Air Freight Market Update

Outbound China air cargo developments suggest positive signs for global market

• In March, we saw air cargo exports out of China surge by 29% month-on-month, with further gains in April, although at a slower pace of 2%. This suggests China’s export activity has picked up after the seasonal slowdown and the end of its high-profile zero-COVID policy. The output from the country’s factories record a rose by 3.9% in March.

• In terms of air freight capacity, the picture is complex. Outbound China air cargo capacity in March increased by 25% over the previous month, largely due to the post Lunar New Year recovery. However, in the first two weeks of April air freight capacity out of China dropped by 4% compared to the same period a month ago meaning the airlines have yet to deliver any increase passenger belly capacity as the outbound international travel demand remain subdued.

• In terms of capacity utilization, the load factor drops to 89% in the first half of April but the freight rates running against the tide despite the drop in the filing factor, indicate there is still a tight balance between supply and demand in the market.

Outbound China air cargo volumes, capacity, load factor and rate developments
(month over month changes in percentage or percentage points)

* Month over month changes in Apr23 compare the first two weeks of April with the first two weeks of March.

Source: Xeneta

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Ocean Freight Market Update

As Asia-US shipping rates rise, so does skepticism on staying power

Container spot rates from Asia to the US west coast shot up in week 16, as carriers succeeded to implement the mid-month GRIs on 15Apr and are scheduled to implement the next round in May. Both The Freightos Baltic Daily Index and The Drewry World Container Index shows double digit gains last week. To underpin their GRIs, carriers are keeping a tight lid on capacity and are continue to blank sailings. For example, 2M Alliance announced three more cancelled transpacific sailings for May.

However, the market consultancy Linerlytica comment the GRIs are unsustainable as the higher rate is not driven by higher demand. “No sooner had the trans-Pacific rates rebounded than the carriers started to cut rates again, in a pattern that will likely be repeated over the coming months,” view by the analyst. Meanwhile, the SCFI’s latest transpacific assessments fell 2% wow to $1,633 per FEU on the Asia-West Coast route and $2,510 per FEU on Asia-East Coast.

On the other side, the planned GRIs coincide with annual contract negotiations between carriers and shippers, Linerlytica said with some carriers have extended preferential NVOCC rates to the end of June and the contract volumes share has shrunk to less than 30%, believe It’s particularly problematic for carriers to negotiate contracts given current rate volatility.

Top 10 North American Ports Monthly Container Volumes (updated to Mar 2023)

Transpacific container volumes have fallen sharply by 24.9% in Q1 2023 yoy, even lower than pre-pandemic volumes

Source: Freightwaves, theloadstar, linerlytica

Air Freight Market Update

Air Cargo Makes a Soft Start to 2023

• Industry-wide cargo tonne-kilometers continued to decline in January, falling 14.9% YoY and marking the 11th month of consecutive annual declines. Compared with pre-pandemic levels, air cargo demand was also down 11%. Cargo capacity picked up 3.9% YoY in January, reflecting the strong recovery of belly cargo capacity in passenger airline markets.

• The economic outlook for the air cargo industry in 2023 outlook remains murky. Multiple macroeconomic headwinds stemming from the global pandemic persist and the on-going war in Ukraine has disrupted important trade flows and economic activity across various regions.

• Xeneta data shows the air cargo market would have contracted over the past four years were it not for express shipping, spurred by rapid growth in online shopping, and special cargo, such as pharmaceuticals. IATA predicts air cargo volumes will fall further this year to 5.6% below 2019 levels.

• Semiconductors and consumer electronics are major gauges of air cargo demand.

Global Industry CTKs (billions per month)

Source: IATA, Freightwaves

Ocean Freight Market Update

Concern Rising Over US West Coast Labor Pact

• Challenges due to the pandemic, China’s subsequent port closures etc. made an impact on the West Coast seaports, particularly the Ports of Los Angeles and Long Beach where they felt the influence of erratic vessel schedules and missed bookings. Global Port Tracker reports West Coast ports ended 2022 with an overall 7.5% decrease in loaded imports and an 8.6% decrease in loaded exports.

