Original article written by Stuart Todd, at Lloyd’s Loading List 

Freight markets continue to be strained across ocean, air and rail modes, according to Denmark-based forwarder Scan Global Logistics’ (SGL) latest Market Outlook Advisory issued earlier this month.

Ocean–ripple effects

Despite the re-opening of port operations in Yantian, the effects of the closure continue to linger with a significant backlog of containers and some vessels still being re-routed to other South China ports such as Nansha and Shekou.

“The sudden heavy burden on these ports not being accustomed to such a volume surge has caused bottlenecks and a yard density of upwards 100% in recent days,” the forwarder highlighted. Efforts to secure business continuity have spurred sporadic port closures from these ports as well.

“Equipment supply is significantly impacted in the whole Guangdong region, whereas many other areas – including the Indian subcontinent – also suffer from container shortages,” SGL highlighted.

Ocean freight remains “the hot topic, with no immediate outlook of normality being on the horizon” and no significant improvement seen before the fourth quarter (Q4) of 2021 at the earliest. In this “perfect storm,” carriers are failing to provide consistency and reliable lead times, SGL noted, adding that global schedule reliability on key corridors from Asia to Europe continue to struggle at a “devastating” 24.4% –a year-over-year decline of 50%–and the average vessel delay is almost eight days.

The disruptions “that have caused significant impact on already maxed-out trade lanes” are expected to keep box prices elevated in the coming months. “Far East westbound short-term rate levels remain sky-high to the tune of US$16,000/FEU and, in some cases, higher for guaranteed loading,” SGL said.

“All major trade lanes are impacted by this, with rate levels far exceeding the same period last year. This is the case both for the transpacific and the transatlantic also.”

While the advisory underlined that historically exports from Europe to Asia have not often been affected by high demand and price rises, given that the empty equipment was needed in Asia and the US. “This time around, the congestion and vessel capacity issues mean that exports are hit hard, both in terms of high rate levels and schedule reliability being very low,” SGL highlighted.

Air capacity shifting at short notice

In the air freight market, SGL highlighted “a different challenge”, with “capacity shifting at short notice”, depending on the trade lane. “Freighter aircraft are going into maintenance to be readied for the peak season, and with passengers returning, we see passenger (PAX) aircraft pulled from the PAX freighter (‘preighter’) routes to support passenger travel,” the company noted.

“All these changes impact the supply-and-demand scenario and, with it, capacity availability and rates. Overall capacity is expected to steadily increase. However, demand remains high, subsequently sustaining the inflated rate levels.”

Handling and warehouse limitations

The forwarder also highlighted “handling and warehouse limitations at some major airports” where available space and labour shortfalls mean “operations cannot cope with the volumes, and backlogs and massive delays lead to excessive waiting time. This affects the ground transportation flows, with truckers being forced to line up for several hours to collect cargo.”

While the return of passenger travel was a good sign, it was not yet providing the desired relief for international trade.

“Firstly, it is primarily US domestic, and secondly, this capacity will be pulled again when summer travel comes to an end,” SGL noted. “In addition, there is hardly any travel increase to and from Asia, with these countries applying a more strict approach to Covid-19 restrictions and specifically to international travel.”

A recent drop in available air cargo capacity on the transpacific trade lane has yet to lead to increasing rates, but is keeping them at a high level. “On some occasions, we have even seen declining rates for specific departures, though this is considered a short-term adjustment due to limited cargo output,” SGL noted

Asia-Europe less impacted

Routes between Europe and Asia are less impacted by changing pax flight capacity, SGL’s analysis found. “With some Asian countries not yet opening up for travel, the number of flights will not materially change in the coming weeks,” it noted. “Freighter capacity remains stable, and some decrease in volumes over the coming months will be balanced out from a capacity perspective with freighter aircraft going into maintenance. This situation is expected to sustain rates at a stable level.”

As for routes from Asia to Europe, rates will remain high and capacity tight.

“On transtlantic routes, we may see a minor decrease in the rates for ad hoc volumes, but if rates get below a certain threshold, pax freighter capacity will be reduced and lead to a change in the demand-supply scenario once again,” SGL added. “This will balance out rates and keep them at a constant (high) level.”

Looking further ahead, a strong peak season is expected and with it, capacity shortages. “The market will remain constrained for some time yet,” SGL noted

Rail – demand buoyant and capacity tight

Meanwhile, the Asia-Europe rail freight market continues to reflect developments in ocean freight, with strong demand and scarce capacity expected to lead to rate increases in the coming month. SGL said congestion along the ‘Silk Road’ railway were impacting schedule reliability, “and delays should be factored in for the time being. Wagon shortages at crucial border points on the route between Belarus-Poland-Germany have also led to extended lead times. That said, performance, cost, and lead-time-wise, rail freight remains a solid alternative to ocean and air freight.”