Freight Volumes, Prices Stable amid Shifting Transport Variables

June 25th, 2018

Sea and air freight started 2018 still rising in the wake of last year’s growth boom, but sudden dips and fluctuating factors – including oil prices – raise mid-term questions.

Global air and sea freight volumes continued increasing in 2018, benefitting in part from robust growth in the last four months of 2017 that carried into this year. Unexpected activity drops in March and April sparked rate adjustments among transporters, however, while rising oil prices are also creating questions about the direction of transport costs in coming months.

Maritime activity has had mixed fortunes after beginning 2018 with a bang. Fueled by the annual surge of exports in the run-up to the Chinese New Year, the first quarter of 2018 saw volume growth of about 4%, accompanied by modest rate increases. Shipping groups also managed to adjust new capacity deliveries of around 1.6 million TEUs for the entire year – most of which was slated for the first half – to roughly match demand.

In April, however, outflows from China decreased, causing rates to plummet. Prices on Asia-Europe routes slid by 19%, for example, while Asia-Latin America trades dropped 50%. But the positive cost benefits for exporting and importing companies were short-lived, with both volumes and rates rebounding in May. Mildly downward revised maritime estimates now forecast 4.5% demand growth in 2018, slightly exceeding an anticipated 4.2% increase in transport capacity.

Other factors, however, are obscuring the outlook for clients.

First of those is oil, whose price has risen by around 20% since the start of the year. That caused transporters to begin slapping a $100 per container emergency fuel surtax on top of negotiated rates. In seeking to pass higher oil costs on to customers, the move risks creating tensions with long-term contract clients.

The second element arose from huge sector consolidation in recent years, as merged companies and those in partnerships have sought to maximize economies of scale. Frequency of sailings has slowed and been organized around demand cycles. That has produced increased volume-per-ship payloads and created surges swamping port services.

“The bottlenecks in ports provoke delays in getting freight unloaded and moving, which generate additional operational and storage costs for shipping companies,” explains Anne-Sophie Fribourg, Sea Freight Procurement Director for Bolloré Logistics in Paris. “The gluts causing delays also create complications in road transport and delivery, with the result being declining service quality for customers.”

In Q1 alone, for example, schedule reliability fell 8.1% sector-wide compared to the same period in 2017. The delays, moreover, upset clients’ supply chain plans, create new operational costs undermining sea transporters’ bottom lines and raise questions of how those problems will be handled in coming months.

“There’s no single, big negative concern, but rather several areas where future developments are hard to predict,” says Ms. Fribourg. “For that reason, we see relatively moderate growth and rate stability for 2018, but will watch how these other factors affect cost and service to clients.”

The air sector has experienced milder disturbances by comparison, but shifts that nevertheless blunted momentum from the 9% volume boom in 2017. Increases in January rose nearly 12% year-on-year, but overall Q1 growth slowed to 5.4% following a dramatic 1.7% slump in March. That dip was attributed to retailers reaching the end of a restocking cycle. But a partial rebound in April was mitigated by dragging activity in Europe, which had a series of mid-week bank holidays in May.

Claude Picciotto, Air Freight Procurement Director for Bolloré Logistics in Paris says the long-term nature of most cargo contracts prevented recent volume fluctuations from effecting rates for most customers. Even most transporters escaped much operational decline by shifting volumes in and out of rotation, he adds.

“Generally speaking – and despite the significant slowing of volume growth in late 2017 – activity remains sustained, thanks in large part to strong e-commerce,” Mr. Picciotto says of online trade that has contributed to a 4.6% expansion in global trade this year. “Volumes on US routes also remain healthy, so we think 2018 should be modestly positive.”

As on sea-lanes, however, the medium term costs of air cargo will depend on whether oil prices continue rising as they have in recent months.

“Those costs haven’t been felt too much by customers yet due to the way longer-term contracts are constructed, but carriers will be passing those on if oil prices stay up or increase further,” Mr. Picciotto says. “That will be a main focus for the second half of the year.”

Key Figures
  • 20%

    More fuel-efficient for the Boeing 787 and the Airbus A350

  • 70%

    of Urbanisation is expected by 2050

  • 27

    mega-cities are expected by 2050, with at least 10 million people, compared to 1...

  • +18,4%

    of growth for E-commerce retail market in Europe in 2015

  • 82%

    of goods are moved by road

  • 1 billion

    Population in Africa

  • 60%

    of Africa’s population will be urbanized by 2050

  • 7,5%

    of growth for Indian GDP in 2014

  • 4,9%

    of growth for African GDP in 2016

  • 6,1%

    of growth for East Asian GDP in 2015, the world’s fastest-growing region

  • 19 224 teus

    transported by the MSC Oscar, the largest container ship in the world

  • 396 m

    is the size of the MSC Oscar ship

  • 120 h

    is the Non-Stop Flight Record done by Solar Impulse

  • 4,5%

    of growth in 2015 for Global Airfreight demand