• Some of those decreases were due to the extremely high volumes created by the over-ordering of goods by shippers during the pandemic. “The continuing labor uncertainty could be a significant reason why import volumes are not shifting back to major California ports despite their improving situation,” an industry player commented. The results of the labor negotiations will determine the major priorities of the West Coast ports in 2023. A recent CNBC report indicates that only a small proportion of cargo will be rerouted back to the West Coast.

• East and Gulf Coast ports have been gaining volumes for some time, partly driven by capacity upgrades to allow handling of larger vessels coming through the Suez and expanded Panama Canals. This trend accelerated during the last few years, with East and Gulf Coast port volumes exceeding West Coast volumes in four of the last five quarters.

Is your company diverting trade from West Coast ports?

Most said that the main reason for diverting cargo away from the West Coast was the threat of an ILWU strike.

Source: Logistics Management, Floor Daily, Freightwaves, Fitch Ratings

Air Freight Market Update

How will shifts in the global economy wreak havoc on your air freight?  

• Global air cargo volume YoY continued to drop in January 2023, freight buyers witnessed a recovery of more than 10% in the total global capacity compared to the last year mainly due to the return of the belly flights since March 2022. As inflation negatively impacts consumer savings, we continue to see downward pressure on air cargo rates and volume.

• January US inflation continues to trend downward since July 2022, the impact of inflation persists in which the retail sales in US slow down since then and pushing the November inventory-to-sales ratio to its highest level. The inbound US air cargo volume registered its first negative growth year in May 2022 and continued its negative trend for five out of the seven remaining months of the last year. In January 2023, the air cargo volume continued to fall 2% from a year ago.

• Look into EU inbound air cargo volume, it has already been falling for 13 consecutive months. Due to higher cost of living, European consumers have less to spend, which is reflected in lower retail sales YoY. As a result, we see lesser air cargo volumes into Europe. In comparison, the air freight market into the US is slightly less affected by the trends.

US inflation rate, retail sales and inbound cargo volume

EU inflation rate, retails sales and inbound cargo volume

Source: xeneta

Ocean Freight Market Update

Container shipping costs plunge as consumer spending declines

• Demand has plunged as inflation surged, triggering a severe cost of living crisis in several economies and leading central banks to attempt to restrict spending with higher interest rates. The reopening of bars and restaurants and other facilities closed during the pandemic has led to more spending on services too. In the US, spending on goods is now 5.4% down from the March 2021 peak. In the UK, sales volumes are back below pre-pandemic levels.

• The short-term shipping costs for 40ft container from east Asia to US west coast have already sunk back to pre-pandemic levels while long term contracts has proven less volatile to remain above the level in 2019. Despite this, many carriers ploughed money into new ships as the demand soared during the pandemic. The drop-off in shipping volumes leaves companies with a looming overcapacity problem also leads to the rate decline. According to the analyst, the total cargo capacity of vessels on order in Jan was equivalent to 30% of the active global fleet, compares with 13% same period in 2019.

• On the inventory level, some companies predicted inventories would be down by the end of Q1 and yet warehouses are still near 100% capacity. The National storage pricing is up 1.4% month over month which reflects there is full warehouses across the nation and eventually the costs are passed onto the consumer, which will stroke further inflation.

Shipping capacity on order as a percentage of the active fleet (in 20ft equivalent units)

Source: FinancialTimes, freightwaves

Air Freight Market Update

Freighter fleet expected to grow by 2.3% per year

• Aviation data firm Cirium is expecting the world’s freighter fleet to grow at 2.3% per year over the next 20 years. It is predicted that in total the world’s freighter fleet will reach over 4,100 aircraft by 2041 on the back of a 3.7% per year increase in cargo demand. This figure reflects the near-term boom in conversions due to air cargo market dynamics of the Covid-19 pandemic including e-commerce growth and rising feedstock availability.

• North America, home of the largest integrators and e-commerce providers, will maintain its leading share of the freighter fleet. This will edge the country ahead of Europe as the second largest global cargo market.

