• The market remains unchanged with continual tightness in capacity with strong demand as well as the rush/peak period leading into Chinese New Year of 2022.
• Rates remain unchanged as well at still high levels for Air and Ocean freight; albeit we see some minor softening in Feb month post the CNY period.
• COVID developments; ongoing infections outbreaks in Asia continues to also pose challenges as ongoing plus additional heightened strict measures being implemented at airport/seaport as well as on operating air /ocean crew; example in Hong Kong.
• Ocean port congestion remains as well at various ports; including key trans-shipment ports in Asia with equipment situation remaining tight across all ports as shortage of empty containers remains a continue “industry-wide challenge”.
• New evolving challenges including increase of COVID infections particularly in Hong Kong & China as well as the Russian-Ukraine event further exacerbates the already constrained global logistics landscape.
• Courier freight mode channels through flowing; remains tight with an example of DHLE implementing an increase in their ESS (Emergency Surcharges) from February 14 to now cover overall all shipments from Asia to worldwide.
• Ground / Truck mode channels are encountering new challenges especially cross-border truck mode from China and Hong Kong to South Asia as well as cross border truck mode between Hong Kong to South China and vice versa.

What to expect from Logistics in 2022

• Continued service disruptions due to:
  • COVID outbreaks impacting operations
  • Airport backlogs due to staff shortages
  • Geopolitical impact due to current Russian invasion of Ukraine
• Vaccine Rollout
  • Slow rollout will impact passenger travel
  • Emerging variants pose threats to further lockdowns
  • PPE movements to continue
• Robust Demand
  • Demand is expected to stay strong filling inventories
  • Economic Recovery and GDP growth 4%+ in 2022
• Capacity Recovery
  • Recovery will be slow
  • PAX resurgence on certain lanes
  • Freighter capacity growth expected
• Rates Remain Elevated
  • Rates remain high
  • Demand supply imbalance expected to continue
  • Extra capacity at a premium

 

Global air freight market reflects air cargo demand was flat in January compared to last year and 2019, but the sampling of airlines’ shipment business do not take into account ongoing disruptions to the air logistics system that have prevented carriers from transporting as many goods as shippers are presenting, essentially resulting in an undercount of volume.

The January results are viewed as emblematic of a predictable soft start to the year after the holiday rush, but volumes and rates started to increase in the past couple of weeks as shippers tried to get products exported before China’s Lunar New Year holiday.

The International Air Transport Association released figures shows air cargo volume grew 8.9% in December and 9.4% for the critical international sector compared to 2019. For the entire year, air cargo was up 6.9%. IATA said December capacity was 4.7% below pre-pandemic levels, with the heavy international segment down 6.5%.

On the capacity side, this remains depleted because passenger airlines have only partially restored services due to the ongoing coronavirus outbreaks and government travel restrictions. All-cargo airlines have brought much more space to the market in response to a highly needed product, but it has not been able to make up the difference from cargo owners seeking demand. The biggest ongoing threat to stable operations is COVID, as the omicron variant continues to sideline airline and ground personnel who are ill or forced into precautionary isolation.

Logistics companies say bookings for airfreight shipments are robust, especially on the Trans-Pacific and westbound Asia-to-Europe routes as companies move goods ahead of anticipated factory slowdowns in China related to Lunar New Year celebrations. Adding to the capacity pressure is increased use of air to distribute COVID test kits and nasal swabs as governments try to contain the latest COVID wave.

The air freight market has also seen additional impacts by the sanctions being imposed due to Russia’s invasion of Ukraine. Russian flights have been banned from most of the European air space, with Canada, and most recently, the US taking similar measures. Russia has responded by closing Russian airspace to those countries. These bans directly affect flights to and from Russia and, more importantly, causing massive disruption for the affected carriers on the Far East to European routes. Some carriers have outright cancelled flights to China, Japan and Korea while working on their alternatives. Others are continuing their flights but having to take detours, increasing transit times and costs.

Currently, Asian carriers are unaffected and continue to use Russian airspace. However, the banning of Russian flights means a significant amount of capacity may no longer operate on Asia to Europe and Asia to US trades.

Very few could have anticipated the sudden turn of events with carriers having very little time to adjust to the new restrictions. As the new operating conditions become clearer, carriers will only then be able to adjust their offerings and schedules, accordingly, probably restarting operations on some of the services they cancelled in the current. This will add more clarity to the market, something desperately missing at the moment. However, this will not compensate for the capacity that has been removed and the longer transit times, and shippers must be ready for more complications, it is a fast-developing situation, and there is no guarantee that more restrictions aren’t waiting around the corner.

