There are early and limited signs of improvement in rates in both air and ocean and even some service improvement in the ocean in certain regions but it is too early to know if this will continue and how global inflationary pressure and the fact that we are entering what historically is peak season might affect the global freight market.

AIRFREIGHT UPDATES

 
Air Freight - Europe

 

 

Air freight rates out of Asia decreased at the beginning of summer 2022, however it is not expected that rates will return to pre-COVID levels. Everyone is waiting to see if volumes will drop due to inflationary pressure in Europe and US, and whether there will be the usual uptick in volumes & pricing in the peak season (normally mid-August to mid-December) this year. A small reduction in chargeable weight was reported in July, but it is not clear if this is a temporary feature or an indication of long-term drop-offs in cargo volumes.

Many European airlines are facing industrial action by their crew and ground staff which could lead to delays and issues in the air freight market.

A high proportion of Jabil air freight coming into Europe is routed via Frankfurt, so disruption there could slow down operations and create backlogs. Lufthansa is working hard to solve a pay dispute with pilots after the union representing them threatened strike action. Pilots voted on July 31, 2022, by a margin of 97.6% in favor of industrial action. Despite this figure, the Union says this does not guarantee a strike will occur.

It is worth noting Lufthansa canceled all flights into and out of Frankfurt and Munich on July 27, 2022, due to industrial actions by their ground staff.

Although the trend at the moment is seeing periodic reductions in rates, our main lanes out of Asia are still too prone to change and fluctuation due to COVID-19 restrictions in China and we have no clear picture of how peak season may impact our pricing.

Freighter capacity is maxed out and until travel out of Asia to Europe returns, as with ocean rates, fixing rates for extended periods is too much of a risk.

 

Air Freight - Asia 

The market landscape for North and South Asia is trending on a more stable trajectory and with some softening of rates for specific trade lanes. 

Capacities in major North Asia hubs like PVG have recovered after the city-wide lockdown of Shanghai came to an end. Despite this increase in operations, carriers are managing supply and schedule changes and/or cancellations in order to uphold load factors and rates.

Trade lanes to Europe are also curtailed due to the ongoing conflict imposed by the Russian invasion of Ukraine, avoiding routes crossing airspace as well as reducing payload due to detour flight paths.

Landscape in South Asia is similarly stable (with exception of India, where demand is higher compared to other countries in South Asia). Capacity has increased but has not returned to pre-pandemic levels.

 

North Asia:	South Asia:

 

Overall rates have seen some softening, but still remain at an all-time high, and may increase as we head into the traditional peak season for air freight. Potential disruptions in major hubs connected to industrial actions, infrastructure constraints, or the resurgence of COVID-19 infections in this region during this time would also lead to price increases. 

Air cargo demand and capacity are forecasted to soften following a slow season. Passenger flights are expected to decrease as the summer season comes to an end, resulting in reduced available belly air cargo capacity. This decline in demand suggests a potential impact on air freight rates on the Transpacific Eastbound and Europe Westbound trades. 

 

Air Freight - Americas 

Global international air cargo capacity remained flat in the last two weeks, with belly growth temporarily stagnating. 
 

Source: Seabury Cargo Capacity Tracking & Scheduled Capacity databases; Seabury Cargo analysis

Actual and scheduled passenger belly capacity is increasingly out of sync, due to airport and airline disruptions.

 

Source: Seabury Cargo Capacity Tracking database, Seabury Cargo analysis (August 2022) 

 

The movement of import boxes by rail from LA-LB drops to an all-time low.

The situation at the heavily congested BNSF and Union Pacific inland hubs is significantly contributing to the steep decline in intermodal rail traffic, which dropped to just 40.8% in January through April this year. Simultaneously, the ports have seen intermodal trains decline from a 2019 daily average of 33, to just 27. 
 

US airport operations challenged by COVID-19:

• While recovery times at US airports remain elevated relative to pre-COVID conditions, we are seeing fewer extreme delays as demand has softened since 2022.
• Even historically challenging terminals at LAX are operating rather smoothly. 

