Air cargo poised to benefit from sea freight’s reliability
With sea freight schedule reliability currently just over 60%, air freight could be buoyed if the anti-trust rules imposed by the EU further impact reliability next year.
For many shippers reliability is their most important selection criteria and often that will be ahead ahead of environmental issues or price, which is evidenced by the fact that air freight spot rates typically rise when ocean schedule reliability decreases – indicating higher demand.
Air freight rates reached a peak last April last year when ocean reliability was at 35%, its lowest point and with shipping lines currently missing out sailings to try and balance supply and demand, to support rates, reliability has slipped in thee of the last four months.
The container shipping lines are determined to avoid a price war and protect rates, which means more blank sailings and cancelled vessels, which reduces reliability and makes shippers on a deadline worried.
Last month’s decision by the European Commission not to extend container shipping’s block exemption from competition rules does not necessarily mean that container carriers will not be able to cooperate on operations, but there is a great deal of uncertainty what the ocean freight market might look like from a supply point of view next year.
If the alliances fragment, or there is more competition and less consolidation there may be trade lane adjustments that leave some markets with insufficient capacity or services, which means less reliability, and therefore potentially an upsurge in airfreight demand.
However, the cost differential between ocean and air will be factored into any shipper’s decision when selecting between air and ocean and they will always favour ocean unless there is an operational imperative to select air freight.
In many cases the cost differential is irrelevant and doesn’t impact the need that shippers have for air freight in a positive or a negative way.
Pressure to reduce emissions is more likely to have an impact on air freight demand in the short to medium term , though the impact is likely to be limited.
Around 97% of goods are transported globally by ocean, and much of the remaining 3% has to fly for operational, demand or strategic reasons, making it hard to switch to modes.
With plenty of air freight capacity and record low rates there has never been a better time for shippers of high-value, fragile and time-sensitive cargoes.
Ultimately sea freight has to maintain low rates and up their schedule reliability or traffic will inexorably drift towards air.
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