The latest figures from CLIVE Data Services, which is part of the Xeneta rate benchmarking platform, show that demand for March was 4.5% down compared with a year earlier – and 6.5% down on pre-Covid 2019 levels – marking a “sudden interruption to the recovery trend of recent months after the peak Covid disruption of the past two years”.

Capacity in March was down 3% compared with last year and 14% against 2019 levels.

As a result, dynamic load factors – accounting for both weight and volume – stood at 66%, which is the same level as recorded in 2019 and six percentage points lower than 2021 after record levels were reached that year.

Despite aircraft being less full in March than they were a year ago, rates have actually increased by 27% year on year and are up by 141% compared with two years ago.

Niall van de Wouw, chief airfreight officer at Xeneta, said this was down to disruption on the ground.

“There are also still many issues with capacity on the ground. One bottleneck got replaced with another one,” said van de Wouw.

“Load factors are lower this year than they were last year, but prices are higher. The latest disruption in Shanghai is not unexpected but it adds to the worldwide issue of staff absence because of high Covid cases.

“Pilots, cargo handling workers, truck drivers etc, unlike many others, cannot work from home. It’s hardly surprising then to hear the International Monetary Fund (IMF) blaming soaring shipping costs for driving up inflation rates.

“Right now, the airfreight and oceanfreight markets are in general a mess, with shippers and consumers having to pay the price. In the first two months of 2022, we were talking of growing resilience in the airfreight market and a recovery to pre-Covid levels. March data shows how quickly this can change.”

CLIVE also noted an increase in the placement of capacity into the spot market on certain trade lanes, such as Europe-Japan trade, where the amount of chargeable weight at a spot rate increased to 60% of the market, or 20 percentage points higher than February’s spot share.

Rates from Japan to Europe increased to around €5 per kg, nearly 50% higher than the weeks preceding the Ukraine war.

Carriers on the route had removed capacity as they sought flight paths that avoided Russian airspace.

“In overall air cargo market terms, March was a step back from the trend we saw late last year and earlier this year. We have been reminded of how the limited control the general airfreight market has over its own destiny and how it is impacted by passenger traffic trends, disruption in the ocean freight market, and geopolitical events,” said van de Wouw.

He added that ongoing disruption in ocean shipping could provide a boost to air cargo demand while higher inflation could have a negative impact.

“Although it is too soon to tell what the skyrocketing inflation numbers in the US will result to, the logistical difficulties on the water between these two continents must put some wind into the sails of the air cargo market.

“With continuously declining schedule reliability of the ocean liners, logistical departments will likely be required to resort to airfreight because of disruptions to their supply chains caused by these record low service levels,” he said.

Source: www.aircargonews.com

Image: www.pexels.com

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Shipping rarely figures in economists’ inflation and GDP calculations, and companies tend to fret more about raw materials and labor costs than transportation. But that might be changing.

The cost of shipping a 40-foot container (FEU) unit has eased some 15% from record highs above $11,000 touched in September, according to the Freightos FBX index. But before the pandemic, the same container cost just $1,300.

With 90% of the world’s merchandise shipped by sea, it risks exacerbating global inflation that is already proving more troublesome than anticipated.

Peter Sand, chief analyst at the freight rate benchmarking platform Xeneta, does not expect container shipping costs to normalize before 2023.

“This means the higher cost of logistics is not a transitory phenomenon,” Sand said. “For inflation, that means trouble … The element of shipping, in overall prices, small as it may be, is much bigger than ever before, and it could be a permanent lift to prices going forward.”

Ocean transport costs initially leapt after a six-day blockage of the Suez Canal in March caused backlogs worldwide. That tightened an already strained vessel-hiring market as uncertainty about future fuel and emissions regulation had driven orders for new ships to record lows.

Then came a surge in demand for goods from consumers in coronavirus lockdowns, while dockyards were struggling with COVID-related labour shortages.

In early November, 11% of the world’s loaded container volume was being held up in logjams, down from August peaks but well above the pre-pandemic 7%, Berenberg analysts estimate.

Backlog until 2023
In late October at Los Angeles/Long Beach, one of the world’s biggest container ports, ships were taking twice as long to turn around as before the pandemic, RBC Capital Markets estimates.

Although the worst may be past, RBC analyst Michael Tran does not see freight prices returning to pre-pandemic levels for another couple of years.

Even if plans to unload an extra 3,500 containers each week are implemented, the Los Angeles/Long Beach backlog is unlikely to clear before 2023, he said.

“The softening in prices we saw at the end of September is a false dawn. What we see from a big-data perspective is that things are not getting materially better.”

A United Nations report said last month that high freight rates were threatening the global recovery, suggesting they could boost global import prices by 11% and consumer prices by 1.5% between now and 2023.

The impact also ripples out; a 10% rise in container freight rates cuts U.S. and European industrial production by more than 1%.

‘Not worth it’
The report noted that cheaper goods will proportionally rise more in price than dearer ones, and that poor nations producing low-value-added items such as furniture and textiles will take the biggest hit to competitiveness.

The retail price of a low-end refrigerator will rise 24% compared with 6.5% for a costlier brand, Ben May, head of macro research at Oxford Economics said, adding: “Companies may just stop shipping very cheap fridges, as it just won’t be worth it.”

The shipping boom was expected to abate as economic reopening allowed people to spend on travel and dining out rather than clothing or appliances.

But that theory is being challenged by new COVID variants, and the huge pandemic-time savings that customers could channel into even more goods.

During the last earnings season, toymaker Hasbro, retailer Dollar Tree and consumer goods giant Nestle were among companies bemoaning freight costs – and flagging price increases.

With the U.S. inventory-sales ratio near record lows, businesses will also need to restock.

“This will support demand for goods through the first half of next year,” Unicredit analysts said.

The problem could get worse if smaller companies are unable to meet their commercial obligations and struggle to stay afloat, said James Gellert, CEO of analytics company RapidRatings.

“These time bombs are riddled through large enterprises’ supply chains and will present many problems for their customers who rely on their goods and services.”

Real relief may come only when more vessels appear.

Ship orders have risen significantly this year. But it takes three years to build and deliver one, and it will be 2024 before sizeable new tonnage hits the water, senior ING economist Rico Luman predicted.

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