TRANSPORTATION MARKET UPDATE JULY- 2024 | AIR & SEA FREIGHT

AIR FREIGHT

In June, global air cargo spot rates registered their largest increase of the year so far, climbing by 17% year on year, as the month on month growth of cargo demand continued to outpace capacity supply.

Southeast Asia to Europe and the US markets saw the largest cargo spot rate increases in June, growing 14% versus May.

Northeast Asia to Europe and the US also experienced modest spot rate increases, up 5%.

The e-commerce boom, disruptions in ocean freight due to conflict in the Red Sea, and general improvements in global manufacturers’ activities have been largely responsible for these higher air cargo spot rates.

Demand in June, measured in chargeable weight, was up 13% year on year, continuing the upward trend seen throughout the first half of 2024. In contrast, cargo supply grew at its slowest pace in 2024, edging up only 3% year on year.

Airlines are now looking ahead to air cargo’s fourth quarter peak season to decide how best to maximize returns from capacity out of Asia as spot rates are predicted to go sky high.

With a backdrop of more demand and less capacity, industry analysts have warned that shippers and forwarders seeking capacity during the fourth quarter may find themselves “at the mercy of the market”, especially if they looking to move shipments out of Asia Pacific: Peak Season Surcharges and major increases in spot rates are expected.

SEA FREIGHT

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Container shipping and the web of global transport services linked to it are entering the usual peak season for demand, but the scenario planning this year includes just as many questions about supply.

Red Sea vessel diversions and port congestion have absorbed whatever excess capacity the industry offered at the end of 2023, when the Houthi attacks intensified regular occurrences.

Spot container rates have doubled since early May.

Adding to the bottlenecks is a demand reflex honed during the pandemic: the fear of missing out.

Looming US tariffs on Chinese imports and a possible late-summer strike at East and Gulf coast ports are boosting orders sooner than usual: a race to bring goods into the US before more tariffs on Chinese goods kick in is helping to fuel an earlier-than-usual peak season at West Coast ports.

That import frenzy is adding to a capacity crunch on Pacific trade lanes caused mainly by shipping lines avoiding attacks by Houthi rebels in the Red Sea and contributing to elevated freight charges.

Despite easing port congestion and increased shipping capacity, spot rates remain significantly higher compared to six months ago, with increases of nearly 400% from the Far East to the US West Coast, over 300% to the US East Coast, and 455% to North Europe, compared to mid-December.

In a nutshell:

• Demand/Supply relationship volumes are higher in 2024 vs.2023
• Additional capacity required by Suez diversions amounts to 15% to 20% more TEU miles required
• 5.6% of total global vessel capacity has been idled by ports’ congestion
• Global geopolitical issues create uncertainty that leads to earlier & larger volume cargo shipments
• In Northern Americas, labor strike risk drives earlier cargo shipments
• Shippers have been restocking
• Tariffs that will be put in place starting Aug 1^st drive earlier shipments
• Slower vessel speeds & poor schedule reliability add transit days & increase the risk to timely inventory replenishment & drive earlier/greater cargo shipments

All of this has led to tighter asset supply & higher rates

Moving forward, and for Q3 and Q4, there are three potential scenarios:

• Worst Case: under this scenario, ships continue avoiding the Red Sea, the early peak-season demand stays solid and port congestion lingers for months — extending the global disruptions past Chinese Lunar New Year starting in late-January. Add on top of that a strike by dockworkers on the US East and Gulf coast and container rates would reach the record highs set during the pandemic.
• Best Case: this scenario hinges on an end to Houthi attacks in the Red Sea, which would allow carriers to return to their optimal sailing schedules. After a few months of adjustments, cargo rates would drop sharply as supply outpaces demand. Newly built ships coming into service would help push the cost for a 40-foot container back to pre-pandemic levels.
• Most Likely Case: for this to play out, the current strength in demand softens, indicating that early orders were pulled forward from the third and fourth quarters because of either looming US tariffs on Chinese imports, Red Sea delays, port strike worries — or a mix of all three. Spot rates still might peak around $10,000 (or more) per 40-foot container this month and next, but they would come back down later in the year.