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 | , , , , , , , ,

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. 

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Global port congestion threat to capacity

May 30, 2024 | , , , , , , , ,

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. 

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Airfreight market continues to fly – for now

May 16, 2024 | , , , , ,

The surge in Asia to Europe ocean freight (see ‘Ex-Asia spot rate spiral turned into shooting star’) is also boosting demand for airfreight to Europe and even to North and South America.

Uncertainty and delays with ocean shipments have been encouraging more shippers to transfer to airfreight and the increased demand has prompted airlines to withdraw long-term winter and summer schedule rates in favour of offering rates on a monthly, or even shorter basis for shipments from Asia to Europe and America.

Disruption has also boosted sea/air transhipments via the Middle East and Indian sub-continent, with tonnages up 40% year on year.

Ex-India pricing is up 164% year on year and remains exceptionally high, while rates from Dubai and Colombo were up 44% and 51% respectively, year on year.

Strong demand and disruptions to container shipping in the region caused by the ‘Red Sea’ situation continue to stimulate very strong air cargo demand from the Middle East and South Asia (MESA) regions.

Reports that ocean carriers are denying bookings could potentially boost air cargo further, as shippers seek to protect supply chains.

However, retailers’ spring/summer stock is in-country, so anything coming in now is going to warehouses and stores, so there is a definite reduction in retail demand for time-critical shipments.

Other industries may continue with distressed ocean freight, but this too has definitely reduced.

So, the air freight market will soften and capacity has increased with the summer scheduling. All in all, the market is now in a healthy state, with a decent balance of supply versus demand, for the time of year.

In the short term we expect the market to soften further, with no huge product launches, stable demand and hopefully geopolitical stabilisation (albeit with a very unstable level as the starting point).

The Red Sea crisis could mean Middle Eastern airlines are well-placed to pick up any extra business via sea/air routes, with Emirates and its strategic partners harnessing their strengths to move over 11,000 tonnes.

For urgent, valuable and sensitive shipments we have a range of airfreight and sea/air solutions, with block space agreements (BSA) and capacity purchase agreements (CPA) that 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. 

Sea Air aerial

State of the air freight market

May 1, 2024 | , , , , , , ,

The effective closure of the Red Sea and the Suez Canal to container ships is adding around two weeks to supply chain transit times and creating a backlog of manufacturing components, late shipments and inventory replenishment, with critical consignments reliant on air solutions. While Iran’s attack on Israel has led to major carriers rerouting or cancelling flights and causing potential bottlenecks and price hikes.

Traffic ex-South Asia has been particularly driven by the Red Sea push to air, with spot rates climbing significantly. 

Contributing significantly to demand has been a massive spike in eCommerce volumes out of China, which is pushing prices well above typical levels for non-peak periods.

Average spot prices to North America have nearly doubled since mid-December, while Europe rates have climbed over 120%.

The eCommerce spike has seen Heathrow (LHR) imposing restrictions on ad-hoc freighters and charters from Shanghai, which has resulted in diversions to alternative gateways, including Birmingham International, with at least one charter operator transferring their slots away from LHR to Birmingham (BHX).

Traffic ex-South Asia has been particularly driven by the Red Sea push to air, with spot rates climbing significantly. Average spot prices to North America have nearly doubled since mid-December, while Europe rates have climbed over 120%.

The recent loosening of US restrictions on the number of weekly flights to the US allotted to Chinese carriers will increase China to US air capacity and could ease some pressure on rates.

The closure of Iranian airspace, due to safety concerns, following Iran’s attack on Israel has led to major carriers rerouting or cancelling flights and causing potential bottlenecks and price hikes for shipments from India.

Carriers operating to Europe are using alternative routes; primarily through Turkey and Azerbaijan, for Middle-East and Chinese carriers or via Egypt and Saudi Arabia for European/Western carriers. While major carriers, including Air India, Emirates, Qatar Airways and Lufthansa Cargo are temporarily suspending flights to Israel and other affected destinations.

The need to carry (and buy) additional fuel for the extended flights means that there will be a payload impact to passenger flights operating from India to Europe and vice versa, as they will need to significantly restrict the cargo payload, which reduces capacity and increases cost.

The seizure of the MSC Aries by Iran in the Strait of Hormuz raises concerns about the accessibility of the Dubai port, a crucial hub for sea-air transshipments, because if Hormuz is considered a high-risk area, it could mean sea-air shipments being diverted to alternative hubs like Colombo or Bangkok.

Whether rates will soften, or supply vs demand become an issue in the next quarter and beyond depends on world geopolitical events improving, the Red Sea re-opening up and no other global crisis occurring.

If there are no further global events then the market is very likely to soften, however, if the Israeli/Iran situation deteriorates airspace could be closed for the foreseeable future and that will cause huge issues to all logistics activities including airfreight, sea/air, ocean and rail.

For urgent, valuable and sensitive shipments we have a range of airfreight and sea/air solutions, with block space agreements (BSA) and capacity purchase agreements (CPA) that 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. 

Category: Sea/Air

4PL | Air | International Trade | Middle East | Sea/Air

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