Our August freight market report provides an air and sea freight review, together with international updates and supply chain insights, to aid your decision making in the weeks ahead.

Situation summary
Rapidly rising inflation rates and energy prices are dampening consumer and business confidence, while heightening the risk of industrial action, with port and supply-chain infrastructure strikes likely to add to supply chain congestion in the UK and northern Europe, which will further reduce available capacity and maintain pressure on rates into 2023.

Despite this potential loss of capacity, air and ocean carriers continue to protect rates, by strategically rolling out blank sailings and diverting aircraft to tighten supplies.

OCEAN
The peak season from Asia into Europe has yet to begin and while demand has been slowing down, rates have not softened significantly because supply is kept relatively tight by the volume of blank sailings, vessel sliding, and port omissions.

Carriers are protecting rates by strategically rolling out blank sailings and tightening supplies, with 33 sailings blanked, out of 177 calls.

Effective capacity continues to be impacted by transit times with vessels deployed between China and North Europe currently taking and average of 97 days to complete a full round voyage, arriving 16 days late for their next round trip.

Port congestion in Europe and particularly Hamburg and Rotterdam, has reached critical levels causing further delays and late return of vessels to Asia, which will be further exacerbated if dockworkers at Felixstowe begin their eight day walkout on the 21st August.

Container ships deployed between China and North Europe currently need on average 97 days to complete a full round voyage, which is only a four day improvement in three months.

Ships currently arrive on average 16 days late in China for their next round trip and while there have been improvements for some carriers, port congestion remains a huge problem, causing disruptions to schedules

In Germany talks will continue between unions and employers until next week to avoid industrial action at Hamburg port, while last-ditch talks between port owners and the Unite Union failed to avert an eight day strike at Felixstowe, commencing on Sunday 21st August to Monday the 29th.

Unite the Union has also confirmed strike action will take place at the Port of Liverpool following a ballot of its members, but the form this action will take and the dates have yet to be announced.

On the railways, the Rail, Maritime, and Transport Union (RMT), the Transport Salaried Staffs’ Association (TSSA) and Unite have informed Network Rail of their intention to strike on Thursday August 18th and Saturday August 20th, which will have a profound impact on the ability of rail operators to move boxes to and from ports.

Congestion on the U.S. West Coast (USWC) has been improving and the ILWU and marine terminal employers have reached a tentative deal on health benefits, which is a positive move towards an overall agreement on a new labour contract in August or September with little disruption occurring on the docks.

Transatlantic demand for the whole month of August is expected to be lower, as continental Europe take their annual summer vacation with factories closing from late July through August, with demand expected to ramp-up swiftly in September.

Bunker prices remain elevated, which slows rate erosion and UK fuel surcharges remain high, seemingly stabilised around the £2.00/litre level.

AIR
Globally volumes are 3% down year-on-year (YoY) and softening is likely to increase in coming months, as consumer demand weakens and retailers work through excess capacity, though this may be mitigated by demand from the eCommerce sector.

As we move into Q3, we expect the air freight market to be driven mainly by the state of the global economy, ocean freight market conditions, the war in Ukraine, and future Covid lockdowns.

Despite YoY demand falling, the market will remain strong through 2022 due to the gap between supply (down 12% vs 2019) and demand caused by decreases in the number of passenger flights, the end of “preighter” flights after the summer, and disruptions in the ocean transport market.

The state of the sea freight market is a major contributory factor in air freight market demand. Space availability, ocean freight rates, and port congestions are all part of the equation that determine air freight demand and price levels.

Air cargo capacity is increasing in all regions, in part reflecting the increase in belly capacity as the number of passenger flights continue to recover, but overall capacity is down by 10% compared to the same period in 2019.

Air freight rates are still +120% higher than pre- pandemic 2019, but generally sliding due to demand slowing, though their erosion is being tempered by increasing fuel surcharges.

Air freight rates can be expected to remain at elevated levels, unless macroeconomic developments, such as inflation and interest rate hikes, accelerate a drop in consumer confidence.

Labour shortages continue to hamper the airfreight market, with Frankfurt Airport refusing some freighter flights till the end of August, due to labour shortages. Pilot shortages and the lack of ground personnel, due to furlough and layoffs continue to result in congestion and flight cancellations worldwide.

Carriers are following the market very closely to ensure they are deploying their assets profitably and we have already seen freighters move away from transatlantic routes, where rates are now below 2021 levels.

Ironically, as carriers redirected operations to other lanes, the load factor across the Atlantic relative to June increased from 58% to 61%, increasing revenues for the remaining flights.

OVERLAND
Multiple indicators point towards the demand for European road freight weakening with activity in all major economies falling and inflation rates dampening consumer and business confidence across the board.

Energy prices can be expected to continue putting upward pressure on European prices, deterring growth and therefore road freight demand in Q3.

Driver shortages continue to push wages up and with it transport costs, as employers try to remain competitive and keep their drivers.

Diesel costs usually account for one third of the total operating transport costs, but given the increase, they may now account for 50% of costs and will continue to inflate rates for exports in Q3. The cost of labour has been stable, but that is changing swiftly as inflation is adding pressure to increase wages, with summer industrial action expected in the transport sector on either side of the Channel.

Rates on cross-Channel routes have grown less than many others around Europe, but there were no price falls in the spot market with prices reacting quickly to cost rises in the road freight industry. Rate increases are just two-thirds of the European average, up 7.4% quarter-on-quarter for imports and an increase of 14.5% for exports.

Researchers from LSE (The London School of Economics) found that while exports have largely recovered after Brexit, UK imports from the EU fell by 25% relative to other destinations and the variety of goods trades has fallen by 30%.

Low-value goods have been most affected because of increased admin costs.

Summer travel has caused further congestion and with new border checks due to be introduced in September, more delays could add further pressure to
rates, while demand typically falls off in the Autumn.

Our teams in the UK and across Asia continuously scan the evolving global supply chain environment, scoping potential issues and adapting our operations, to avoid pitfalls that challenge our services.

We share the most important news and developments, so that you can make informed decisions that protect your supply chain.

To discuss any questions or concerns you might have, about the issues highlighted here, please EMAIL us for our immediate attention.