Ocean & Air market insights – June 2021

With freight capacity constrained, demand continues to exceed supply on Ocean and Air.

Equipment shortages caused by Covid and the Suez blockage continue constraining capacity across Ocean and Air. We anticipate this lasting through H2 20211.

• Ocean: Carriers have restarted blank sailings to ease port congestion2. This will further reduce capacity whilst improving schedule reliability and reducing cargo rollover by the end of Q2. Based on yearly trends, we expect westbound traffic to increase through Q3.
• Air: Vaccine transport will further consume available freight capacity. Demand for cargo is up 4.4% from pre-Covid levels, but available supply has dropped by 17.8%3.
• Rising consumer demand (+23.5% YoY)4 and superstores’ attempts to refill inventory quickly will further push limit capacity across Ocean, Air and Road.

Rates continue rising due to global factors: prolonged lockdowns, Suez, and vaccine rollouts

• Ocean: despite initial hopes for more available capacity and equipment after Chinese New Year, the Suez Canal blockage and backlog continued to drive rates up. Spot rates are up 17% MoM in May due to equipment shortages, blank sailings3,4, and congestion at UK ports. We expect these to remain inflated into Q4.
• Air: high Ocean rates are causing businesses to shift modes from Ocean to Air for high-value cargo. This has caused air rates to increase by 17% between March and April 20215. We expect rates to keep rising into Q4 2021. Any easing of travel restrictions would add more cargo capacity to the market and help stabilise air rates.

What will the ‘new-normal’ look like?

Consumer habits changed dramatically during the pandemic – e-commerce now constitutes 40% of all UK retail sales2, compared to 18% pre-pandemic.

• Economic recovery and long-term behavioural shifts are likely to be uneven between countries and socio-economic levels. Consequently, cumulative impact on global supply and demand is difficult to predict3. However, we’re unlikely to fully revert to pre-pandemic buying patterns.
• Market demand could begin to normalise in Q4, but potential for further ‘wildcards’ (such as new Covid outbreaks) may disrupt the onset of this ‘new normal’.

H2 2021 > Forward planning is essential to safeguard against unknown conditions

• Ocean: Rates are expected to remain elevated through H2. Carriers continue to underperform as a result of capacity and equipment shortages. To ease mounting backlogs, carriers will use blank sailings and container repositioning to reduce congestion and equipment shortages at major ports. Disruptions may impact already stressed supply chains. For example, Covid-related closures at Yantian from 27-31 May caused significant cargo delays, widespread traffic congestion and temporary rate increases.
• Air:  freight rates are expected to increase further into the summer, with hope of these increases easing later into Q4. As consumer demand accelerates e-commerce adoption across retail sectors, export volumes out of Asia will remain high. Passenger travel and bellyhold capacity still remain uncertain.

Planning ahead: Given potential for further ‘wildcards’ (such as further Covid outbreaks), planning ahead where possible and identifying disruptions early with container tracking and real-time reporting will help mitigate delays and knock-on effects.

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