AIR FREIGHT
The global air cargo market is experiencing significant changes as 2024 approaches its year-end peak season. Airfreight rates have surged, particularly from Asia, driven by solid e-commerce demand and strategic capacity shifts by airlines. In late October, worldwide spot rates increased by 5%, with rates from Asia Pacific up 3%, Europe up 7%, and Central and South America up 8%, despite global tonnage remaining flat.
Notably, rates from Asia Pacific are now 27% higher year-on-year, with the Middle East and South Asia seeing a staggering 78% increase compared to last year. The current market dynamic, characterized by solid e-commerce demand, is expected to push higher rates, potentially reaching $7 per kg in Europe by the end of November.
The sector is showing resilience, thanks to improved market maturity and proactive strategies by carriers and forwarders. Shippers, forwarders, and airlines have become more adept at managing disruptions, resulting in more stable and manageable rate increases. Lessons learned from past periods of extreme volatility have contributed to a more controlled approach, ensuring solid demand does not lead to erratic rate spikes. This preparation is evident in how airlines and freight forwarders manage their capacity, ensuring peak season logistics run smoother than in previous years.
Despite this proactive approach, capacity constraints remain a concern. Airlines are strategically reallocating capacity to high-demand routes, especially those from Asia Pacific to North America and Europe, in anticipation of the holiday shopping season. US consumer spending is projected to rise between 2.5% and 3.5%, with e-commerce sales expected to increase by up to 9%, adding significant pressure on air cargo capacity. This shift has already led to a 6% increase in capacity on Asia Pacific-North America routes and a 4% increase to Europe in recent weeks.
However, the long-term outlook for capacity remains uncertain. Industry experts have raised concerns about a potential shortage of widebody freight capacity that may persist until the end of the decade. The impending 2028 sustainability targets set by the International Civil Aviation Organization (ICAO), which aim to limit the production of certain aircraft types, are expected to further strain capacity. The introduction of new models like the Airbus A350 freighter and Boeing 777-8 is not anticipated until 2026 or later, and certification delays could compound the issue. This capacity crunch has already begun to impact rates, with average kilo rates increasing significantly and placing financial strain on shippers and forwarders.
Suggestions:
- Plan Ahead for Peak Season: Book shipments early to secure space and manage costs, especially for shipments from high-demand regions like Asia.
- Budget for Rate Increases: Allocate additional budget to accommodate potential rate surges, particularly on Asia-Europe and Asia-North America routes.
- Leverage Multi-Carrier Options: Use multiple carriers to diversify risks and access varying capacities and rates.
- Monitor Market Trends: Stay informed on global air freight developments and capacity adjustments to anticipate future rate changes and capacity challenges.
- Collaborate with Freight Forwarders: Work closely with experienced forwarders who can optimize route planning and adjust to shifting capacities.
ROAD FREIGHT
The European Commission has allocated €320 million to enhance secure truck parking across the EU, responding to industry concerns over driver safety and the scarcity of safe rest areas. Under the Connecting Europe Facility (CEF), this funding aims to improve working conditions and address the ongoing driver shortage. With applications open until January 2025, industry stakeholders can submit projects to secure future investments in this essential infrastructure.
Meanwhile, the Court of the European Union recently annulled a Mobility Package provision mandating that trucks return home every eight weeks. This ruling has sparked uncertainty among operators about its immediate enforcement implications, prompting calls for the European Commission to issue clear guidance. The industry is awaiting further clarification on rules concerning driver returns and posting conditions.
Suggestions:
- Partner with Reliable Carriers: Choose carriers with a strong reputation for driver safety and compliance to minimize risks and ensure stable operations.
- Utilize Technology Solutions: Implement route optimization software to ensure efficient travel and reduce unexpected delays.
- Stay Updated on EU Regulations: Keep an eye on the latest developments regarding the Mobility Package and other road freight regulations to remain compliant and adapt operations as needed.
- Monitor Infrastructure Developments: Stay informed on upcoming EU-funded projects for better road facilities to take advantage of improved routes when available.
- Plan for Flexibility in Logistics: Be prepared for changes in driver availability or route regulations and build flexibility into logistics plans to handle potential disruptions effectively.
SEA FREIGHT
The sea freight market has seen fluctuating rates, capacity adjustments, and a reshaped landscape influenced by demand and unexpected challenges. Recently, shipping lines on major east-west trades have managed to halt a prolonged 15-week decline in spot freight rates by implementing a general rate increase (GRI) on eastbound loads out of Asia. As a result, Drewry’s World Container Index (WCI) reported an 8% weekly increase in the Shanghai-Rotterdam leg to $3,396 per 40ft container, with the Shanghai-Genoa leg rising 11% to $3,648 per 40ft. However, there is skepticism about the sustainability of these rate hikes, as forwarders report that demand remains low and that the current rate increases might only be temporary. Many predict that the elevated rates won’t hold beyond November, especially as shippers have ample stock, and bookings are tightening more due to blank sailings rather than a demand surge.