Airports in China for months have endured rolling slowdowns as authorities impose severe COVID restrictions when infections are detected. Cathay Pacific in January 2022 suspended most long-haul cargo routes through March because of strict quarantine rules for pilots imposed by the Hong Kong government that has reduced the airline’s ability to fill cockpits. With Hong Kong no longer functioning as a major air cargo hub, shippers are seeking alternative options by trucking goods from Hong Kong to airports in Southern China.

China meanwhile has also stopped accepting flights from US major airlines over concerns that travelers are importing COVID. The US government reciprocated by banning 44 flights operated by Chinese carriers from the US to China. Together the governments have eliminated from circulation 88 widebody flights that can carry lots of belly cargo on a major trade lane. At same time, major US passenger airlines have canceled thousands of flights to start the year as pilots and crews call in sick without enough reserve staff to fill with staffing levels still below pre-pandemic levels.

Because of these, despite the end-of-year rush being over, air freight rates on the major front haul trades have increased or remained flat since the start of the year, depending on the weight category. Shippers still have last year's twists and turns fresh in their mind and are therefore trying to get as much as possible out of the Far East before more disruptions. Whether these come from new pandemic shutdowns, Chinese New Year celebrations, the Beijing Olympics, or new quarantine and travel restrictions. Similar to ocean freight, congestion continues to remain an issue for air freight as well, which is also still dealing with lower capacity from still constrained belly capacity and constantly evolving quarantine and other pandemic-related measures.

On the rates dimension; the continued high freight rates can in part be explained by the high load factors on the major fronthaul trades. From China or Hong Kong to Europe the dynamic load factor, taking account of both weight and volume shows planes are on average 95% full in the past weeks, backing up to their pre-Christmas level after having fallen slightly in the weeks immediately after Christmas. This means transporting more cargo is almost impossible unless you add more capacity, which is still far below pre-pandemic levels. Even less capacity is available on the Far East to North America trade, where only around a third of pre-pandemic capacity is currently available. Of that, the load factor has risen to 88% in the past week, just as with the Far East to Europe trade, increasing back to pre-Christmas levels after a drop around the change of the year.

Since the Russian invasion of Ukraine, the price of oil and gas has increased sharply with both major oil benchmarks trading above $110.

 

Source: IATA Jet Fuel Monitor

 

The load factor is one of the best illustrations of the dynamics in the market, considering both how much capacity is on offer, and demand, with capacity clearly the constraining factor at the moment. As a rule of thumb, a load factor of 80% on fronthaul trades is the tipping point between a buyers’ and sellers’ market. Therefore, you either need a large decrease in demand, which seems unlikely over the coming year, or an increase in capacity, which likely will only happen gradually.

 

North Asia

The market landscape remains unchanged and remains tight despite the slow-down period of the Chinese New Year in the beginning of February 2022. No major constraints have been observed resulting from the Winter Olympics event in Beijing. February 4-20.

Ongoing new COVID infections developments continue to cast a cautious outlook with the China zero tolerance on COVID cases policy implementing stringent measures for handling/sanitizing/and crew exchanges. This resulted in severe impacts on the inbound to China capacity as well as the new China policy in Jan 2022 with no cargo allowed in PAX flights cabins.

The capacity situation remains tight with no significant change in capacity availability introduction and pricing remains at high levels as well; albeit there are some decreases observed on specific trade lanes. On the other hand, capacities have been trimmed with increased infection developments particularly in Hong Kong; wherein Cathy Pacific (CX) announce a temporary suspension of long-haul freight flights into and out from Hong Kong covering US, EU; ME & South Pacific from Dec 31 to Jan 6 in lieu of crew quarantine challenges. Short-haul Intra-Asia flights however are not impacted by this suspension. Following this on Jan 7, CX announced that the original intending resumption of their said freighter flights post the said temporary suspension will not resume and would only be minimal with basically to almost none up to the end Mar 2022. This translates to an overall reduction by effectively 80% through Q1 2022 of their freighter flights operations.

