Covid-19 outbreaks, variants, and extreme weather slows recovery

• Port closures caused by Covid-19 outbreaks and new variants continue posing the greatest risk to global supply chains. Whilst backlogs caused by Yantian port closures have started to ease (average delays improved from 16 days to 7 MoM) optimism for recovery remains low. Lockdowns in southern Vietnam, a reemergence of Covid-19 cases in Wuhan, and disruptions at Shanghai and Ningbo caused by China’s In-Fa typhoon have exacerbated problems1. Operations are being affected in many ways, with port congestion, schedule delays and equipment shortages amongst the first to be impacted2.
• Capacity: upcoming peak season is set to compound disruptions, causing capacity to struggle against rising demand. Blank sailings may continue as a means to manage this3.
• Rates: increases peaked close to $18,000 per FEU at the start of July, before retracting to $16,000 at the end of the month. Rates are expected to remain elevated through the peak season to Chinese New Year, 20224.

Air: cargo rates continue becoming more competitive as ocean rates increase

• Air vs. ocean: air cargo is currently 3x more expensive than ocean freight, compared with a normal spread of 12x*.
• Capacity: following the levelling of available capacity starting last month, cargo remained constrained with a modest increase (+ 0.3% MoM). Demand for space is set to stay high as shippers continue shifting mode from ocean to air, to keep up with inventory demands1. Average waiting times from Hong Kong to Europe are currently 5 days.
• Rates: air index rates on the Asia-Europe westbound increased by 5% MoM in July. This can be attributed to the rising demand caused by expensive, unreliable ocean freight, and inventory restocks ahead of the upcoming peak season2. Factory closures caused by Covid-19 outbreaks have further impacted the flow of goods into airports, causing tight constraints that are likely to keep rates elevated throughout the coming months.

H2 2021 > plan ahead before seasonal peaks start

• Reconsider mode of shipping: Be flexible where you can, and consider which mode of shipping is best right now. Though ocean is typically less expensive, current market conditions continue making air more competitive.
• Plan for seasonal peaks: Review planned buffer times and inventory stock before traditional peak seasons begin (ocean: September/October, air: October/ November). Visibility platforms can help enable prioritisation, spreading shipments, and converting modes.
• Book ahead: Expectations are that peaks could start earlier this year, with importers rushing to make sure their holiday inventories arrive in good time. Book ahead where possible, to avoid missing out.