• Air cargo ended 2022 on a weak streak that is expected to continue well into the first half of the year, with logistics companies hanging hopes for better demand on retail inventory clearance bottoming out by summer.

• Uncertainty is the watchword for 2023. How quickly air cargo volumes bounce back depends on several wildcards: The severity of any recession that materializes; whether there will be a post-spring inventory correction resulting in strong cross-border orders; and whether inflation is skewed toward the service sector and less toward goods.

Forecast deliveries 2022-2041

Source: Air Cargo News, Freightwaves

Ocean Freight Market Update

West Coast cargo bleed to continue until labor talks are resolved: stakeholders

• Retailers and non-vessel-operating common carriers have been and will continue to route as much of their discretionary cargo as possible through East and Gulf coast ports due to uncertainties over the direction of West Coast longshore contract negotiations. That means the West Coast’s share of US imports from Asia will continue to deteriorate in 2023 Q1 and beyond.

• Sources close to the negotiations say the ILWU is “slow-walking” the talks. In the meantime, retailers are already making decisions on how they will route their spring and summer imports from Asia that will begin in earnest when workers in China return to their factories next month after the Lunar New Year holidays.

• While some importers who have been routing discretionary cargo through the East and Gulf coasts are signaling they will stick with that plan, a recent survey of shippers found that a majority of shippers likely will move much of their freight back to the West Coast. At the same time, a small but significant portion of that volume will never return. “We believe there may be a [roughly] 10% permanent shift of freight to the East Coast … creating long-term opportunities for Eastern transportation companies,” the report said.

Market share of containerized US imports from Asia by US coast

The West Coast’s share of imports coming from Asia dropped to 58.8% in 2022, the East Coast share rose to 34.2%, while the Gulf Coast share rose to 6.7%.

Source: S&P Global, Strategic Sourceror, Dcvelocity, JOC

Air Freight Market Update

East Asia-U.S. spot air freight rate at 2-yr low: Xeneta

• The spot air freight rate from East Asia to the U.S. in early December hit a two-year low, down - 46% from the peak in the week ending on December 26 last year but remained 101% above the same period in 2019. The air cargo volume from East Asia to the U.S. has been trending downward since Q2 this year with volume in the first ten months down -9% YoY compared to the air cargo peak year of 2021.

• From East Asia to Europe, the spot air freight rate stood at the level last seen by the end of September 2021. It declined -31% from its peak in the beginning of this year and remained double compared to the 2019 price over the same week.

• IATA predicted the air cargo volume will drop by a further 4% next year, while yields and revenues are also expected to weaken compared with this year’s levels.

Changes in Spot Air Freight Rates and Volume on East Asia to the U.S. Corridor

Changes in Spot Air Freight Rates and Volume on East Asia to Europe Corridor

Ocean Freight Market Update

Xeneta container rates alert: calm before storm, as long-term ocean freight rates hold steady ahead of expected new year pain

• The year ended in somewhat anti-climactic fashion for long-term ocean freight rates, with the latest data from Xeneta shows a decline of just 0.1%. Following on from a steep 5.7% month-on-month fall in November, the development is a largely positive one for ocean carriers. However, Xeneta warns, far worse is set to come in 2023.

• Xeneta CEO stated, “At first glance, this month’s data appears to stall the negative curve, but this is a little misleading.” It is due to fewer long-term contracts being signed at this time. When more long-term contracts expire in the new year and being signed with the rate below the current average, storm would come.

• In regional terms, the data showed a mixed bag of rising and falling data indices. Europe experienced relatively small falls in both import and export rates benchmarks, with the former declining by 1.4%. However, lower volumes throughout the year suggest further falls may lie ahead. Far East imports on the moved up in December, posting a m-o-m growth of 2.3%. However, the Far East exports sub-index fell away for the fifth consecutive month. The news in the US was more positive, with the import sub-index climbing by 1.4% and the export benchmark recording this month’s largest rise of 2.7%.

The reefer spot freight rate from North Europe to China has been stable during the Covid years. Xeneta data alerted that change may soon be coming around.