Adding to the above; On January 5, 2022, HK authorities announced a 2-week ban on incoming passenger flights from eight countries: AU/CA/FR/IN/PH/PK/GB/US in lieu of new COVID infections and fear of a fifth wave. This ban was to take effect from January 8 to January 21 but has since also been extended until further notice.

This has resulted in overall capacities from Hong Kong, which are already tight with an outlook of further being constrained and exacerbating the landscape with spillovers in the coming weeks or months.

While there has been a softening of some specific trade lanes airfreight rates out of Asia in January, overall rates are still 40% higher compared to the same period in 2021. As China, and the rest of Asia, return from Lunar New Year, we anticipate demand to strengthen and rates to trend upward in late February and early March 2022 as production resumes.

Meanwhile, additional restrictions have been implemented because of recent positive COVID-19 cases of several cross-border drivers. To reduce the spread in South China and Hong Kong:

• Drivers in Hong Kong are no longer permitted to pick up directly in mainland China
• Two drivers are required for loads in China delivering to Hong Kong with the Chinese driver handling pick-up of freight to the border and the Hong Kong driver completing the border crossing and delivery to door

 

South Asia

Capacity remains scarce due to the historical heavy reliance on PAX networks. Although several countries announced vaccinated travel lanes (VTL), capacity is still constrained. In addition, intra-Asia competes with long-haul demand which relies on the same 1st leg capacity. Intra-Asia capacity still in shortage as a new wave of COVID cases has led to flight cancellations and weakened air travel prospect.

Vietnam’s exports have bounced back quickly after months of lockdown, boosting freight rates and shortage of capacities. There is high demand for airfreight ex-Vietnam and planes are fully booked weeks in advance. Rates remain high and are expected to stay at that level until after TET (Vietnam’s Chinese New Year). Charter costs except for Vietnam are now at unprecedented levels.

 

India Sub-Continent

Demand remains steady, and capacity is still limited as the market rely on historical PAX market/belly freight. There are still flight cancellations and/or reductions due to travel restrictions imposed on travel to/from India.

The ongoing erratic lockdown measures and COVID-related restrictions in China and in Southeast Asia has led to rates going up and down on the spot markets in an unprecedented and volatile way.

These market dynamics are putting pressure on rate levels and stretching transit times, both for the Q4 ‘super peak’ period and expected into 2022. The outlook of this current super peak season is expected to last until Chinese New Year at the end of January 2022/early February 2022.

 

Russian Invasion of Ukraine

Russian airlines are facing an almost complete blockade from flying west over Europe after they were barred from the airspace of nearly 30 countries following the invasion of Ukraine.

On February 27, the European Commission president, Ursula von der Leyen, said the entire EU bloc would close its airspace to Russian aircraft. The UK, Ireland, Poland, Bulgaria, Romania, Slovenia, Norway, the Czech Republic and the Baltic states of Lithuania, Latvia and Estonia had already taken the step to close their airspace to Russian planes, severely limiting Russia’s options for flying west.

Flight Radar 24 on February 28 showed the following picture with air space over Ukraine completely empty and extremely quiet over Russia. Airlines are now imposing war surcharges.

 

 

This means that most flights between Asia and Europe will need to be re-routed. Russia has responded with prohibitions on flights by airlines from the United Kingdom, Poland, Czech Republic, Romania, Bulgaria, Estonia, Latvia, and Slovenia, so far.

The ban on Russian aircraft means Volga-Dnepr Group’s AirBridge Cargo has had to remove all its aircraft from Europe. ABC has 15 747Fs, and one 777F in its fleet, a large amount of capacity, particularly given the current marketplace. This reduction in capacity will most likely drive air freight rates up. Other airlines like Finnair and Silk Ways have also cut flights due to the conflict.

The graph below shows the dramatic reduction in air freight capacity the ban has created.

 

 

Europe Air Freight Update

Delays caused by handling agents at airports have been resolved and freight is generally moving more efficiently.

Americas Air Freight Update

Outbound freight from South America was extremely tight in Q1 and the constraints of the ocean market which is driving up the spot market pricing. Capacity into South America is more readily available due to the lack of demand on that trade lane.

During Q1, the rates have remained stable but are still higher than pre-pandemic levels.

The US airports are still congested with air cargo but have improved slightly over the last quarter. We are still seeing significant delays in our inbound freight to the US, Mexico and South America. 

