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Freight market report – December 2021

Supply chains have been struggling with congestion and disruption for close on two years and the new Omicron Covid variant is likely to unleash new challenges. With sustained demand for space and a lack of capacity on all major trade lanes, rates may remain elevated and transit times volatile, for some time.

The spread of the pandemic triggered the shift in spending from services to goods, that began last year and has been one of the key drivers of the demand boom for space, which has been the root-cause of bottlenecks in the supply chain.

All the signs are that Omicron will drive a new wave of the pandemic, which means that it is likely consumer demand will remain on goods, maintaining intense pressure on global supply chains.

We are constantly reviewing transport options to move freight from our customers’ origins into the UK directly, or via continental hubs, including premium sea freight services and air freighters options, which pretty much guarantee space and equipment, with reasonable lead times.

Domestic and international road transport pricing may be stabilising after record increases, but is likely to remain at elevated levels for some time, due to continuing shortages of freight transport HGV drivers, limited capacity and increasing fuel costs.

OCEAN

The nine primary container shipping carriers are on a path for profits in excess of USD 150 billion this year, and the global container shipping market is anticipated to rise at a compound annual growth rate (CAGR) of 9% between 2021 and 2025, although this figure is likely to be exceeded by some margin.

The global freight forwarding market contracted by -8.7% in 2020, recording its worst year since the 2009 financial crisis, but it is expected to recover by 11.6% in 2021, with an anticipated CAGR of 5% from 2020-2025.

Space remains tight on all major trade lanes and is challenging to secure, with some carriers reducing their allocations to the UK even further.

The 2M Alliance has removed Felixstowe from its AE7/Condor service’s rotation until March 2022, citing service issues, but some fear that shipping lines may be treating the UK differently to their north and south European calling points, because they intend to cut the UK from direct calls in the future.

Equipment availability is better, but still not good, particularly for the ever popular 40’ dry box.

Schedule reliability has recovered from its recent historic lows, but is still not great and transit times can be more than 50% longer than normal, with inefficiencies on the landside a major contributory factor to extended transit delays.

Freight rates have largely remained stable (though Omicron may reverse this) while bunkers are on the rise and set to go higher next year.

AIR

International air travel capacity and demand had been increasing, on the back of rising vaccination rates and deceasing air travel restrictions, but this upswing looks short-lived, with international travel restrictions and bans already imposed by countries responding to Omicron. 

Renewed air passenger restrictions and flight cancellations will have ramifications for air freight, with cargo capacity potentially decreasing by 30%, particularly on the key trade lanes between North America, Europe and Asia.

Due to continuing strong demand, rates are also likely to increase, at least until the end of the extended peak shipping season.

COVID-related labour shortages and restrictive safe-working practices are a factor in dysfunctional operational capability across the board and are having a particularly profound impact on labour-intensive cargo handling, with congested hubs at origin and destination extending transit times by up to 300%. And that’s before the impact of Omicron is factored in.

Air freight rates are largely back on the increase, with some trade lanes up significantly and fuel also climbing and expected to keep rising.

ROAD

From the 1st January 2022, the current easements on full customs controls of goods moving into the UK will be removed, with customs declarations required and customs checks introduced. (Note also that the rules regarding origin statements are being updated too).

UK road freight prices had been stabilising, after rising by more than a third in 12 months, but excessive demand, HGV driver shortages and increasing fuel costs are pressuring rates.

It has been estimated that there is a shortage of up to 100,000 HGV drivers in the UK which has led to spiralling labour costs in the freight sector and despite government action to attract EU drivers to the UK with short-term visas, and changes to HGV testing, the driver shortfall will continue until next year.

The European road freight rate benchmark for Q3 shows that prices have hit historic highs across Europe, driven by a mix of robust economic growth and supply chain bottlenecks.

Freight rates are expected to rise further in Q4 2021 as demand increases and capacity remains tight

We anticipate a shortage of availability and likelihood of delays around European bank holiday periods, during the festive seasons, so you should plan ahead and allow extra time, whenever you can, for transit.