Recent shipping schedules reveal carriers canceled 21 out of 168 planned sailings on Asia-Europe routes in October, effectively reducing available capacity by around 300,000 TEUs. Carriers plan additional rate hikes mid-November, with some lines like MSC setting new freight-all-kinds (FAK) rates as high as $5,500 per 40ft for Asia-North Europe shipments. These increases are seen as part of a strategic move by carriers ahead of the annual contract negotiations for 2025, aimed at strengthening their bargaining position. However, analysts have cautioned European shippers to closely monitor these market trends, as the fundamental direction of rates remains downward, with the spot rate hikes unlikely to last long.
In contrast, the transatlantic trade saw a 28% rise in spot rates for the Rotterdam-New York leg, now at $2,663 per 40ft. This increase is attributed to pre-strike surcharges and reduced capacity, which continue to drive rates higher. The backhaul from New York to Rotterdam also recorded a 4% increase to $761 per 40ft, showcasing the impact of recent labor disruptions on this trade lane.
Meanwhile, the transpacific trade experienced continued downward pressure. The WCI’s Shanghai-Los Angeles route dropped 3% to $4,814 per 40ft, while Shanghai-New York fell 6% to $5,266 per 40ft. This decline comes despite record container imports to the US West Coast in August and September, among the record’s highest monthly import volumes. However, with 19% more capacity deployed in Q3 compared to Q2, overcapacity has started to weigh on rates. Analysts warn that without decisive capacity adjustments like more blank sailings, transpacific rates may continue to fall at an accelerated pace.
Adding to the complex dynamics in the market, the ongoing Red Sea crisis and extended sailing routes around the Cape of Good Hope have led to increased demand for container availability. China International Marine Containers (CIMC), the world’s leading container manufacturer, reported a fivefold increase in output in response to this demand. Drewry predicts 2024 could be one of the strongest years for container production, driven by robust orders in the year’s first half. With more containers needed to meet export demands from Asia and congestion at key transshipment ports, securing 40ft containers has become a logistical challenge. In just the first seven months of 2024, 1.4 million 40ft containers were delivered, compared to only 125,000 during the same period in 2023, highlighting the tenfold surge required to keep global trade moving.
Suggestions:
- Plan for Potential Rate Volatility: Prepare for fluctuating spot rates and GRIs, particularly on Asia-Europe routes.
- Review Contracts Carefully: Stay vigilant with contract terms and consider locking in favorable rates if future increases are anticipated.
- Adjust Shipping Schedules: Be flexible with shipment schedules to avoid peak surcharges and blank sailings that can reduce capacity.
- Monitor Port Congestion: Stay updated on transshipment port statuses and container availability to plan shipping routes effectively.
- Diversify Shipping Routes: Consider alternative routes or ports to bypass disruptions or regional congestion.
- Evaluate Container Leasing Options: Due to container shortages, consider leasing containers as an alternative to purchasing.
RAIL FREIGHT
Lithuania’s rail operator, LTG Cargo, has announced price hikes across its services to offset rising operating costs. The new tariffs, affecting about 20% of its services, include a 20% increase for container transportation and a 10% hike on transit cargo passing through Lithuania to Kaliningrad. These adjustments reflect the broader trend in Europe of adapting rail tariffs in response to operational pressures, especially as the cost of maintaining and upgrading infrastructure rises.
Meanwhile, the “Xi’an – Middle Corridor – Europe” rail service has gained traction as a reliable westbound route from China to Europe. Launched in August 2024, this route bypasses Russia, offering a compliant and sanctions-free alternative for transporting goods between Asia and Europe. Utilizing dedicated container ships for parts of the journey, it delivers faster transit times, with an average duration of around 29-30 days from Xi’an to destinations like Mannheim, Germany. The eastbound service will also launch soon, providing customers with regular, efficient, and geopolitically secure transport options between Europe and Asia.
China has also resumed rail freight services to Afghanistan, rekindling a route initially started in 2016. This service aims to strengthen trade ties with Afghanistan as the country stabilizes under new governance. The train journey from Nantong in China to the Afghan border town of Hairatan takes around 20 days, transporting goods such as electrical equipment and clothing. As the global community looks to leverage Afghanistan’s strategic position for regional connectivity, this renewed service could signal an important step towards a trans-Afghan corridor that links Central Asia with the Gulf and South Asia.
In Spain, extreme weather has heavily impacted the Valencian community, causing significant disruptions to rail infrastructure. While traffic has resumed on critical lines like the Valencia-Barcelona corridor, other routes remain out of service. The Reus-Zaragoza line, an important freight corridor, is still offline, along with sections of the Madrid-Valencia axis and several regional lines in the Cercanias network. State-owned operator Renfe has prioritized restoring essential goods transport and is implementing measures to avoid logistical bottlenecks. The Port of Valencia, a vital logistics hub, is also taking steps to mitigate the impact on freight flows, including prioritizing essential goods and stabilizing connections with Tarragona and Zaragoza.
Suggestions:
- Consider Emerging Routes: Evaluate new rail options like the Xi’an – Middle Corridor route for secure, sanctions-free transportation between Asia and Europe.
- Monitor Cost Changes: Be aware of tariff increases, such as those from LTG Cargo, and factor them into budgeting.
- Leverage Rail for Specific Goods: Use rail for goods that benefit from faster transit than sea but lower costs than air.
- Assess Geopolitical Risks: Choose rail routes that avoid conflict zones for a more secure supply chain.
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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