Looking Forward

It is observed that COVID-19-related labor shortages and quarantine restrictions will continue to be a challenge for factories, truckers, ground handlers, and airlines across Asia.; while strong demand for air freight will continue through 2022 as the inventory-to-sales ratio remains low. We may not see the peak demand of 2021 return and the outlook suggests rates will remain high for the first half of 2022.

Capacity will remain tight for the next 3 to 6 months period as well as exacerbated by new and heightened COVID developments, congestion at the seaports, etc. All of this paints a continually challenging landscape for the 2022 market. These factors would contribute to persistently elevated air freight rates.

Shipments between Asia and Europe will continue to be affected by the conflict in Ukraine which will increase flying time for many routes and subsequently increase pricing.

Forecasting and early planning are crucial in this logistics environment.

Fuel prices are observed to be rising significantly which will further exacerbate overall freight rates.

 

Air Market Capacity Outlook - February 2022 - Outlook For The Next 3-6 Months

 

Developing News

• Clive Data has been acquired by Oslo, Norway-based Xeneta, an ocean and air freight rate benchmarking, analytics and container index company. Xeneta has integrated Clive Data’s “dynamic” load factor and capacity analysis into its market analytics platform. The combination will allow Xeneta to extract more value from the weekly airfreight data service as companies look for more timely insights in a volatile market.
• AF/KL stopped accepting new bookings (including mail) to China, Korea, Japan and to/from Russia and Ukraine.
• LH: Lufthansa Cargo will fly around Russian airspace via a southern routing. This will adjust the flight schedules and payloads.

 

Global Ocean market demand remains unchanged at high levels and continues with imbalanced against supply with similar no significant injection of new capacities into the market. Global carrier schedule reliability remains at an all time low of 32% with a further deterioration from last report of Oct 2021 at 34.4%; with some trade lanes even lower;  example; ASIA – North America West Coast/East Coast: 10% /19% (respectively) reliability, ASIA – EUROPE: 23% reliability.

 

 

 

 

On a year over year level, schedule reliability was -12.5 percentage points lower than in December 2020. Despite the low schedule reliability in 2021, there hasn’t been much fluctuation with the global scores hovering between 32%-40%.

Trade lane summary – November/December Schedule reliability increased on Asia-NAWC by 0.4 percentage points M/M to 10.1% and increased on Asia-NAEC by 0.7 percentage points M/M to 19.2%. Asia-NEUR decreased M/M by -1.5 percentage points and Asia-MED declined M/M by -4.0 percentage points to 22.9% and 18.2%, respectively. Schedule reliability declined M/M on Transatlantic Eastbound and Westbound by -5.8 and -4.5 percentage points to 29.5% and 23.2%, respectively. Asia-Africa recorded the largest M/M increase of 6.8 percentage points to 37.0% and Middle East-Europe recorded the largest M/M decrease of -12.8 percentage points to 43.2%. NAM-Oceania recorded the largest Y/Y increase of 20.9 percentage points to 36.4% and Asia-WCSA recorded the largest Y/Y decline of -42.9 percentage points to 40.0%.

Today, 43.7% of the container ship capacity is deployed on the two largest East-West trades. The container liner fleet grew by 4.5% to reach 24.97 million TEU on January 1, 2022. This growth however is not evenly spread across all trades. Fir example, last year witnessed a massive shift in capacity towards lucrative East-West routes at the expense of regional traffic like those within Asia.

At the start of 2021, 22% of the total container fleet was deployed between Asia and North America, up from 17.5% on January 1, 2022. Carriers added 1.30M TEU of capacity to this major East-West route over the course of 2021. This extra tonnage was not needed to cope with a corresponding surge in cargo demand. Container traffic at the twin ports of Los Angeles (10.70Mteu) and Long Beach (9.38Mteu) increased by a more modest 13% and 15.7% respectively last year. Rather, the capacity increase was needed to compensate the huge efficiency loss as many ships faced long waiting times at anchorages.

The intra-Asian trade was the worst hit with some 331,200TEUs lots removed from intra-Asian services representing a capacity reduction of 10.8%. The East-West capacity upgrades also came at the expense of the liner offering to and from Africa with a capacity reduction of 6.4% and also on the intra-European trade some 48,200TEU slots (-4.5%) disappeared. Not all North-South routes were hit by the capacity shift. Latin America-related services last year increased capacity by 5.8%. The Transatlantic offering remained relatively stable with a small growth of 2.5%, same as for services to/from the Middle East and the Indian Subcontinent (+1.1%), and the Oceania/ANZ related loops (+1.3%).

