The airfreight sector is currently navigating a peak season surge, with expectations for this trend to extend until the Chinese New Year potentially. Despite no definitive signs of a substantial Q4 peak, recent weeks have seen a slight seasonal uptick in demand, particularly driven by e-commerce from South China and Hong Kong to America and Europe. New product launches post-Golden Week have also contributed to this increase.
However, the longevity of this demand spike remains uncertain, as the booming e-commerce market and post-Covid shifts have altered traditional seasonal patterns. The market could see a normalization of air cargo by the end of December, although e-commerce demand might persist longer. Geopolitical tensions, notably in Gaza, could impact capacity and short-term rates, with fuel cost increases adding to the transport costs.
The charter segment of the airfreight market has been performing robustly this year, experiencing strong rates. Unconfirmed reports suggest pricing for long-haul charters reaching up to $1.3 million, with charter operators fully booked for the remainder of the year. Demand spans various sectors, including automotive, energy, and government/humanitarian missions, with specific industry verticals driving this demand.
The near-shoring trend, particularly in the US-Mexico and Asia-EU region, has led to a significant increase in charter demand, prompting Air Charter Service (ACS) to open new offices in Mexico and Thailand to meet growing requirements. Despite the general airfreight market facing economic headwinds, charters have held up better, offering a positive outlook for this sector.
While general airfreight demand may not see a significant uptick until the latter half of 2024, the charter market remains a robust and vital component of the air cargo industry, demonstrating resilience and adaptability amid fluctuating market conditions.
- Capitalize on Peak Season Surge: With the peak season surge, especially in e-commerce, clients should prioritize securing capacity early, especially for shipments from South China and Hong Kong to America and Europe.
- Plan for Uncertain Demand: Given the unpredictable longevity of the demand spike, clients should stay flexible in their logistics planning and be prepared for potential changes in air cargo availability and rates.
- Leverage Charter Services: For clients with specific or urgent shipping needs, considering the robust charter market could be advantageous, especially given its resilience amid market challenges.
- Monitor Geopolitical Developments: Stay informed about geopolitical tensions that could impact capacity and rates, and plan contingencies for potential disruptions in air freight.
Ocean carriers are repositioning their strategies, moving away from the oversaturated east-west routes to explore growth opportunities in north-south trades. African trades experienced the highest year-on-year growth as of November 1, with a notable 21.1% increase in capacity. This translates to an additional 354,000 TEU compared to the previous year. CMA CGM and Maersk reinforce this trend by shifting larger vessels to the Far East-West Africa service.
Latin American trades also saw a significant rise, with a 17.5% increase in capacity, amounting to an additional 562,000 TEU over the year. Israeli carrier Zim has responded by launching new services connecting China and South Korea with South America and a route between the east coast of South America and the US.
In contrast, Asia to North America routes have experienced a 4.5% decline, with more than 240,000 TEU slots removed since November last year. Additionally, THE Alliance has temporarily closed the Asia-US east coast EC4 loop, removing larger vessels from service. Despite reduced demand and a non-existent peak season, the Asia-Europe trade lane saw a 7.4% capacity increase, with 394,000 additional TEU slots added, mainly due to 24,000 newly built TEU ships entering service. Rumors suggest carriers might suspend some services on this route to address the imbalance between supply and demand and lift freight rates.
India’s export market remains bright, with a 15% growth rate in exports last year, totaling approximately $453bn. This has led ONE to announce a standalone service for next year between India and the US east coast.
Meanwhile, the global container equipment pool is anticipated to contract this year and the next. About 55 million TEU of equipment services a fleet of 6,000 ships with a total capacity of 28m TEU. However, excess containers accumulate in depots, incurring storage and lease-hire costs. This year, a 2.6% decline is expected in the container pool, and another decrease is expected in 2024.
Carriers face challenges in offloading older equipment into a saturated second-hand market. The average resale price for a 40ft high-cube container has dropped significantly, from $4,132 in October 2021 to just $1,005 in October 2022. Container xChange notes an imbalance in container trade and difficulties in repositioning empty containers, exacerbating the situation.
- Diversify Trade Lanes: With carriers shifting focus to north-south trades, clients should explore opportunities in these growing routes, such as African and Latin American trades.
- Adjust to Changing Capacities: Respond to the capacity changes in Asia-North America and Asia-Europe routes. Clients may need to adjust their shipping strategies accordingly.
- Explore India-US East Coast Opportunities: Given the growth in India’s export market, clients should consider the viability of new standalone services between India and the US east coast for their shipping needs.
- Container Management: With a declining container pool and repositioning challenges, clients should plan for efficient container use and consider alternative strategies for managing equipment.
Europe’s road freight sector is confronting an escalating driver shortage crisis. Currently, 17% of European truck driver positions are vacant, with projections suggesting this shortage will worsen. The IRU’s study highlights a significant challenge: an aging driver workforce, with less than 5% under 25.
This gap is attributed to factors like the “school-to-wheel” transition, high training and licensing costs, and stringent age restrictions for international freight transport. In France, for example, the cost of obtaining a truck driver’s license far exceeds the minimum monthly wage, deterring younger individuals from entering the profession.
The IRU emphasizes the urgent need for governmental intervention to make truck driving more accessible and appealing. Proposed measures include lowering the minimum driving age and subsidizing training costs. The growing driver shortage could severely impact supply chains and the economy without these changes.
Additionally, over half of the road transport operators report severe challenges in hiring skilled drivers, limiting their business expansion and leading to client and revenue losses. The IRU suggests facilitating access for qualified drivers from other nations as a potential solution to alleviate the immediate shortfall in Europe.
- Address Driver Shortage: Proactively plan for potential delays and increased costs due to the driver shortage in Europe. Consider long-term contracts or partnerships to secure capacity.
- Adjust to Market Constraints: Prepare for potential limitations in service expansion and explore alternative transport modes if road freight becomes increasingly constrained.
The European Investment Bank (EIB) is set to invest nearly €1 billion in upgrading the Czech Republic’s railway infrastructure, marking its largest loan to a Central European nation. This funding aims to modernize the trans-European networks (TEN-T) railway lines, enhancing the rail system’s quality and promoting a shift from road to rail transport.
This investment aligns with the EU’s objectives for sustainable transport by reducing transport’s environmental impact and decreasing emissions. It is expected to improve rail connections, facilitating access to EU Cohesion Priority Regions and supporting regional development.
The initiative complements the EU’s broader commitment to inject €7 billion into rail and road infrastructure projects across Europe. Despite rail accounting for just 5.5% of transport movements, a significant portion of the funding focuses on rail development, reflecting an increasing emphasis on eco-friendly transport solutions. This shift towards rail has raised concerns among SME haulers, but efforts are underway to balance road and rail transport improvements, including enhancing trucker safety across the continent.
- Consider Shift to Rail: With significant investment in rail infrastructure, clients should consider incorporating rail transport into their logistics strategy, particularly for environmentally conscious or cost-effective solutions.
- Stay Informed on Infrastructure Developments: Monitor the progress of infrastructure improvements to understand how they might impact future transport options and costs.
- Balance Road and Rail Use: Evaluate the balance between road and rail in your logistics strategy, considering the potential for enhanced safety and eco-friendly solutions in rail transport.
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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.
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