The direct flights we have invested in from Asia to MX have continued to see a lot of cost avoidance and increased service levels at our MX sites.

Stark differences in southbound versus northbound LATAM market conditions:

• Challenges in the ocean market are driving significant demand for air freight on northbound lanes, capacity is tight. 
• Southbound capacity ex-Miami is available to most markets, though we are seeing capacity removal because of seed season ending and passenger travel restrictions. 
   

Imports from Russia  to the United States 

Effective July 27, 2022, more than 570 product groups imported from Russia will be subject to 35% column 2 duty rates of the Harmonized Tariff Schedule of the United States (HTSUS). The product list can be found on page 3 of the Federal Register Notice, and it covers a wide range of product groups, including steel and aluminum, minerals, ores, and metals, chemicals, arms and ammunition, wood and paper products aircraft and automotive parts.

While we are entering traditional peak season time on the Transpacific trade, demand is not showing the momentum held of the past 2 years. The peak season outlook is soft, with so far no impact on the rate levels.

 

OCEAN UPDATES 

Ocean - Europe

There has been a gradual decrease in ocean freight rates following the dramatic increase post-COVID. Xeneta and Compass show a lane index from the Far East to Europe which has increased by 934% since March of 2020. The index peaked early this year and is currently down by 34% Year to Date.

Despite this decrease in rates, the ocean market is still very much out of control with backlogs building at Northern European ports. This is leading to vessels leaving port before loading is finished, pickups being canceled, shortages of empty containers, and further vessel delays. Effectively, this means all of the issues seen in US ports are now being felt in Europe.

The problem is worse in Germany where there have also been strikes. The average vessel waiting time is between 10 and 20 days until a berthing window is provided. Delays in the Mediterranean are not as bad, with Koper registering an average delay of between 2 and 4 days.

 

Source: Kuehne + Nagel

 

Despite the poor performance in Northern Europe, schedule reliability is improving globally.
 

Source: Drewry

 

In summary, the reality is that whilst spot rates are declining, contract rates for 2022 are substantially higher than they were in 2021. Contracts may come under pressure (some already are), if/when some contracts are potentially lowered, they will likely still exceed what was seen in 2021. There is still too much volatility in the market to consider fixing rates for a year.

Ocean - Americas 

Major carriers impose overweight surcharges on India-US container loads:

• India to US and Canada container loads are now facing overweight surcharges by some of the major carriers
• CMA CGM will charge $1,000/TEU for boxes exceeding 20 metric tons (including the equipment weight). Hapag-Lloyd and MSC are charging $500/TEU for any India-US loads over 18 metric tons (excluding the equipment weight)
   

Container imbalance fee to be imposed at NY-NJ. With the new fee, the port is aiming to reduce the large number of empties currently sitting at the terminals. The fee, going into effect September 1, will be quarterly and be applied when carriers fail to remove 10% of the number of boxes they discharged that quarter. 

If a carrier drops 10,000 boxes in Q1, it is expected to remove 11,000 during the same quarter, otherwise, a $100/box fee will be applied for each box left behind. 

Services to East Coast South America ports have reduced capacity by approximately  25% and blank sailings to west coast South America ports have increased to approximately 32% of capacity, due to space constraints and severe congestion at the transshipment hubs.

Congestion at South America's east coast ports is also very significant due to COVID-19 impacts and northbound solid demand.

• CMA has announced they will be resuming their call at Oakland port on the AZTECAF2 service between the USWC and LATAM ports via Lazaro Cardenas, effective with MV Maersk Avon with ETS Oakland on May 29, 2022.
• USWC truckers in Los Angeles conducted protests on July 13, 2022, in protest over the new AB5 regulations. The 3-day strike in Oakland port completely blocked all activity into and out of the terminals. The AB5 regulations require trucking companies to treat their independent contractors as employees and provide benefits. Those opposed to the law say that it will cause remaining independent truckers to pay tens of thousands of dollars in extra insurance and license costs. Supporters of the bill say it will provide truckers with better working conditions. Delays in the movement of cargo into and out of Los Angeles, Long Beach, and Oakland ports can be expected in the immediate future.

