Freight market turbulence set to continue all year
Freight markets will see significant turbulence in the coming months with volatile rate readjustments likely in the air and ocean sectors as coronavirus lockdowns are eased and demand slowly recovers, according to Jens Bjørn Andersen, CEO of DSV Panalpina.
Air cargo rates have spiralled even as demand has fallen (link) due to the lack of bellyhold capacity available. Speaking exclusively to Lloyd’s Loading List, Andersen said rates were now gradually becoming more manageable for those needing urgent shipments, with reported prices of $13+ per kg “extreme cases” rather than indicative of market norms over recent weeks.
“There are certain commodities that cannot sustain that level of rate,” he added. “In most cases, we are back in single digits now out of China.”
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As lockdowns lift, Andersen admits air freight demand could spike. However, that is not the only scenario DSV Panalpina is modelling.
“There is a lot of speculation [about both demand and supply],” he said. “It’s difficult for us to model in exactly which scenario we are looking into.
“But one scenario is, of course, that [air freight] volumes pick up faster than the capacity, because I’m not so sure that we will all be flying around the world anytime soon and that the belly space will come straight back into the system.
“So, there’s a risk that supply and demand will still be problematic and rates will remain high.
“We expect air freight rates to spike on the transatlantic when the volumes start to pick up again.”
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How individual companies plan their supply chain requirements will largely be determined by the extent of the impact on business of coronavirus lockdowns.
“Some customers have been up and running for a long period of time with no problem at all, and others have been severely hit,” said Andersen. “If you are in the fashion industry, for example, you don’t need a lot of product because a lot has arrived which has not been sold.
“If you’re an automotive company which has been shut down, you still need a lot of parts to come in.
“What customers are also saying is that a lot of verticals will actually use air freight because they urgently need product. So, I think air freight will benefit from the reopening of the economy.”
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Ocean upturn expected
On the ocean side, DSV Panalpina is working with clients and container lines to plan for the expected upturn in demand.
Andersen said he understood why carriers had blanked record numbers of sailings this year to maintain rate stability. However, as demand picks up, he is concerned there could be issues with equipment availability and reliability, depending on how quickly container lines reintroduce capacity.
“In some cases, the whole network has come a little out of sync,” he added. “So, we need to make sure the carriers have the capacity that we need. We need to work together to help customers.”
A spot rate spike?
Andersen also admits there is a risk that spot freight rates might spike even though carriers have maintained price stability despite volumes falling 20-25%. “Carriers have shown far stronger discipline compared to what we have seen in previous years,” he said. “When you look at rates, you also need to take the IMO 2020 charge [for the use of mandated low-sulphur fuel] into consideration.
“[You would expect] rates to sink dramatically, and that has not happened. The question is, what will happen to rates once volumes pick up again?”
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Top forwarders benefitting
He said the top freight forwarders would continue to make the best of the market irrespective of the direction rates takes. “This is the world we live in,” he said. “We live in fairly good environments with fairly high rates and also when rates are very low. Of course, it’s something that we track, but we cannot influence anything.
“I’d say we have to get ready for continued turbulence for the rest of this year. We will not get back (this year) to the more stable situation that we have seen for the last couple of years.
“We will see unexpected events happening also on different trade links. We have to step up to the plate as a freight forwarder and help our customers, and we think we can do that as a sea and air freight operator.”
© 2019 Worldfreightrates News