Hong Kong Archives | Page 8 of 8

Air cargo under pressure as peak season looms

Sep 4, 2024 | 4PL, Air, China, eCommerce, Foodstuffs, Hong Kong, International Trade, Retail, Supply Chain, United States

With capacity already strained and further challenges expected from potential labour strikes and reduced belly capacity in the final quarter, shippers are under increasing pressure to secure cargo space ahead of the peak season.

Strong demand
According to IATA’s latest figures global air cargo demand surged by 14% year-on-year in July, marking the eighth consecutive month of double-digit growth. This increase is largely driven by ongoing eCommerce expansion and disruptions such as the Red Sea crisis.

Despite the high demand, capacity only grew by 8%, pushing load factors up significantly and intensifying the pressure on available space.

The Asia Pacific region has seen particularly strong growth, with demand up 18% year-on-year in August, while North American carriers recorded an 9% increase, even amid disruptions like Hurricane Beryl. The Asia-North America trade lane experienced an 11% rise, and transatlantic routes also saw rates climb in August compared to July, with expectations of further increases as the year progresses.

Preparing for peak season
With the peak shipping season starting in September, air cargo demand is expected to remain robust, particularly in high-demand regions like Asia Pacific. However, capacity constraints are already evident, with flights on many lanes fully booked. The market faces potential additional pressure from reduced belly capacity in Q4 and the possibility of strikes at US East Coast ports, which could exacerbate the existing challenges.

Shifting capacity
The ongoing Red Sea crisis has disrupted traditional shipping routes, leading to a shift towards air freight as shippers seek more reliable alternatives. This shift, combined with the seasonal reduction of capacity on other lanes, has left the market vulnerable to further disruptions, potentially causing backlogs and price spikes.

As carriers redirect freighter capacity to the high-demand Asia market and reduce capacity on other routes, the market’s fragility increases. The anticipation of a strong peak season, coupled with the current tight capacity, means that shippers must act quickly to secure space and avoid significant disruptions.

Outlook and recommendations
Given the current market conditions, shippers are strongly advised to plan ahead and secure air freight space as soon as possible. The combination of high demand, potential capacity shortages, and the risk of labour disruptions could lead to an overheated market towards the end of the year, with rates likely to continue rising.

Early booking and careful planning are essential to navigate the challenging air freight landscape in the coming months, so please share your forecasts with us as early as possible so that we can ensure there are no disruptions to your supply chain.

For urgent, valuable and sensitive shipments we have a range of airfreight, charter and sea/air solutions, with block space agreements (BSA) and capacity purchase agreements (CPA) to protect space and capacity on the busiest routes.

Regardless of your cargo type, size and requirements, we have extremely competitive rate and service combinations, to meet every deadline and budget.

EMAIL Elliot Carlile, Operations Director, for insights, prices and advice.

Peak season impact on container freight rates

Jul 10, 2024 | 4PL, Hong Kong, India, International Trade, Project, Retail, Sea, Supply Chain

The last week of June saw further gains on sea freight spot rates from Asia into Europe and North America, as a series of peak season surcharges (PSS) were imposed and new FAK levels from 1st July creating double-digit increases in spot freight rates.

With spot and FAK rates across all three carrier alliances approaching five figures, analysts predict that if the peak season extends into the traditional August/September period, 40ft spot rates could rise to $14,000-$15,000. And possibly higher, with a much longer application than originally anticipated into 2025.

Surcharges Affecting Asia-North Europe Trade
Along with other carriers CMA CGM has imposed a $1,500 PSS on Oceania-North Europe shipments and a $500 emergency space surcharge per box on India-North Europe shipments. Similarly, Hapag-Lloyd will implement a $1,000 per 40ft PSS on the Far East-India trade.

Spot Rate Indices and Transpacific Route Increases
Drewry’s World Container Index (WCI) composite index grew by 12% last week, with the Shanghai-New York leg showing the steepest growth at 17%. Similarly, the Shanghai-Rotterdam spot rate increased by 10%. Shippers on transpacific routes could see further double-digit rate jumps next week, with CMA CGM set to implement a $2,400 per 40ft PSS on all shipments from Asia to the US starting Monday.

As always. Metro are working tirelessly to mitigate the impact of these increases on our customers.

Space Shortages, Elevated Rates, and Container Equipment Shortages
Due to strong demand, many shippers are paying above quoted rates to secure space. Space availability from Asia to Europe has dropped by 30%-40%, leading major importers to pay space guarantee surcharges.

Higher rates are expected to persist until Golden Week, with some Asia-North Europe spot rates already breaching five figures. An early peak season, lasting until Golden Week in October, driven by importers’ determination to avoid Christmas stock shortages, indicates strong orders lasting at least until then. Should the peak extend, the market may not significantly decline until Q2 next year, even with additional capacity coming in.