Global ocean freight continues remaining at high / elevated rate levels leading into the Chinese New Year (Feb 2022) as well as post Feb. Port congestion remains predominantly un-changed which continues to drive high-rate levels and surcharges all around the globe on all main haul trades. Global indices remain at high levels, but they all paint a similar picture of the container shipping market, one featuring little relief from ultra-high transport costs.

Never has container shipping begun a year on such a high. The Shanghai Containerized Freight Index hit a new record in the last week of December, up 76% year on year and topping 5,000 points for the first time. There were 101 container ships waiting for berths in Los Angeles/Long Beach, very close to the peak. Trans-Pacific spot rates quoted for January 2022 are higher than in December, which were higher than in November. Annual contract rates are up sharply in 2022. According to the latest data from Xeneta, Asia-U.S. contract rates are up 122% from 2020, pre-COVID. The overwhelming consensus is this year will remain extremely strong for ocean carriers and extremely expensive for cargo shippers.

The global XSI ® reflected an increased by 3.9% in February 2022 to 247.76 points. This month-on-month rise reverses the decline reported in January and ensures the benchmark is 87.9% higher than the equivalent period of 2021. Since the end of last year, the index has appreciated by 0.2%.

 

 

Far East imports on the XSI ® rose by 2.2% in February to 168.66, representing the fourth consecutive increase. The index is now 32.1% higher than the same period last year and has risen by 2.9% since December. It also represents a new all-time high for the benchmark, which has risen steadily since this time last year. Meanwhile, exports jumped by 5.2% to 340.86, also another new all-time high. Year over year, the benchmark has risen by 116.9% and is up by 2.9% since the end of 2021.

 

 

Global fuel prices on IFO380 (Intermediate Fuel Oil) and VLSFO (Very Low Fuel Sulphur Oil) continues to rise; with impacts on bunker adjustment factor also coming into play causing rates to reflect the related increases. According to Ship & Bunker data, the global average VLSFO price has hit the highest level since price indications for the new fuels started to emerge in 2019.

 

 

Congestion & Disruption Data From The Sea Explorer World Map

 

 

New disruptions has also developed in recent due to the Russian invasion of Ukraine. Although container shipping out of Russia and Ukraine constitutes only a modest percentage of worldwide container shipping, the past week's events cannot be overlooked. Chinese owned COSCO is the only major carrier not to stop taking bookings from Russia in a response to the fast-moving sanctions being put on Russia. Furthermore, they are no longer sailing to Ukraine, and although some of ships are still calling into Russia this is to discharge the containers which they already have on board. Though not a huge disruption for global container shipping, anything that prevents carriers from operating according to their schedules can have larger repercussions.

Additionally, observations suggest shippers will also be seeing the effects of the crisis in their bunker surcharges. The oil price has surged to over $110 per barrel as sanctions cut Russian oil exports.

Approximately 8% of the global oil supply comes from Russia. As a result, bunker prices have also increased.

In Singapore, the world’s largest bunkering hub, bunker prices for high sulphur fuel have increased by almost 40%, while the cost of low sulphur fuel is up by 20%. The outlook suggest to prepare for these increases to be reflected.

Because the situation is rapidly changing, the full repercussions of the crisis are still unknown. Shippers could see demand increase as well as air freight and potentially also rail connections are disrupted. The crisis deserves continual monitoring, while the rest of the container shipping industry is still struggling with the various issues that have plagued it for months. Spot freight rates remains high / unchanged as an  example of rates from the Far East to the US showing no signs of slowing.

NORTH ASIA

Space and equipment remains unchanged and challenging. On-time performance is down to all-time lows on all trade lanes. Meanwhile, China continues to pursue a “zero-COVID” policy in which large population centers are locked down for a small number of cases. New cases have been reported in cities like Ningbo, the site of a major port as well as other outbreaks affecting also Yangtze River pilot operations. If the much more transmissible omicron variant takes hold in China and the country sticks to its zero-COVID policy, it may lead to widespread factory closures, as seen after the initial Wuhan outbreak, and port closures, as seen in Yantian and Ningbo last year.

