Our June freight market report provides a multi-modal situation review and Asia round-up, together with international freight updates and supply chain insights, to aid your decision making in the weeks ahead.

Situation summary
Despite fears of significant supply chain disruption, as Shanghai finally emerged from its two-month lockdown, port congestion is easing and air freight capacity has risen above pre-Shanghai lockdown levels.

The latest data from Bloomberg Economics shows that a production revival in China, that has reduced delivery times for factories, has been driven in large part by Shanghai’s reopening, but while factories are facing fewer supply challenges, logistical hurdles remain and may extend to 2023.

Blanked sailings and woefully low schedule reliability on the Asia/Europe trade route continue and the repositioning of empty containers for Asia exporters are hampered by congestion and disruption at many North European ports.

Air freight capacity to and from Asia remains strained, with long-haul connectivity from Asia to North America and Europe about 1/3 of pre-pandemic levels.

Transatlantic capacity is returning to the air cargo market as airlines ramp up their summer schedules to meet rebounding passenger demand, which hopefully could be a preview of what’s to come for other air cargo trade lanes and particularly East/West as passengers begin to travel again

Sea
The lifting of lockdowns in Shanghai has not triggered the massive demand for vessel space that had been anticipated and the build-up of export containers, which had been estimated at 260K teu is being systematically cleared, along with the backlog of containerships.

Crucially truck capacity is increasing and the majority of cities outside of Shanghai are now accepting trucks and drivers, so long as they hold test reports and a ‘green health code’ has been issued.

Shanghai’s port congestion basically no longer exists, with any delays due to late vessels, with the average late arrival now about three days.

According to data from Alphaliner, container ships deployed on the Asia/Europe trade currently need on average 101 days to complete a full round voyage, which means that they arrive on average 20 days late in China for their next round trip, forcing carriers to blank some sailings as there is no ship available.

Some Chinese and Asian ports are struggling with some types of empty equipment, as there have been supply interruptions during the lockdown period, which have been complicated by port congestion in Europe and the United States.

With carriers blanking a third of scheduled sailings during the recent Shanghai lockdowns, North European ports have accumulated vast numbers of loaded export and empty containers and with overflow storage capacity taken by thousands of customs-blocked Russia-destined containers, hub terminals are overflowing.

And with “warning strikes” by dockers at north German container ports at the start of June and the threat of increased industrial action at other North European hubs, it does not bode well for the impending peak season.

Carriers are still expecting rates to increase further, particularly as congestion is forecast to continue long after volumes return to the market. And with manufacturing hubs getting ready to produce high volumes of goods again, demand will certainly outweigh supply.

Bunkers prices remain high, which is keeping rates elevated and while UK fuel surcharges seem to have stabilised around 25-30%, there is no guarantee that they will not rise further.

Longer term, however, many are eyeing the increasing cost of living and higher fuel costs as a potential reason for a fall in demand from key importing regions, as consumers begin to ease back on spending, which could in theory bring lower container rates over the coming months.

Air
Air freight operations at Shanghai Pudong are reaching near-normal levels of activity and, as of last week, the 34 Chinese and foreign all-cargo airlines operating at Pudong, around 80% were doing so at more than 50%, while nearly half of them were operating at more than 80% capacity.

The air freight market has been beset by significant disruption and dysfunction since the onset of the COVID pandemic and entering 2022, the picture remains predominantly one of high demand and even higher rates, which has been exacerbated by the fallout of the war in Ukraine.

The underlying drivers of the market began to shift in the first quarter as belly-freight capacity returned, with the resumption of international passenger travel, but flights between Asia and Europe have been the most impacted by Russia’s invasion of Ukraine.

Carriers from all 27 EU Member States as well as those from the UK, Albania, Iceland, Norway, and Switzerland have all been banned from Russian airspace in retaliation for sanctions on Russian carriers.

As a result, flights between Asia and Europe can no longer stop in, or over-fly Russia and instead have begun operating longer alternative routes, including some flying via hubs including Kuala Lumpur, Malaysia and Dubai.

The results are an increase in flight times of up to three hours, in addition to higher staff and fuel costs that the carriers are keen to pass on.

Demand is softening as inflation and interest rates ratchet upwards and dampen consumer confidence and the supply of capacity in freighter markets is also subject to new dynamics, with freighter order books filling up.

China’s air freight capacity has risen above pre-Shanghai lockdown levels, but there’s been no corresponding increase in demand so far – despite the expected traffic surge – which suggests there is excess capacity in the market, but while customer demand for air freight is not as strong as expected, the energy shortage caused by the war between Russia and Ukraine means freight rates are likely to remain on the high side.

Overland
European road freight rates hit an all-time high in the first quarter as rising cost pressures, supply and capacity disruptions, regulatory change and war in Ukraine created a potent mix of rate drivers.

The road freight sector has been hit particularly hard by increasing fuel prices, pushed higher by the Ukraine crisis, with the cost of running a truck £20K more than a year ago.

Although fuel costs are often mediated by heavy taxes, it is very likely that the recent increase in the price of diesel has resulted in fuel costs approaching 50% of truck operating costs.

The majority of the supply side issues come from driver shortages, with numbers in some countries such as the UK and Poland, still reaching around 100,000, driving costs up for hauliers and therefore rates are rising too.

• Driver shortages still plague the industry causing delays
• Fuel still on the raise with surcharges currently averaging 30%
• European road freight market projected to grow 4.9% in 2022
• Busier roads throughout Europe will reduce capacity in the market as congestion grows

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.