Air Freight Market Update

Airfreight peak season looking unlikely as demand falls again

• Air cargo volumes declined 8% year on year in Oct, the eighth consecutive month of decline, and the outlook is equally downbeat. Market outlook “remains uncertain” and there is also nothing to indicate an upturn next year from its weekly market data. “We are six weeks away from Christmas and there is no indication there will be a peak,” according to the spokesperson of Xeneta.

• The latest Baltic Exchange Airfreight Index shows that prices from Hong Kong to North America declined in Oct to $6.74 per kg from $7.94 in Sept. An industry player saw its air and ocean businesses continue to soften through Q3 amid falling demand and freight rates, downturn is expected to last till to last into 2023.

• However, some air cargo bosses remain optimistic, saying that in the long term there will be the demand. E-commerce is one of the markets that will drive demand, while some conversion programs are being phased out to make way for new ones, and therefore keeping the number of conversions in the market steady. Demand for perishables is increasing, and consumer demand is high for some products and necessitates aircraft.

Week 40-43 of 2022 compared to similar weeks in 2021 and 2019

Source: The Loadstar, Air Cargo News-1, Air Cargo News-2, Air Cargo News-3, JOC

Ocean Freight Market Update

Carriers 'in panic mode' as recession bites, offering 'crazy' ocean rates

• Ocean carriers are said to be in “panic mode” as bookings from China to North Europe and the US west coast tank, causing FAK rates to plunge to new depths. Despite aggressive blanking that has reduced weekly capacity on the tradelanes by more than a third, the lines have failed to slow the precipitous fall in short-term rates and, are arguably fueling the fire by offering sub-economic spot rates via their digital platforms. Some carriers are said to be prepared to reduce rates further for volume and relax or even waive demurrage and detention conditions. An industry player expects carriers to remove somewhere between 17% to 20% of capacity to the West Coast in Q4 to account for declining demand and lower rates.

• Between late Nov and early Dec, 14% of voided sailings across major container shipping routes. The decline in vessels coming from Asia on the Transpacific route is creating an increase in the wait time of export containers at the Port of Long Beach. Metric hits 18.33 days at the Port of Long Beach, as of November 10.

• Empty shipping containers are crowding shipping ports around the world and creating an unexpected bottleneck in the global supply chain. There is just not enough depot space to accommodate all the containers. With the further release of container inventory into the market, there will be added pressure on depots in the coming months. Shipping containers to decline for 1st time in 14 years, according to Drewry.

Additional blank sailings announced for weeks 42-52 of 2022

Source: The Loadstar, CNBC-1, CNBC-2, Yahoo-1, Yahoo-2, Sea Intelligence, Indian Transport and Logistics News, Supply Chain Dive

Air Freight Market Update

Air cargo falters as capacity returns

• A flat air cargo demand following by high inflation and new Covid lockdowns in Ningbo of China, halt some of the warehouses’ operation.

• In weeks 39 & 40 - China’s Golden Week period, the global air cargo chargeable weight, rose 4.1% compared to the first two weeks of September. However, compared to last year, it was down by 6.9%.

• From the market analysis comments, the air freight market looks edgy and nervous. By Dynamic load factor, it dropped 5.7% points compared to 2021, returned to its pre-Covid level. Asia Pacific outbound was hit hardest by the fall of 16.4% YoY.

• The returning belly cargo passenger aircraft and freight capacity are impacting rates. IATA is expecting belly hold capacity will be return to “normal levels” in late 2023 or early 2024 as more passenger flights return to service and aircraft manufacturing for new orders starts to normalize. The improvement of sea freight reliability will further push the volumes back from air cargo to ocean too.

• On the other hand, the e-commerce market in China and Japan is expected to grow by 11.7% and 6.9% annually. The e-commerce growth will support the cross-border freight demand for air cargo amid the headwinds.

