The overall market is facing disruption and uncertainty this year resulting from US-China trade tensions, the downgrading of global economic growth forecasts as well as the imminent introduction of the IMO 2020 regulations. Despite the circumstances, PFE remains best placed to continue to provide our customers with the highest levels of service.
Sea Freight
- Demand for space for Sea from Asia has started to pick up pace again after the usual seasonal lull following Chinese New Year. The shipping lines have continued to display more nimbleness in ensuring supply is balanced with demand, and have been using this opportunity to take vessels into yards for retro fitting of scrubbers in preparation for IMO 2020 implementation.
- Fuel prices are proving to be unsettled with concerns that the US-China trade war will limit economic growth adding to bunker price volatility ahead of the implementation of IMO 2020. As yet we still do not have specifics as to what the increased cost will be for 2020 but they are suggested to be significant.
- The US-China trade war has had a knock-on impact across Asia as manufacturers have cut production and begun to source products outside China, a trend likely to continue if the conflict does not end.
- In Europe the unease from Brexit and the possibility of a ‘no deal’ continues to create uncertainty. There are questions around the possibility of tariffs on goods being implemented, reduced or increased, and many UK-based importers are stockpiling ahead of a potential No Deal Brexit.
Air Freight
- Air freight markets further eroded as global trade uncertainty grows. We saw rates continue to fall in Q2 resulting from the impact of adverse market movements that started at the end of last year.
- Exchange rates are still low as a result of Brexit uncertainty which is offsetting the present low market rates
Looking Ahead
The general economic outlook globally is not as positive as it has been. Further low demand growth is expected this year on the key Asia – Europe route, forcing container lines to adopt a creative approach to capacity management for their big ships. We do however expect volumes to increase in the latter part of the Summer as we head towards the Golden Week holiday in China at the start of October.
While US-China tensions have eased recently, there is the potential that if a deal to end the trade war cannot be reached, there may once again be an escalation in tariffs in the third quarter. Speculators have previously stated that this may prompt transpacific front-loading and an early peak season this summer.
The market is now just six months away from the implementation of the IMO’s new regulation. At PFE we are acutely aware of the need for cost certainty and will endeavour to keep you informed of any further industry announcements as and when information becomes available.
The political uncertainty resulting from Brexit is major factor causing unpredictability in the Air Freight market due to the risk of increased rates of duty or a potential decrease in VAT directly affecting an importer’s profitability. Despite this, the Air freight market is expected to grow in the latter half of 2019, albeit with a lower growth yield than 2018. With the price of oil expected to fall as the year progresses, this should continue to strengthen the market.
As we are now approaching a further Brexit deadline on 31 October, we will work with our customers to ensure any impact is minimised and clearly communicated as well as facilitating our customers to comply with the new regulations that will be required.
PFE we remain absolutely committed to providing the best levels of service. Please get in touch if you have any questions.