Recurringly on January 1, due to positive case detected in Beilun district resulting in the entire district being urgently closed since 4:00 PM on January 1, 2022, with a resulting impact on Ningbo port as 3 out of the 5 container terminals in Ningbo port are located at Beilun district, close to the infected areas. In lieu of this, Ningbo government has announced strict quarantine and disinfection measures. However, as of January 8, it was officially announced by Ningbo government on reopening of Beilun post progress. Nevertheless, measures requiring negative COVID-19 test result remains required for staff access to terminals, truck drivers, resulting in overall efficiency being impacted giving rise to congestion observed. Similarly, shipping lines were adjusting their sailing schedule in accordance with the latest epidemic status, including whether to call Ningbo port.

It was envisaged during the Chinese New Year period in February would usually be a quieter month, including carries implementing blank sailings. However, some carriers did not withdraw as much capacity this year as usual. Instead, they are using the opportunity to clear the backlog of cargo currently waiting to be exported in the Far East. The intent is to reduce the congestion at major container export ports but will do little to ease the situation in importing ports or help ships get back to their regular schedule.

In South China, for example, services at Yantian, Shekou and Guangzhou are back to normal as well a North China port like Qingdao and Tianjin are also operating normally. However, Shanghai remains the exception, given the port is still suffering significant congestion, with most vessels delayed by a week; albeit the capacity situation had improved at Shanghai since the holiday, but space is still tight with many vessels having blank sailings and omitted service following the lunar new year closings in China. High volumes of cargo that was rolled before the holiday are still taking up space for departures.

There’s a similar situation at Ningbo, with many vessels delayed for the coming weeks and space remaining just as tight as before Chinese New Year.

 

SOUTH ASIA

Reduced container shipping capacity on intra-Asia trade lanes has led to fewer sailings. Shipping lines have deployed as much capacity as possible on the more-lucrative Transpacific and Asia-Europe trades, leaving Intra-Asia capacity down 11% and with 331,000 fewer slots than in 2020. Space remains tight and naturally; this has had an impact on freight rates keeping it at unprecedented high levels.

All trade lanes equipment availability continues to be a challenge in addition to the congestion in main transshipment hubs. Singapore port remains still congested affecting transshipment cargo lead time throughputs. Other ports including Bangkok has also been experiencing massive port congestion. This has resulted in an all-time low of 12% schedule reliability.

 

India Sub-Continent

Freight rates are rising again in India, following a record-setting month for exports and knock-on effects from global COVID disruption. Exports tallied $37bn for the first time in December, up 37% year on year, and for the first nine months of the financial year, passed $300bn for the first time. India’s ocean freight rates have already increased by up to 15% this month on the back of port congestion and bottlenecks in the US, Europe and China. Rates are fluctuating and still on the high side, with ahead advance booking notice being mandatory required for shipment bookings and container releases.

 

INTRA ASIA

Congestion remains at most Asian ports, advanced booking of minimally 4 weeks ahead are critical. Rates have been under extreme pressure and remain at elevated levels due to a shortage of space/equipment and port congestion. Schedule reliability remain at all-time record low The global cascading effect of port congestion also remains and continues to impact heavily on the intra-Asia trade lanes, with large amounts of cargo stuck at trans-shipment hubs in southeast Asia ports.

 

Europe Ocean

Ukrainian Black Sea ports will remain closed until Russia’s invasion ends.

Northern European ports were affected by delays due to a series of named storms over the final 2 weeks of February and this has acerbated the backlog at ports.

Hapag Lloyd, Maersk and the One Alliance have suspended bookings to and from Russia with the exception of food, humanitarian and medical supplies.

 

Americas Ocean

Congestion continued during Q1 in the US ports, causing massive delays to transit times and continued low on-time performance to end destination for the inbound Ocean mode. The port of Long Beach saw another record of more than 118 ships at anchor in drift areas.

We continue to see a chassis shortage in many US ports and causing issues in the rail yards due to this issue. The rates remained stable during Q1 in the inbound ocean mode with little increase in the spot market. These rate levels are still four times higher than pre-pandemic levels.

South American ports were extremely congested with strong demand capacity for northbound freight. Space is extremely difficult to secure currently due to many carriers suspending service to ports on the west coast of South America. Many shippers looked at alternative routes to South America through rail options.

The highly contagious Omicron variant impacted labor shortages at port across North and South America. This labor shortage caused even greater driver shortages across the region due to freight not being pulled from ports in a timely manner.