Backlogs of import containers at USWC ports awaiting rail connection are causing ocean carriers to start metering import rail traffic to US IPI points. This has reduced the volume of containers coming to US rail ramps.

We are starting to see the severity of the impact of this policy with equipment shortages at rail ramps, including Chicago which typically is a rail hub that is always well supplied with containers.

The current agreement between the Pacific Maritime Association (PMA) and the International Longshore and Warehouse Union (ILWU) ended on July 1, 2022. They have come to terms on a tentative agreement on terms for health benefits, both parties insist that normal operations will continue until a new agreement is reached, avoiding any interruptions.

Recommendation: Book at least 2 weeks prior to cargo ready date (CRD). For cargo ready now, importers might consider taking advantage of currently available space and softer floating market rates.

Ocean - Asia

Overall, there is no major change to the market, with ocean mode expected to remain full and rolling through the end of 2022. Major transshipment ports like Singapore and other southeast Asia hubs/ports continue to report tightness with large amounts of cargo experiencing increased turnaround time.

The recommendation is still in effect: Prebook at least three weeks in advance of sailing and when possible, even further out to mitigate delays. Equipment remains in short supply in Asia, further emphasizing the need for adequate planning.

 

North Asia - Voided sailings are reducing available capacity to all major trade lanes (Transpacific, Europe, and MAIR). Recovery from the Shanghai reopening has been slow. Demand for FEWB continues to remain low.

Congestion in major European ports remains fluid due to uncertain industrial actions arising from wage disputes and labor shortages among other factors.

TPEB market demand remains flat with little to no sign of the traditional peak. Most carriers extended TPEB rates through the end of July. Carriers are mitigating spot Freight of All Kind (FAK) to solicit more volume to increase vessel fill-up ratio.

Carriers are now alluding to winter deployment schedules (eg: blank sailings/docked ships for repairs), port congestion, chassis shortages, and rail issues continue to exist in the US. The ILWU-PMA contract negotiation hasn't reached an agreement yet. 

 

South Asia - Landscape similar to North Asia, however space to North America and Europe is more available and carriers are offering more FAK bookings to fill their vessels. Some equipment issues are still being experienced at outports. Vietnam and Indonesia are still experiencing feeder vessel delays of 3 to 7 days.
 

Intra Asia - Demand remains strong and carriers are working on deploying more fleets to support tonnage increment.

Container spot rates have seen softening as the expected busy season did not reach its peak. Spot Freight rates from Asia to Europe and the US are showing a downward trend, largely due to softening volume. 

The weakening rates are in response to a softening consumer market, as observed with demand shifting toward travel and entertainment services instead. 
 

COURIER 
 

Courier - Europe 

After a couple of months of poor service from FedEx in Europe caused by strikes action in many of their European hubs the situation has settled down and normal service has resumed.

Courier fuel surcharges have increased commensurate with the cost of fuel.

The growth of the express and small parcel market is slowing in 2022 but growth is still strong with international growth at 8.3% and domestic at 9.1%.

Both DHL Express and FedEx are continuing to invest in new infrastructure with DHL Express announcing last week that they had begun the build on a $105.7 million gateway at Munich Airport, which will be seven times larger than the current facility it rents in the cargo centre and FedEx reporting it has signed an agreement with Guangdong Airport Authority Logistics Company to expand and upgrade the FedEx Guangzhou Gateway by establishing a new FedEx South China Operations Center at its Asia Pacific Hub at Guangzhou Baiyun International Airport.

Courier - Asia 

DHLE uplifted all their temporary per day per customer shipment limitation from and to Eastern China on June 6, 2022, resuming their overall service back to normal operations without any restrictions.

