Air freight faces a capacity challenge: International freight insights APAC 2024 week 41

On the eve of the peak air freight season, the US dockworker union strike is causing disruption with shippers facing extra air freight costs. The strike which lasted a few days has just been called off, with a pause until January. However, the prospect of a strike and the strike itself already caused costly sea-air solutions to be employed. The maritime strike disruption caused extra demand for air freight with bottlenecks beginning to form in Asia especially in South-east Asia with capacity from South and East China airports being especially tight.  

Picture: Bloomberg

Due to the China National Day Golden Week holiday, the past week’s China Containerized Freight Index spot ocean freight rates are not available as of publication date. The Drewry weekly global index of containerized freight rates declined 5%. Following the steadying of rates to Australia reported last week, the recorded ocean freight rates index to Australia should start to decline within the next few weeks. A few ocean carriers are this week offering reduced rates Asia to Australia (on average approximately 10% lower than a month ago/ previous few weeks). Enquire with shipping lines and / or discuss with an expert to ensure decreased spot rates are experienced for the remainder of the year. There is an increased probability of steep rate falls in the medium term as Australia belatedly follows with the global trend, although carriers may increase blank sailings in an attempt to delay / limit this.

Global air freight rates increased 2.3% in the past week. Increased air cargo demand with capacity not keeping up means that there is a strong risk of air freight rate increases in the coming weeks.

Red Sea crisis to prevent freight rates from dropping to 2023 levels, with uncertainty expected post-2025

Container News analysed an Export-Import Bank of Korea report which states that while container freight rates have come down from the highs of this year, they are not expected to plunge to levels seen in 2023, as the Red Sea Middle East crisis will maintain the supply-demand equilibrium. Increased ship newbuilding will be delivered in the second half of 2024, up 20% from a year ago. While in normal circumstances, freight rates would fall as more new ships are delivered, the report stated that it is unlikely that freight rates will plummet to 2023 levels, unless the Red Sea crisis is resolved.

That said, the crisis could be over in 2026, and with the investment in new ships, capacity could increase rapidly in the subsequent years. On the demand side, protectionism, including the US-China trade dispute, is expected to strengthen further after the US presidential election, which is expected to have a negative impact on the shipping market. “Considering these factors, it’s difficult to expect the high freight rate to continue after 2025, and shipping companies need to manage their current high profits and keep the funds to respond to future risks.”

Shipping lines started to declare force majeure

Per The Loadstar, shipping lines are beginning to declare force majeure, due to the United States union strike . Some shipping lines including ONE, CMA CGM and APL have called force majeure. CMA CGM pointed customers to the small print in its contract, which in certain circumstances allows it to offer alternative places of delivery; suspend and store deliveries; or “abandon the carriage of the goods and place the goods at the merchant’s disposal at any place or port which the carrier may deem safe and convenient”. All of which will be charged at full price, and with any additional costs paid for by the shipper.

Logistical consequences of strikes in American ports

The strike, which began on 1 October, affected 36 American ports will undoubtedly impact global supply chains. Even though the strike ended quickly, its consequences will be felt for a longer time. Some analysts suggest that for every week of the strike, there will be 4- 6 weeks of supply chain disruptions. The strike ended up lasting half a week. An agreement was reached on wage increases, however the biggest sticking point – being further automation of Ports is still unresolved. This means in January 2025 when the temporary agreement term ends, there’s a good likelihood of another strike with logistical consequences to look out for.

In terms of impact on rates to / from Australia, a similar short strike could have limited impact. However, a protracted strike would give shipping lines the go ahead to spike global rates again.

Air cargo charter brokers report rising demand due to port strikes

Air Cargo News quotes charter broker Air Partner that there’s been a “huge uptick” in demand driven in anticipation of the strikes. The strikes come at a time when there is already an increased need for medical shipments due to natural disasters and global geopolitical instability. “The highest demand has been for goods that can’t afford to be delayed by the port strikes—such as medical supplies, life-saving equipment, and temperature-controlled pharmaceutical shipments. Luxury items and high-value goods which can absorb the increased transportation costs are making the switch from ocean to air. Due to e-commerce gobbling up capacity, we are also seeing a big demand from customers in Asia who are struggling to find space on scheduled services.”

Access ZG (access-zg.com) is an Australian company that provides fourth party logistics (4PL) services to international logistics & trade participants, specialising in connecting with Asian markets. Access ZG’s 10 value- ads assist with alleviating issues & navigating this new paradigm of heightened freight & supply chain risks for the international logistics industry.

Please see website and / or read below the email signature for further information & reach out for assistance in this challenging environment.

Thanks for taking the time to read and hope you gained some valuable insights,

Jeffrey Levy CA 

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ACCESS ZG 

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