AIR FREIGHT
Airfreight prices have been on a steep decline from the Covid-era peaks, but in March, they finally reached a bottom. In March, the air cargo market improved after a prolonged slump caused by the pandemic. Manufacturing exports and a slight improvement in inflation in China helped global demand and rates. However, there is uncertainty as the outlook remains murky. Container shipping lines will likely benefit from import/export activity growth rather than airlines due to weak demand and an influx of capacity from restarted international passenger services.
Though the peak season could not materialize the last fall, volumes have slowly increased in recent weeks. February’s shipment levels showed improvement with a 4% year-over-year decline, possibly due to the Chinese New Year shifting earlier in 2023 than last year. The slowdown in air cargo will extend to express consignments, bolstered longer by the surge in e-commerce. Semiconductors and consumer electronics are significant air gauge cargo demand, and they predict that air cargo volumes will fall further this year to 5.6% below 2019 levels.
TAC Index reported successive weekly gains for the Baltic Index, which reduced the year-on-year decline to 34.2%. Shanghai rates experienced a boost due to an “end-of-quarter rush,” particularly in e-commerce and garments, ahead of Easter. On the other hand, prices out of Hong Kong (BAI30) and Singapore (BAI60) were softer, while European rates were firmer. Furthermore, the global macro backdrop also looked more positive, easing energy prices. Lower prices for energy and transport should reduce inflationary pressures generally. The decline in crude has finally fed through to jet fuel, too.
SEA FREIGHT
The liner industry faces challenges in the first quarter after two years of profitability. While most lines are expected to have good results for Q1, the situation may change in the next quarters. Last year, container shipping line earnings hit a new record of $215bn, following 2021’s $148bn, but earnings in the final quarter of last year fell sharply by 34%, resulting in a cumulative net income of $34.7bn.
Although the liner industry is expected to remain profitable this year, there is much uncertainty regarding the global economic outlook and resulting consumer demand. Carriers are cautious about the outlook due to concerns about inflation, interest rate rises, and broader economic and geopolitical instability.
Container shipping rates on significant trade lanes have hit a low point, and negotiations for long-term contracts remain uncertain. As a result, shippers, NVOCCs, and BCOs are increasingly shifting their business to the spot market, which carriers actively encourage. The Freightos Baltic Index (FBX) showed stability in rates for Asia to North Europe and the US West Coast, while rates for the US East Coast stabilized after recording losses. Carriers are managing capacity aggressively to prevent rates from falling below $1,000 on Asia to North Europe route.
However, with demand weak and pressure mounting, transpacific carriers are increasing their blanking programs. The industry expects a sharp drop in new contract rates in the coming months, leading to significant declines in XSI readings. North Europe to the US East Coast component of the Xeneta XSI recorded an 8% drop in the past week alone, falling to $3,975 per 40ft, and a trade manager from a North Atlantic carrier predicts that rates could drop below $2,000 per box before June.
In conclusion, the liner industry is facing uncertainty due to various economic factors, and while the current estimate is for the industry to remain profitable this year, it is based on current industry trends and may be revised as the actual 2023 quarters unfold.
ROAD FREIGHT
A meeting was held in Poland, where transport and infrastructure ministers from 23 countries, including Ukraine, discussed the possibility of transforming Eastern European transport links. The meeting was hosted to improve connectivity and resilience for their transport systems, people, and economies. The main focus of the meeting was on creating transport links from the Baltic states to Greece and linking Ukraine with Western Europe, as Russia’s invasion has left Ukraine landlocked, resulting in a decline in its connectivity.
The ministers discussed expanding Via Carpathia and Via Baltica, both road and rail projects. Via Carpathia would link Klaipėda in Lithuania with Thessaloniki in Greece, while Via Baltica would run from the Baltic states through Central Europe to Germany. The ministers pledged to continue working towards delivering these projects, and another meeting is scheduled in Leipzig, Germany, in May.
In another development, the EU plans to change the driving license rules to address the shortage of around 600,000 lorry drivers, which could become two million by 2026. The lack of young drivers in the industry is a significant challenge, with only 6% of professional drivers under 25 years old. The EU wants to allow younger people to become professional drivers, starting at age 18, which could benefit the lorry industry. Additionally, 17-year-olds can begin training to become drivers if accompanied by experienced drivers or in apprenticeships. The EU also aims to allow drivers from other countries to work in the EU more quickly, but they will need to follow strict safety rules. Some countries let 18-year-olds become bus drivers, while others make them wait until they are 21-24. However, no changes are planned for bus and coach drivers, who are also in short supply.
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