Air cargo falters as capacity returns

(week 31-34 of 2022 compared to similar weeks in 2021 and 2019)

Source: asiacargonews, aircargoeye, stattime, Xeneta

Ocean Freight Market Update

For freight companies, this year’s peak will be weak

• Typically, in the last quarter of the year, cargo carriers from container lines to parcel operators bulk up their profits on strong demand. But a range of measures of shipping demand across the U.S. are sliding, freight rates are falling as a result, leading carriers to pull back capacity amid concerns a deeper downturn is coming.

• Container rates collapse implies carriers were rapidly losing pricing power. According to Drewry’s index, 40-foot container is now 67% below the peak reached in September 2021. This happened in a backdrop of a significant number of “blank sailings” by container ship lines to reduce capacity and limit downward pressure on freight rates. The container lines have cancelled more than quarter of sailings across the Pacific recently according to Sea-Intelligence.

• The collapse in container rates reflected volumes that were quickly deteriorating. Retailers are more focused on clear the excess inventory, causing them to cut new order. There is a projects that imports into major U.S. seaports will be down 4% in the 2nd half of the year after expanding 5.5% YoY in the 1st half of 2022. The port of Los Angles reported the fewest number of loaded import containers in September since 2009, affecting all the major West Coast Ports and starting to hit East Coast, which down 9.8% YoY.

• With an estimated 75% of U.S. container imports related to consumer activity, a sharp drop in volume provides an ominous warning for any mode of transportation that is further downstream.

Fleet Capacity vs Global Throughput

Source: splash247, freightwaves, Hellenicshipping

Air Freight Market Update

Is air cargo set for a better-than-expected peak season?

• August air cargo demand was 5% down on a year earlier, a more modest decline than the 8% and 9% drop-offs registered for June and July respectively, signaling a better-than-expected end to the year, according to CLIVE Data Services.

• With a slowdown in global economies expected in the near term, airlines are reporting reductions in their winter schedules, analysts expected to seeing a continued capacity constraints on popular air cargo trade lanes, such as outbound Asia to Europe and North America, and Europe to North America.

• Staff shortages, the war in Ukraine, natural disasters, record US inventories, inflation and Covid lockdowns in China as all having the potential to bring “more air cargo market volatility over the rest of the year.

• For the giants of maritime commerce, big ships are no longer enough; they also need planes. Years of disruption to global supply chains have pushed many customers to opt for more expensive and more reliable air travel, industry players said. Auto parts suppliers, apparel makers and tech companies, all of which typically rely on ocean freight to move their goods, had started to go airborne amid fears Covid-related rumbles at ports could disrupt business.

August 2022 global air cargo volumes, capacity load factor and rate developments

(week 31-34 of 2022 compared to similar weeks in 2021 and 2019)

The chargeable weight gap with last year is the smallest since March

Source: Air Cargo News, Sea CoW CT

Ocean Freight Market Update

China – USWC no longer the most lucrative trade for spot cargo

• Spot rates ex China have been falling steadily since the Shanghai Containerized Freight Index (SCFI) reached a historical high of 5,110 points at the beginning of this year (Jan 7). The pressure on spot rates significantly increased in early Sep with the index published by the Shanghai Shipping Exchange dropping no less than 18.8% between Aug 26 and Sep 9.

• The main reason for the drop in spot freight rates is the weak cargo demand. The phenomenal rise in energy costs and high inflation will clearly further impact consumer spending. Spot freight rates from the Far East to the USEC have gradually declined while cargo demand between Asia and North America is less felt on Far East-USEC services.

• Alphaliner warned that the deterioration of trading conditions on the transpacific will likely hit independent carriers far harder than alliance members, due to their greater reliance on chartered vessels, as well as spot freight rates.

• Most carriers can be profitable with a utilisation of 50-60% at today’s rates. In terms of EBIT, and this is discounting CMA CGM who does not list their EBIT, this level of profitability, however, might not continue into Q3, due to the fast-falling freight rates, and the slowdown in global demand.

SCFI revenue per nautical mile (FEU) and SCFI spot rates (FEU)

Source: Alphaliner #37, Global Maritime Hub, The Loadstar-1, The Loadstar-2, Sea Intelligence