Additionally, container equipment shortages are becoming more prevalent, with average container prices in China reaching their highest level in two years, and leasing rates on China-Europe routes tripling.

Ports are becoming congested globally – on all continents. The outcome of this is increased port blanking’s or sliding’s. These can be voluntary by the carriers, but more often than not are now involuntary and caused through long waits outside the port and an inability to discharge vessels, without having a major impact on their schedules.

The result is, whether you are on contract, spot or FAK pricing – if a vessel doesn’t call at the port, you will not get your product moved until the next one does. And then, when the following vessel from whichever alliance does call, you do not get any retrospective protection on capacity that is simply ‘lost’.

Every importer and shipper who trades with China and Asia on a wider scale is being affected – it is impossible in the current and short term market to avoid the disruption.

In summary, spot rates show substantial growth, with space shortages increasing and elevated rates likely to persist until at least Golden Week, compounded by container equipment shortages and rising costs.

These trends suggest continued high rates and strong demand well into next year. However, we will continue to mitigate these costs where we can, but in a market where $10,000 + a FEU is becoming normality we will always endeavour through our pricing mechanisms and thoughtful considered approach to ensure that you receive the best pricing and reliability of service available in the market.

We will continue to communicate this to you daily/weekly/monthly, and as frequently and for as long as we need to, until the market settles.

We see challenges as opportunities to shine, and deliver a collaborative market-leading solution, that is appropriate for your business and tailored to your expectations.

With carriers in the ‘driving seat’, they are cherry-picking which contracts to honour, rolling lower-yield containers and blanking vessels, to try and recover schedules.

With the market this challenging, there is no ’silver bullet’ and many shippers that try to play the spot market are coming unstuck.

Metro are leveraging our long-standing carrier relationships and sensible annual contracts, to secure our customers space and set rates.

To learn how we can enhance your ocean freight solutions, please EMAIL our Chief Commercial Officer, Andy Smith.

US ports to offer storage while others struggle

Sea freight rates from Asia continue to spike and remain on an upward trajectory

May 30, 2024 | 4PL, Chemical, China, eCommerce, Hong Kong, International Trade, Retail, Sea, Sea/Air

Between the start of April and last week, average spot rates from the Far East into North Europe increased by 31%, the US West Coast 30%, Mediterranean 25% and US East Coast 22%, with spot rates to Europe currently $6,000-$7,500 and analysts suggesting they may hit $10,000.

Market demand reached record levels in Q1 2024, up by 9.2% compared to Q1 2023, and coming at a time when the Red Sea situation was already putting pressure on shipping capacity, rate increases were inevitable. But it is the speed at which market turmoil has developed, that is creating nervousness in the market, with spot rates to Europe rising 6% in the last week.

Schedule reliability is still far from pre-pandemic levels, with Q1 on-time performance mooted to be just 27% which, combined with pockets of congestion, port omissions, delays and missed departures is having a massive impact on equipment availability at export hubs.

COVID-19 supply chain disruption is fresh in the memory of shippers and fearing a squeeze on capacity during the peak season many are importing more goods now. The traditional peak period, like the weather, is changing its seasons.

Much of these increased volumes are moving on the spot market, which is putting upwards pressure on rates, particularly as rising port congestion and equipment shortages are further diminishing available capacity.

In addition, with the delays and the impact on shipping schedules, caused through both carrier voluntary or involuntary port blankings, contract capacity is being reduced or completely removed, against agreements made earlier in the year, or at the backend of 2023. Sound familiar?

Long term rates on major trades have remained relatively flat in Q2, but with reduced space availability they are not covering the forecast allocations forcing shippers to find alternatives for the shortfall in demand for box movements.

Short term spot and FAK rates are the only real mechanism as an alternative solution and this is currently absorbing all available container slots in the westbound Asia/ Europe trades.

Meanwhile, carriers will continue to make money from the spot market’s additional volumes ahead of the traditional peak season and that is what we have seen in the rate increases in May that look to continue, and possibly accelerate, as we enter June.

The shipping lines are not the cause of the current situation, but there are advantages to a commodity driven model, where demand exceeds supply from their perspective.

However, the large BCO shippers are too aware that the bigger the gap gets between the spot and contract markets, the greater the risk that more of their cargo may get rolled, in favour of higher-yielding containers. This creates further demand and a willingness to pay higher rates, to ensure that product is shipped and deadlines can be met.

Even if there is capacity in the market, the fear factor can push up rates and shippers could be facing months of further elevated rates and increased delays, if higher demand continues to overtake available capacity.