 

Looking Forward

The timetable for a container shipping correction keeps receding into the distance, which is either very good news or very bad news, depending upon which side of the market you are on. The first predictions for a downturn were for October 2020 after China’s Golden Week holiday. Then it was post-Lunar New Year 2021, then mid-2021, then the end of last year, then post-Lunar New Year 2022. With Lunar New Year 2022 behind us, ship charter rates and port congestion remains at or near all-time highs. Timing sentiment is turning to 2023. Forecasts for a market correction have been repeatedly kicked down the road. A growing consensus now suggests that the current market challenges will last at least throughout 2022.

Developing News

• Vietnam’s Hai Phong Port has signed a US$310 million contract to build Terminals 3 and 4 to meet growing demand. Phu Xuan Construction and Consulting has been contracted to carry out surveying, design and construction of a wharf, dredging and leveling works for the terminals on a 470,000m² site in the Lach Huyen port area. The terminals, expected to be completed in 2024, can accommodate ships of up to 100,000 dwt and will have a total length of 750 meters. There will also be facilities for barges of around 160TEU. Hai Phong Port wants to gradually expand and hopes that by 2025, it will have six container terminals and the capacity to accommodate ships of up to 8,000 TEU.
• While European carriers have been making moves to offer end-to-end services, Taiwan’s Evergreen, Yang Ming and Wan Hai have stressed they will continue to focus on their core business, with no plans to acquire logistics providers. This is in stark contrast to the likes of Maersk, MSC and CMA CGM, who are seeking to deploy the cash reserves they have built up since the onset of the pandemic by expanding their service offering. Just recently, MSC made a bid to acquire Bolloré Logistics’ African ports division for $6.4bn as it seeks to access the African logistics market.
• Additionally, there is market news for a plausible sale of DB Schenker by parent Deutsche Bahn. Reports suggest it has a value of some €15bn to €20bn ($17bn-$23bn), although others think it could be more, while revenues for the 12 months to June 2021 were €19.9bn, with EBITA of €1.06bn; which will rise for full-year 2021. The increased chatter around a potential sale is the result of the change of governmental views in Germany. DB Schenker is the fourth-largest freight forwarder in sea freight and the third-largest in air freight by volume.
• The industry has seen an increase in cyberattacks in the first quarter of 2022 with some high-profile carriers.

 

 

Courier / Small parcel mode channels remain flowing; albeit demand remains high and capacity also remains tight.

DHLE has implemented an increase to the ESS (Emergency Situation Surcharge) wef from Feb 14th for all their trade lanes outbound from entire Asia to all destinations globally/ worldwide; besides their said similar increase from China & Hong Kong to these destination lanes already implemented since November 7, 2021.

 

 

Due to COVID infections experience at their South China hub; DHLE place restrictions on weight limitations for shipments from South China of daily pick up limiting to 100 kgs per day per customer on January 12 and then to 300 kgs on January 24. This has since been fully lifted as of January 31.

DHLE has also additionally announced restrictions on services (up to further notice) for Inbound shipments delivery to several South China locations as follows:

 

 

DHL Express and FedEx have temporarily suspended shipments to and from Ukraine and Russia and all domestic services within these countries.

FedEx and UPS have halted their delivery service to Russia and Ukraine in light of the Russian invasion.

DHL Express has temporarily suspended shipments to and from Ukraine and is avoiding Ukrainian airspace for its global operations. It is still monitoring the situation in Russia.

• FedEx and TNT integration. As of March 28, FedEx will complete the physical transformation of the air network and will be operating using the dual hub system:
  • Paris-CDG will be the main European hub, connecting all European flight points, and to all other continents (Americas, Asia, Middle East)
  • The Liege hub will connect specific large European markets and several major intercontinental destinations
  • This dual hub model ensures FedEx have the flexibility to scale up in response to market and customer demands

Integration provides an opportunity to replace current fleet to widebody aircraft to increase capacity, reduce fuel consumption and improve transit time - TT to Poland and Hungary expected to be shorter.

 

Looking Forward

Carriers like DHLE has added more capacities to their operations; with example of not only renewing their operating aircraft’s fleet lease with partners like Air Transport Services Group (ATSG) for an additional six years plus adding two more all-cargo jets to fly on its behalf, which will ensure continued access to capacity even as the company works to augment its fleet with new production and converted freighters. This also comes in addition to their May 2021 lease of four more 767 freighters from ATSG subsidiary Cargo Aircraft Management. One of them was delivered last year and the other three are scheduled for delivery in 2022.

