Ocean freight rates for shipments from Asia to Europe and the US are going through the roof as carriers hold back from committing to a full schedule.
The summer peak period heading up to the Golden Week holiday at the start of October usually presents challenges. However this year the levels of demand have been unprecedented along with the dual challenge of an increase in orders meeting continued restricted capacity. Space continues to be a challenge on Asia-to-Europe and Asia-to-US lanes as carriers continue holding back from committing to a full schedule despite peak season demand. This set of circumstances has put pressure on price, causing container rates to continue their astonishing climb.
The pandemic is part of why we’re experiencing such a strong peak season. Following the drop in demand in Q2, the re-opening of European countries and the US in Q3 has seen retail sales grow. Retailers are selling more, particularly online, and hence they are shipping more to meet consumer demand. There is also the continued demand for PPE in addition to the traditional peak period supplying the Christmas market.
The spike in demand in Q3 from Europe, the UK and the US on shipments has meant that the aggressive blanking programmes of the shipping lines that were put in place earlier in the year to balance supply to demand and keep rates steady has added even further pressure to available space.
Record Breaking Rates
The Q3 demand surge had carriers cancel fewer sailings in July and August compared to previous months. Shipping lines are also reacting to the current higher demand by adding ad-hoc sailings which may help alleviate the issue but they are irregular schedules. As space continues to impact the market, carriers have increased rates from 1st September.
This increase will take rates up to levels we have not witnessed in the industry for many years. What’s more, with space being so limited, some carriers are effectively adopting a pay for space approach, where higher paying traffic is taking priority.
Supply Chain Complications
As demand outpaces capacity, we are seeing supply chain complications multiplying and in particular there are equipment challenges. As more goods are exported out of China, empty containers aren’t coming back quickly enough. Reliability is also lower with significantly higher levels of rolling – where carriers delay cargo until a future sailing.
In addition to the challenges created by the demand crunch, the situation has been exacerbated by recent typhoons in East and South China and bad weather in Europe over the past few weeks. Moving into traditional periods where we have weather issues in Europe we expect a potential negative impact on the productivity of all parts of the supply chain with severe and sudden weather changes causing delays and disruption to shipping. Therefore the addition of buffer time in the supply chain should be taken into account.
Industry Outlook
We expect shipping volumes to continue to increase throughout September and up until the beginning of October (coinciding with Golden Week) that demand will be extremely strong. There looks to be little improvement in the capacity issues in the coming weeks, as carriers continue to blank sailings and hold back from committing to a full schedule.
There is no doubt that the supply of space is the major issue – if carriers were to re-introduce the same levels of capacity that existed at the same time last year then the issue we see today would be considerably less of a problem. However while carriers are concerned that the unexpected demand recovery could disappear, and with mid-term visibility remaining unclear, it is unlikely that carriers will maximise capacity in the short term.
Impact for customers
Severe space saturation will continue to be very tight over the coming weeks resulting in some delays. We expect this to continue until more additional capacity is put into the market.
As much as we are working extremely diligently to acquire as much space as possible for our customers, the impact from factors arising from this situation may cause irregularities from time to time. The PFE team will continue to provide our customers with the best possible service despite the current challenges.
We would like to thank all of our customers once again for their support during this period.