However, the duration and scale of these price spikes could be less severe than those seen during the pandemic because volumes are increasing and not surging, which should mean that ports will (in time) be able to handle the higher volumes and strategies developed during the pandemic, like off-port container yards, are already in place.

It is unlikely that this can be sustainable long term for any party or for the length of time seen during the Covid Pandemic days of lockdowns and increased consumer spending. There are other factors at play, in creating a similar environment to 2020/21 market conditions.

As we advised many weeks ago, the next large scale disruption which is beginning to really have a major effect is the lack of equipment where it is required in the manufacturing regions of Asia, due to shortages of available empty containers that are either ‘stuck’ on longer transiting vessels, or laying idle at destination (such as the Med) awaiting evacuation back to Asia.

The impact in China is becoming very acute with a lack of available empty boxes creating bottle necks throughout the main gateways and congestion and queueing times increasing daily for vessels.

In addition, if the demand increase has been driven by an early start to the peak season, then we may expect demand-side pressure to begin easing off in a few months, although volumes and rates are likely to remain elevated for a while longer, due to the turbulence that is a consequence of the market conditions that are currently at play throughout the globe.

We will continue to update on the evolving situation, which is gathering pace due to many factors and dynamics. We do not foresee any short term rectification of the current market conditions which will undoubtedly continue to pay havoc with supply chains.

We will always offer the best options available, being creative with the solutions that we offer – based on customer requirements – ensuring we always deliver against deadlines.

With carriers in the ‘driving seat’, they are cherry-picking which contracts to honour, rolling lower-yield containers and blanking vessels, to try and recover schedules.

With the market this challenging, there is no ’silver bullet’ and many shippers that try to play the spot market are coming unstuck.

Metro are leveraging our long-standing carrier relationships and sensible annual contracts, to guarantee our customers space and set rates.

To learn how we can enhance your ocean freight solutions, please EMAIL our Chief Commercial Officer, Andy Smith.

Global port congestion threat to capacity

May 30, 2024 | 4PL, China, eCommerce, Hong Kong, International Trade, Retail, Sea, Sea/Air, Supply Chain

The Red Sea crisis and the much longer sailing distances triggered by the diversion around Africa’s Cape of Good Hope (COGH) soaked up existing market overcapacity, which was just enough to cope with the extended COGH transit times, provided there were no additional disruptions to maritime supply chains.

The demand spike that began in Q1 caught everyone by surprise, but while speeding up vessels may have released additional capacity, increasing port congestion has eradicated any benefit from that capacity and is exacerbating an already serious situation.

Port congestion in Asia and the Western Mediterranean has been gradually worsening for several months, but it is only now becoming plain that with zero excess capacity in the market to deal with new problems, port congestion is a critical issue.

Shanghai, Ningbo, Qingdao and Singapore are particular chokepoints, with the latter’s berthing delays reaching seven days, forcing some carriers to omit planned calls, which will exacerbate the problem at downstream ports, that will have to handle additional volumes.

The delays have also resulted in vessel bunching, which contributes further to berthing delays and operations at downstream ports.

A current example of the accumulative impact of port congestion is ONE’s vessel, the MOL Presence, operating its Japan-Straits Malaysia loop. The vessel was six days late when it called at Hong Kong on the 12th May, which increased to seven days when it reached Port Klang in Malaysia, while congestion at Singapore means it would be 10 days late calling there on the 23rd May.

In terms of sailings on the westbound trade, 128 container vessels arrived in North Europe during April against an advertised 169. That’s a 25% reduction against expectations.

Western Mediterranean ports have been handling massively increased volumes as carriers from Asia drop boxes destined for the eastern Mediterranean and while they managed Q1 throughput, they are operating close to operational capacity, which means that any continuation or increase in volumes could lead to potentially serious congestion.

Port congestion and the consequential delayed vessel schedules is also creating issues with empty container availability, as boxes become delayed in transit, resulting in lower stock availability in the regions and at ports where they are needed. This impact is escalating daily on some trades and we will continue to update as this next challenge evolves at a fast rate.

The disruptions and higher sea freight prices from Asia could push even more volumes to sea/air solutions, that offer massively faster transit times than ocean, while being far less expensive than air freight.

It is important to note that while we are seeing dramatic increases on trades out of the Far East, the export spot market remains flat and there is also little movement on the Transatlantic trade.

We work closely with our network and carrier partners to monitor port congestion and equipment availability across Asia and Europe, with contingency plans to ensure product is delivered to market, without delay, until congestion finally subsides.

To learn how we can help you avoid disruption and port congestion, or to request our regular ocean market report, please EMAIL our sea freight director, Andy Smith, who can advise on the best solutions for your ocean supply chain.