LIGHT AT THE END OF THE TUNNEL?
FIRST SIGNS OF RELIEF AT SIGHT AS THE CHINA – EUROPE TRAFFIC REACHES RATE TIPPING POINT. NEVERTHELESS, THE UPCOMING CHINESE NEW YEAR HAS POTENTIAL TO CONTINUE DISRUPT SHIPMENTS.
SEA FREIGHT
As more trade lanes started to recover in the beginning of this year, the situation is still far from away from easy for the sea carriers. The equipment shortages issue remain a big concern in Asia, with more or less all major ports affected by it. The challenge for the sea freight to normalize is at multiple levels starting from reduced number of available containers, reduced number of operational vessels, congested ports and changed flow of goods.
The unprecedented disruption in the world trade in earlier half of 2020 impacted the normal flow of the containers leading to the concentration of the containers in the undesired locations. This current scarcity of the containers at the correct demand nodes, continue to push the sea freights upwards.
Many ports were affected by reduced workforce both within the terminals and in supportive functions such as truck drivers. This resulted in reduced capacities and consecutive delays in operations leading to congestions.
In addition to the myriad of challenges, the ongoing journeys were disrupted in case of any COVID positive case on-board. With all these challenges still hanging around, the sea freight will take time to settle down.
Rate levels keep setting new records illustrated by a new record on the Asia-Europe trade clocking in at USD 4452/TEU. For shipments ex Asia to Europe where guaranteed loading is needed it is normal to pay in excess of USD 13.000/40´. However, we do assess that we are at a rate tipping point. It is expected that rates will drop significantly in March, albeit settling at levels that are significantly higher than same period 2019. For the near term future, please consider the possible disruptions caused by the Chinese New Year when booking shipments.
AIR FREIGHT
As the demand outlook still remains unclear and belly capacity is slowly getting re-introduced into the market, airfreight prices are expected to remain elevated in 2021 under the current circumstances. As vaccination picks up, it is expected that airlines will start re-introducing the wide-body passenger aircrafts back in service by second half of 2021. Core international long-haul travel and the cargo capacity that comes with it will be slower to return in comparison to the airline passenger operations and can delay the capacity relief for freight.
On the demand front, it is expected that the rise in e-commerce demand along with COVID-19 vaccine supply chains and PPEs would all drive the airfreight market over the coming year.
In 2020, airfreight rates on major trade lanes from east-to-west, ended on a high. Data received from the Baltic Exchange Airfreight Index (BAI) show that in December 2020, average rates from Hong Kong to USA were up 107.2% YoY at $7.50 per kg and from Hong Kong to Europe increased by 77.5% YoY to $5.59 per kg. Similar increase was observed on Europe to USA lanes where the increase was 184.1% leading to rates touching $5.00 per kg. These price increases were driven by an extended peak season with volumes in December 2020 up by 10% YoY which resulted in the aircraft utilisation levels reaching a record high. No major impact from the vaccine shipments was obvious in December 2020 and it remains to be seen whether it will have a significant impact in January 2021.
For the global distribution of vaccine, it is expected that governments around the world will be willing to pay higher for the available capacity leaving traditional airfreight customers at a disadvantage.
ROAD FREIGHT
The impact of Brexit on the European road freight market has been almost immediate. Pricing and capacity levels, shows a Europe-wide decline in capacity of some 16% year on year. This was led by huge capacity decreases on routes to and from the UK, which has subsequently pushed up road freight rates on the trades.
The key France-UK route, a bellwether for the effects of Brexit, saw road transport capacity last month reach a two-year-low, declining 22.1% year on year. As a result, prices soared 51% year on year.
A similar trend was seen on the Germany-UK route, where capacity decreased 30%, another two-year-low, while prices rose 41%, representing a two-year high. Transport capacity levels have dropped extraordinarily between the European continent and the UK, while prices on this corridor are soaring. Brexit is obviously having an impact.
RAIL FREIGHT
As a continued situation, the shortages of container equipment is still prevailing and causing difficulties. The price levels have also increased further as a natural consequence for rail freight.
China’s cargo train route linking it to European nations boosted its traffic by 50% last year, rising above 10,000 trips for the first time amid the Covid-19-driven market demand.
By putting bookings well in advance, we can expect a positive impact. It will also allow us the headroom to research all possible options.
BREXIT
Even though the deal has passed, Brexit continues to pose significant ambiguity and challenges for many companies operating in the UK. All this comes on top of the global uncertainty since March 2020, when the COVID posed unprecedented changes throughout every supply chain.
On the Christmas Eve, the UK government signed a last-minute agreement with the EU approving the zero tariff, zero quota deal and effectively safeguarding consumers on both sides of the Channel from billions in import tariffs on everyday items. This deal, however, will not remove all disruptions to trade from and to the UK. British goods will still be liable to checks at border points, adding to costs and delivery times.
As January comes and goes, organisations need to make sure they have the systems and processes in place which allow trading to continue uninterrupted. For example, EORI-number comes mandatory for all European companies intending to sell products to the UK. An increasing number of logistics companies claim to be “Brexit-ready.”
Wiima will be more than happy to advise you in supply chain re-design 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. We are looking forward to hearing from you!
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.
We are looking forward to hearing from you!
