MARKET OUTLOOK ADVISORY #3 - Airfreight is hot – Ocean freight is glowing!

Dear valued customer,

Christmas is just around the corner with holidays in many countries, and we want to give an update before a new year is coming. We recommend that you take special notice of our traffic light update included in this advisory, where there are a few, but important changes.

There are presently challenges within all transport modes being ocean, rail and airfreight. As also highlighted in our previous advisories it is assessed that surcharges, premiums and general rate increases are here to stay for the short and mid-term. For this reason, we recommend that this is included into your 2021 financial forecasting.

Infrastructural challenges in the form of inland congestion adds to the current challenges, and despite efforts to mitigate the current situation we assess that some form of normalization will only occur after Chinese New Year 2021.

Inasmuch as the ocean freight market is glowing globally, then the airfreight market remains hot as well. Capacity continues to steadily increase on most trades, but demand continues to surpass capacity amongst other due to the distribution of COVID-19 vaccine is now commencing.

We continue to encourage constant dialogue with our customer teams to ensure prioritization of critical shipments that cannot afford any form of delay.

As always, we wish to emphasize that we remain confident in our ability to find solutions to the challenges we jointly face.

Enjoy the reading!

OCEAN FREIGHT

An all-time “perfect storm” is a fair assessment of the current challenges within the ocean freight market. The situation is going from bad to worse with heavy delays on most trades being the new normal, coupled with sky-rocketing rates.

Equipment shortage is a global challenge, however due to the general trade imbalance the situation is most severe on the Far-East to Europe trade, and Far East to US.

Records continue to be broken on a weekly basis with ocean freight rates reaching an all-time high level on the Far East Westbound trade as an example. Ocean carriers continue to practise a “pay up to get loaded” approach with short term rates for December in some cases nearing USD 10.000 per 40´ container.

Container equipment shortage especially for 40´ remains the main root cause for the current challenges, however it is also evident that the general economical development in consumer spending is significantly higher than expected. As a result, the actual demand has caught most industry players by surprise.

For export to Asia from both Europe and US, rate levels have stabilized albeit at a higher level compared to 2019. From US there is a growing trend that equipment is returned empty to Asia instead of waiting for full container loadings, simply to ensure equipment is returned to Asia as quickly as possible.

Root causes for the situation in large remain the same:

  • A surge in consumer demand that has caught all by surprise as an economic downturn was expected.
  • The wave of blank sailings introduced by ocean carriers during 2020 has impacted the global repositioning of empty container equipment, ultimately leaving equipment stranded in the wrong locations.
  • Unstuffing of full containers is taking longer than expected as many customers do not have the workforce in place to keep up with the number of inbound containers.
  • Finally, the equipment shortage is fundamentally also rooted in a year-long under investment in new container equipment, and while production of new container equipment is increasing rapidly, it will take time before this will have an effect.

AIRFREIGHT

The trend of a steadily increase in capacity continues, however especially boosted by strong global e-commerce sales demand continues to outpace supply. As we speak global capacity is down with approx. 20-25 % vs. same period last year in large owed to the lack of belly-hold capacity.

As expected, technology launches during Q4 has been a major contributor to the high level of demand, as well as many customers have chosen to boost inventories ahead global distribution of COVID-19 vaccine with this expected to impact available supply in Q1 2021 and onwards. One reason for this being that it is expected that governments around the world will be willing to pay higher for the available capacity leaving traditional airfreight customers at a disadvantage.

We expect rate levels to be sustained at current levels for the foreseeable future, however we do not expect panic like scenarios as seen currently on the ocean freight market.

RAIL FREIGHT

For Rail freight the outlook mirrors ocean freight, as the situation of container equipment shortage is as ever present and challenging. As a natural consequence rate levels have surged.

We can see a positive effect by placing bookings well in advance with this giving us the opportunity to research all potential options in the market.

All information is given to the best of our knowledge and are prone to change.

Simone Gatti

founder CEO

#sanmarinoresiste

#andratuttobene

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