ROAD FREIGHT 
 

Road Freight - Europe

Road freight pricing has risen due to a number of factors – fuel price increase being the biggest contributor but also driver shortages and the impact of the new EU Mobility package. 
 

The Mobility Package’s impact on costs and rates is still limited, as many of the EU Member States are late in their obligation to transpose and publish the information on the conditions applicable to posting in their countries, including critical information on drivers’ remuneration in the host country.
 

The same is true for specific aspects regarding access to the market and access to the profession. To date, the European Commission has started infringement procedures against 22 Member States, meaning that no more than five countries could be considered as fully in order.

  

Since Q1 we have seen a further increase of 11.5% due to fuel cost increases.

 

Road Freight - Americas

The load to truck ratio continues to decrease from the 6-year high earlier in 2022 with an average of 4 loads to trucks available.
 

 

Diesel pricing outlook

In the below graph from FTR Transport Intelligence, diesel pricing plotted from the EIA forecast will drop to roughly $4.50/gallon in 2023 as a nationwide average with the annualized 2022 cost per gallon at $4.73, down from the nationwide average spike of roughly $5.50 with California the highest point in the nation at $6.27 in mid-June.

With the forecasted decline in diesel pricing, the levels are still very high historically and will continue to be an increased cost for carrier operations where fuel surcharges do not cover repositioning miles, idle time, or out-of-route miles.

 

 
 

Road Freight - Asia 

The cross-border route from China to southeast Asia through the Ping Xiang and Dongxing border crossing from China to Vietnam is operating back to normal status. 

Cross-border truck mode between HKG and southern China and vice versa had been improving, however, during the week of July 24, 2022, there was a decrease in operations due to the resurgence of COVID-19 infections in HKG. This decrease in operations impacted capacity availability by as much as 60%. The situation is fluid and dynamic, which warrants close monitoring and navigation.

 

RAIL FREIGHT UPDATE  

Rail Freight - Europe 

For the first time in over a decade of stable and continuous growth, rail freight traffic between China and Europe is experiencing a period of stagnation. In the first half of 2022, freight train trips between China and Europe witnessed a 2% increase while the amount of TEUs carried rose by 2.6%.

The slowdown of this growth can be connected to the consequences of the Russian invasion of Ukraine. Many companies have decided to stop their businesses with Russian railways on moral grounds and other companies, Jabil included, found their Global Transport Insurance had a War Clause, which kicked in with the Russian invasion of Ukraine.

This clause means Jabil is not covered for rail freight movements from July 29, 2022, and onward, as the rail route we use is within 200 km of the Ukraine border.

We have sent a trial shipment on a newly opened route, but have not had a good experience with this route to date and caution further use of it until the route is more mature. After reaching Constantia the site had to intervene and arrange a direct truck.  From shipment to delivery by truck, the transit time was 2 months.  If the shipment had been left to follow the planned routing, it would have taken a further 2 weeks.
 

The first train, loaded with textile goods, departed from the Xi’an international port in early April. The rail-sea transportation route, which spans 11,300 kilometers and connects China to the German city of Mannheim, traverses several countries and two seas — Kazakhstan, Azerbaijan, Romania, Hungary, Slovakia, the Czech Republic, the Caspian Sea, and the Black Sea.

The first direct China-Hungary train was launched with the first train departing from the Shijiazhuang International Dry Port in Hebei province on July 15, 2022. Its destination was the BILK intermodal terminal in Budapest, with an estimated transit time of 18 days.

The train will transit through Mongolia after passing the Erenhot border crossing and then travel via Russia, Belarus, Poland, and the Czech Republic, all the way to Budapest along the main line of the China-Europe train. Unfortunately, this route is also excluded by the War Risk clause.
 

Please do not hesitate to contact us directly with any questions:

• Ruth Maciver (ruth_maciver@jabil.com)
• Jeannie Carpenter (jeannie_carpenter@jabil.com)
• Francis Loh (francis_loh@jabil.com)