Nevertheless, despite adding these additional capacities as announced by DHL Express to its weekly airfreight capacity to cater to rising demand for shipments within Asia and between Asia Pacific and the US, their outlook continues to suggest demand remains strong and capacity tight. This is the result of the overall current express delivery freight mode industry experiencing of unprecedented growth in cross-border e-commerce shipments and the additional exacerbation of ongoing challenges spill over from the other freight modes constraints, like air freight modes capacity cancellation due to continuing infections challenges.

 

 

Ground/Truck freight mode channels for domestic channels remain flowing, however, cross border

Intra-Asia between China/Hong Kong and South Asia as well as Hong Kong / China and vice versa is

experiencing challenges. Constraints encountered at the China/Vietnam border crossing of Ping Xiang and Dongxing continues with both crossings being closed (except for emergencies supplies) with recent increased infections detected.

Cross-border truck mode to and from HKK to South China is experiencing significant challenges due to new and rising infection development in HKG and some parts of South China. Drivers from HKG are restricted from entering areas/zones of South China that have been identified with infections, including the requirement of serving a 7-day mandatory quarantine if entering. At the same time, HKG drivers are no longer allowed to execute their load all the way to the final destination post crossing the border into China and requires to hand over to a Chinese mainland drive at designated points to continue the journey.

China drivers serving this channel are alternatively expected to be registered and remain within vigilant tracking of their whereabouts as a mandatory requirement to manage the current concerns of the evolving landscape of this dynamic situation. At the same time, these China drivers are also required to stay in specifically designated accommodation during their off-duty periods and at their own expanse. This has led to many drivers’ resignations and an exacerbation of the challenge leading to an additional shortage of drivers.

Other additional measures are also implemented as the situation evolves including the requirement of disinfecting trucks and cargo coming in from HKG across the border via this freight mode prior to it being handed over to their China counterparts for onward journey.

The situation continues to be dynamic with ongoing new developments and the observation recommends close monitoring.

All these have led to not only capacity constraints and challenges but also additional costs that have risen to as much as 2X of the historical cost/prices per full truckload basis.

 

European Road Freight

Road freight to and from Ukraine and Russia is now on a war footing with freight companies reluctant to move goods into the country and insurance companies ceasing or limiting their coverage.

European road freight companies are currently working on the financial impact of the newly introduced European Mobility Package which is designed to improve wages and general conditions for drivers. This process started in 2020 but the main cost drivers were introduced in February 2022.  See timetable for changes below.

 

 

 

America Road Freight Update

The US road market has started to see some relief over the last quarter with a load to truck ratio down 8 loads to 1 truck. While this is still a capacity issue, it’s better than what we were seeing a few weeks ago with the numbers being at 12 loads to 1 truck.

In Q1, the cross-border situation with Canada and the US was extremely difficult to navigate as protesters and demonstrators blocked the passageways between the two countries with ground transportation. Even with government intervention, both countries will continue to see delays and disruptions to transit times until COVID-19 restrictions and quarantines are lifted on drivers.

There continues to be a driver storage which is affecting the load to truck driver ratio across the entire region from Canada to South America.

 

Looking Forward  

Challenges remain and the outlook remains cautious and requires continual monitoring. New alternative options including an intermodal option of train from South China to Laos and connecting via Road to Southeast Asia destination are being explored; albeit still at its infancy stage.

For the HKG to China and vice versa and the alternative option of the sea-road model is being developed to mitigate this current constraint; which include a sea feeder from HKG to South China and then onwards to final China destination. Similarly, vice versa a road mode up to South China and then connecting a sea feeder to HKG.

 

Asia to Europe Rail Freight

Due to the Russian invasion of Ukraine; all major freight companies have stopped offering rail services between China and Europe. This is due to the Russian rail companies being placed on EU & US sanction lists.

 

North America Road Freight

The industry has continued to see a shortage of chassis at crucial rail ramps to pull freight out of the yards and remove congestion. Some rail carriers have purchased extra real estate to pull containers to for storage and help eliminate some of the congestion. Some carriers have implemented grounding Initiatives for International freight.

 

Looking Forward

CEVA launched Vietnam – China and Turkey – Germany rail service.

Azerbaijan Railway Company finalized a deal to purchase 40 freight trains from French manufacturer Alstom. Trains will be used for operations along China – Azerbaijan – Turkey – Europe route.