Ocean & Air Freight - July 17, 2020

Ocean Freight

Average prices fell 4.3% in May and declined 3.6% in April compared to 2019. The most significant but foreseeable shift in the latest surveys shows prices for inland waterway services are only down 3.7% as compared to last year. These prices trends were expected to happen so the projections for the 2020 and 2021 forecast are still showing a never before seen recession.

China-US West Coast prices fell 2% since last week to $2753/FEU. This rate is 72% higher than the same time last year and China-US East Coast prices dropped 3% since last week to $3353/FEU, and are 17% higher than rates for this week last year. Ocean rates from China to the US West Coast declined slightly last week, but remain 68% higher than the end of May and 72% higher than last year.

The June demand surge meant very few canceled sailings in July compared to the previous month. The increase in volumes has been a welcomed development across the supply chain, with June US import volumes improving by an estimated 10% as compared to May. Volumes and capacity are still not at equilibrium, keeping rates up, with reports of some carriers even requesting premiums to prevent rolled shipments. However, June volumes are still down 6% compared to last year. Even with volumes down and available capacity approaching normal, rates remain extremely high.

The last time ocean rates were at this level was November 2018 when US importers raced to ship as many orders as possible before new US tariffs were introduced on Chinese goods. Even in that peak demand, rates for China-US West Coast FEUs were still 7% lower. We expect to see a fluctuation in demand and prices in response to the new tariffs placed on Hong Kong.

As infection rates, closures, and restrictions grow in the US, these freight rates may be pointing to the urgency importers are feeling to ship as soon as possible as the latest updates in the pandemic mean an already shaky consumer confidence could plummet again with a moment’s notice.

Air Freight

U.S. owned airliners were down 11% in May and 19% in April as compared to last year’s prices. Thankfully for air cargo companies they only saw a 0.1% drop after coming off of a steady price increase in the four months prior to catastrophe. However, with fewer planes leaving the ground there will be a possible rise in belly capacity prices as space becomes tight.

The air industry like the rest of the markets saw a hard hit in March as global demand dropped 15% compare to 2019 with international belly capacity dropping 44%. However, air cage held up in April and May due to air carriers addressing shippers’ needs with regards especially to personal protection (PPE) shipments. In April, demand continued to decline making it 27.7% less than April of 2019. This is the sharpest fall in air demand history. Belly capacity has dropped by 75% compared to the same month in 2019.

Experts foresee that the market volumes will remain erratic in the foreseeable future as the wake of COVID-19 continues to cause havoc. Global desperation for PPE and other medical supplies have pushed airlines to adapt passenger planes to all-cargo aircrafts. In late April, Icelandair Group and DB Schenker signed an agreement to use Icelandair aircraft for 45 cargo flights in order to transport medical equipment across Europe. This agreement resulted in hundreds of seats being removed from three aircrafts in order to accommodate over 7,000 square feet of capacity on each aircraft. Many flights are now simply becoming “ghost flights” or flights holding cargo but no passengers.

These flights are serving as buffers for the gap between capacity and demand right now. Many companies (an estimated 150 across the world) are converting passenger planes into air freighters and the change is keeping planes that would otherwise be on the ground in the air. The FFA helped this transition as they have approved the use of overhead bins, storage closets, and under seat areas for lightweight freight on ghost flights only.

The big question for everyone is if there is any sign of recovery yet. The answer is a mixed bag with some practices helping the markets and the future of an impending recession painting a less desirable picture. What hasn’t changed is that trade organizations are still demanding the support from governments to make sure the supply chain continues to be open, efficient, and COVID-19 safety measures managed properly.