and Book Early: With high demand and surging rates, plan ahead and secure space early, especially for peak seasons. Booking in advance can help avoid paying premium prices for last-minute shipments.
- Leverage Multiple Providers: Establish relationships with multiple air freight carriers to increase flexibility and secure better pricing options during peak demand periods. This diversification reduces reliance on a single provider and improves resilience against capacity constraints.
- Optimize for Urgent Shipments: Air freight is a premium service, so prioritize it for high-value or time-sensitive shipments, such as e-commerce or consumer electronics, where faster delivery can justify the higher costs.
- Collaborate on Capacity Solutions: Work with forwarders and carriers to explore capacity-sharing opportunities, such as consolidating shipments with other businesses, to secure space at a more competitive rate.
ROAD FREIGHT
The European road freight sector continues to face multiple challenges. According to preliminary results from the IRU, one of the biggest concerns remains the truck driver shortage, with nearly 48% of European companies anticipating further difficulties recruiting drivers next year. The driver demographic gap continues to widen, with many drivers set to retire over the next decade and only 5% of the current workforce being under 25 years old. This shortage is expected to drive up labor costs and add pressure on already thin margins in the industry.
Adding to the concerns, fluctuating fuel prices have caused volatility in freight company operating costs. While diesel prices saw a decline early in Q2, by the end of June, they had increased by over 6%. The outlook suggests further rises in fuel costs are likely. With the introduction of new CO₂ tolls in countries like Sweden, Denmark, and the Netherlands by 2025, the sector faces additional pressures to manage rising operational expenses while complying with decarbonization efforts.
The Q2 2024 European Road Freight Benchmark Report highlights contrasting spot and contract rate movements amid these challenges. Spot rates increased by 3.5 points quarter-on-quarter, reaching 127.7 points, driven by a more stable demand environment. However, contract rates saw a modest decline, falling 1.3 points quarter-on-quarter, reflecting the sluggish recovery in industrial output across the region. This divergence indicates that while short-term demand for road freight services stabilizes, longer-term contracts have yet to grow significantly.
Suggestions:
- Plan for Driver Shortages: anticipate driver shortages by building flexibility into their transportation schedules and potentially partnering with fourth-party logistics (4PL) providers to access a broader pool of drivers and vehicles.
- Monitor Fuel Prices: With fuel price volatility, consider fuel surcharge agreements or negotiate with transport providers to protect against sudden price spikes, ensuring more predictable costs.
- Focus on Sustainability: As CO₂ tolls and other environmental regulations come into effect, explore green logistics options such as electric vehicles or more fuel-efficient transportation solutions. This not only reduces costs but also supports compliance with decarbonization goals.
- Leverage Short-term Rate Opportunities: The current rise in spot rates over contract rates offers an opportunity to negotiate favorable short-term contracts while keeping an eye on demand fluctuations to maximize savings.
SEA FREIGHT
The global sea freight market has seen a mix of challenges and adjustments in recent months. Carriers are working to avoid a repeat of last year’s container rate collapse by blanking a series of sailings from Asia to Europe and the US. These blank sailings are expected to continue through the softer demand periods, especially leading to the Chinese national holiday in October.
Drewry’s latest data shows that the cancellation rate for scheduled sailings on major trade lanes like the transpacific, Asia-Europe, and transatlantic stands at around 10%. Many carriers aim to control capacity and avoid a potential price war as spot rates start to soften.
For instance, spot rates from Asia to North Europe remain 350% higher than last year despite recent declines of around 3%. Further, rates from Asia to the US West Coast have only seen a slight dip of 2%, and rates on the US East Coast remain high due to the looming risk of a potential dock strike in October.
The congestion situation in major ports is starting to improve, particularly in Europe, but it remains an issue due to the ongoing Red Sea diversions and blank sailings. With more new vessels expected to come online soon, port congestion is predicted to ease further, reducing the backlogs seen in recent months.
However, risks continue to loom over the market, including the possibility of labor strikes in US east coast ports and European ports such as Germany.
While carriers have taken steps to manage capacity and avoid significant drops in freight rates, the situation remains delicate. Spot rates from Asia to Europe and the US are still higher than pre-pandemic levels.
Suggestions:
- Monitor Blank Sailings: stay informed about blank sailings (canceled sailings) and adjust shipping schedules to avoid disruptions. Collaborating with freight forwarders can help navigate these periods and ensure timely deliveries.
- Negotiate Flexible Contracts: In times of fluctuating demand and spot rates, negotiate flexible contracts that allow for adjustments in capacity and pricing. This can help mitigate risks and avoid long-term commitments at peak prices.
- Diversify Shipping Routes: Explore alternative routes and regional ports to avoid congested hubs, particularly during high-demand periods like the Chinese national holidays. This can reduce delays and improve delivery times.
RAIL FREIGHT
The rail freight sector in Europe is tussling with many challenges, from geopolitical disruptions to operational bottlenecks. August saw Russian Railways (RZD) continue to struggle, with freight volumes dropping by 6% year-on-year due to staff shortages and rolling stock issues apart from Russia’s ongoing conflict with Ukraine, which has placed additional strain on RZD’s capacity to maintain normal operations. Despite increased demand following sanctions that restricted Russian shippers from utilizing Western logistics networks, the railway company has been unable to meet this surge due to locomotive shortages and disruptions caused by the war.
Furthermore, RZD rejects freight services from Belarus due to congestion and overcrowding in key regions such as Kursk. This congestion, worsened by military activities, now impacts goods moving through Russia, further hampering the country’s ability to serve its export markets. Adding to these difficulties, Ukraine’s counter-invasion has led to fears of even more significant disruptions, with reports suggesting that Ukrainian forces may have gained access to parts of Russia’s digitized rail systems.
Meanwhile, other regions are emerging as alternatives to traditional rail routes through Russia. The trans-Caspian routes connecting China with Europe via Azerbaijan, Georgia, and Kazakhstan have seen a massive 1,400% year-on-year increase in container traffic as shippers look for more reliable channels. Kazakhstan has particularly benefitted from this shift, recording a 63% growth in rail freight volumes in the first seven months of this year. The country continues to develop its rail infrastructure through partnerships with China, aiming to secure its place as a major transit hub for China-Europe trade.
In the UK, there’s a renewed focus on boosting rail freight volumes. A government initiative to waive track access charges until March 2025 aims to encourage new freight flows and ease congestion on the country’s roads. This policy is expected to support rail freight growth as a viable and attractive option for businesses looking to transport goods across the country.
Suggestions:
- Explore Alternative Rail Routes: companies using rail should consider alternative routes, such as trans-Caspian corridors, to avoid disruptions caused by geopolitical issues in regions like Russia and Ukraine. These routes offer increasing reliability for China-Europe trade.
- Optimize Multimodal Solutions: benefit from integrating rail with sea and road freight to optimize costs and improve delivery flexibility. Rail offers a cost-effective option for long-distance freight, particularly across Europe and Asia.
- Engage in Government Incentives: Take advantage of rail freight incentives, such as the UK’s waiver of track access charges, to reduce transportation costs and explore rail as a viable alternative to road transport.
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