September 2021 International Market Update
An update from Sunset’s International Team:
The following information from our friends at JAS Worldwide details the current International market conditions. Customer communication is vital with the instability of international trade. Please read the following updates and we offer the following precautions:
Instability and reduced capacity are still having significant impacts on US imports. Increased import demands and holiday peak season have caused a decline in service on all supply chain levels. Premium ocean service rates are still at a historic high, and causing importers to turn to international air freight providers. We can expect to see increased air rates through the end of 2021. We can also expect to see elevated ocean rates well into 2022.
Sunset is here to help with the most basic or complex shipments. Email [email protected] to speak further about how to manage any International needs that arise.
UPDATE: via JAS Worldwide
Ocean Market Update:
The blows to the global supply chain never seem to end in 2021, resulting in delays that have sharply reduced the system’s effective capacity and put upward pressure on shipping rates that began reaching record highs months ago. Purchasing ocean transportation has become so expensive that many companies with lower-value commodities can’t afford to import anymore, analysts and logisticians say.
Vessel operators have no extra ships to meet a tidal wave of freight demand, containers are in short supply or can’t get quickly repositioned where needed, and destination ports are piling up with boxes because they can’t keep up with the volume. The log jam, which is adding weeks of delay for major export trade-lanes from Asia, has been exacerbated by a series of weather- and COVID-related events, as well as operational mishaps.
Government intervention on rates?
The Biden administration is readying a wide-ranging executive order to strongly encourage maritime regulators to use their enforcement power to crack down on unreasonable shipping costs, and work with the US Department of Justice to investigate anticompetitive behavior. US maritime regulators have ordered eight carriers to show how congestion surcharges and other fees tied to the pandemic-driven supply chain disruption meet legal and regulatory requirements. Carriers have already begun levying a new wave of surcharges for August. The Federal Maritime Commission (FMC) said it was launching an expedited review of how CMA CGM, Hapag-Lloyd, HMM, Matson, Mediterranean Shipping Co., OOCL, SM Line, and Zim Integrated Shipping Services have levied such surcharges tied to US port congestion.
Second-half 2021 Outlook
With sales already outpacing how fast US retailers can get goods into the country, European forwarders are warning of a similar wave of demand building for Asian goods on the Asia-Europe trade-lane. Things show no signs of calming down in the second half of the year. The traditional peak season looms and importers face a rising risk of not getting goods on shelves by Christmas. Record-low US retail inventory levels indicate further signs that shippers still have plenty of ordering left. The latest data for the US Census Bureau shows that the seasonally adjusted ratio of sales to inventories was at 0.97 in May, only a slight improvement from the prior month. That means US importers are selling products as fast — or faster — than they are importing them. Amid this rush for freight capacity, which is beginning to envelop European importers of Asian-made goods as well.
As the second half begins, the Delta variant is sweeping across Asia, meaning there could be even more supply chain disruptions ahead, akin to the Ever Given and Yantian incidents. Everyone had said that carrier capacity management was a pipe dream, but we saw in 2020 at the very start of the pandemic, when demand fell, carriers pulled sailings out of the loops. It’s now a tried and tested measure. If carriers understand how to employ void sailings, we will eventually see rates come down, but never back down to the levels seen in 2019. This is a cyclical industry, but shipping lines now finally know how to make massive amounts of money. They will not allow overcapacity to happen again.
All the experts said spot ocean rates would pull back in the second half. The second half is well underway, but there is no indication that spot rates or charter rates will fall materially before next year. Not only are spot rates not falling, but they’re still rising.
- The key global freight rate index gained $930 or 11% between June and July to $9,254 for a 40ft container. The index is now 331% higher than in the same period in 2020.
- The foremost reasons for rates to rise were ongoing issue of congestion and delays on container ports worldwide, lack of space availability on ships and shortage of 40ft equipment.
- Much higher H2 spot rates than expected, combined with double-digit gains for contract rates, will equate to liner profits on an unprecedented scale.
- Carrier alliances can limit future rate downside by canceling sailings, known in the industry as “blanking” or “voiding” sailings.
Due to increased demand, there is now a greater demand for fuel. BAF (Bunker Adjustment Factor) levels are starting to rise and there will be more increases in BAF in the coming months. Q3 BAF levels will be approximately 20% higher than Q2 2021.
Schedule Reliability Further Deteriorates
Global schedule reliability continues to be extremely poor and deteriorated again in May compared to the past several months, with a poor reliability of only 39.5%.
- Statistically, Maersk is the most reliable carrier (49.7%) while Wan Hai is taking over as the carrier showing the poorest schedule integrity at 21.2%.
- Only 4 out of the top 14 carriers recorded a month-over-month improvement in schedule reliability, and all carriers recording double-digit declines of over 31 percentage points year-over-year.
- Wan Hai recorded the largest Y/Y decline of a staggering 62.4%.
- Delays on individual trade-lane can be far worse. It is important that these delays are taken into consideration when reviewing your supply chain. The global average delay for LATE vessel arrivals also increased and is now at 6.41 days.
Congestion continues to be a major factor at many ports globally, including ports in the USA, Canada, South Korea, China, Singapore, Northern Europe, and the United Kingdom. Congestion challenges will continue for months to come due in part to the increased volumes. Until the congestion improves, expect on-time performance to be extremely poor.
Air Market Update:
- Air cargo demand continued to outperform pre-COVID levels (April 2019) with demand up 12%.
- Transatlantic corridor continues to be the most problematic.
- Airports are still congested. It may take extra time to deliver or retrieve shipments from the airport handling agents.
- New quarantine regulations for airline crews are impacting certain areas of the world.
- China is still imposing restrictions (circuit breaker) to airlines carrying Covid-19 positive passengers with sudden restriction or cancellation of passenger flights to China.
- Because of problems with the ocean freight market, shippers are converting large lots of ocean freight cargo into air freight, increasing demand for capacity in the spot market.
- India, Brazil and now Taiwan are imposing new, very strict measures to contain the virus which will surely impact passenger flights.
- US based carriers are repositioning some wide-body aircraft from supporting ghost flights on international routes to domestic routes to support the increase of passenger traffic within the USA.
- Vaccines are now moving via air freight – change in the approval process of some vaccines have altered the supply chain scenario.
Source: JAS Worldwide: Freight Forwarding