Freight market report – May 2022

Our May freight market report provides international freight, carrier and situation updates, so that you have the intelligence and insights you need to make informed supply chain decisions in the coming weeks.

Despite the EU imposing full border controls on British exporters from the end of the Brexit transition period the UK government has, for the 4th time, delayed border controls planned for introduction from July 2022.

With sea export bookings and demand for space weakening from Asia, due to COVID restrictions and ocean carriers implementing blank sailings to prop up rates, the expectation is for a surge of demand as Shanghai prepares to exit lockdown.

Air freight diverted from Shanghai Pudong airport has been clogging up China’s other major airports, with Zhengzhou (CGO) hardest-hit, but now Pudong is bracing for sea cargo diverting to air freight, to recover failures and delays in the supply chain.

SEA
Even with the tiered restarting of manufacturing and lifting of the lockdown in Shanghai, the situation across China remains challenging, with sailings blanked over coming weeks and lead times from Asia to North Europe growing by 27%, because of export cargo disruptions.

The most significant and recurring problem has been restrictions limiting road transport collections and deliveries to the ports and airport and while the situation is improving, it will take time to recover.

Rates and availability on some routes have softened as carriers scramble for export cargo, but the concern now, is that as demand returns, carriers will not have enough equipment on the ground to meet that demand, putting pressure on rates.

Caution is starting to be more widely shared around the market, with a bullwhip effect largely expected to be seen as demand returns sharply once manufacturing sites and inland logistics return to full staffing levels at Shanghai, the world’s largest container port.

Bunkers prices remain high which is helping rates to remain elevated.

UK Fuel surcharge increased again in April with fuel percentages as high as 35% seen in the market place.

AIR
Operations at Shanghai Pudong (PVG) are ramping up, with major airlines continuing to operate services.

The problem is restrictions limiting the transport to/from the airport and low volumes of cargo transported to the airport due to the restrictions for road transportation and much cargo diverting to other airports in the region.

Airlines still flying out of Shanghai (PVG) could struggle with profitability after being unable to pick up shipments. Data in April showed that capacity out of Shanghai had fallen 40% from March to 49%, so it has a long way to go, to recover.

Capacity has shrunk tremendously, but airlines have still been struggling to get goods on board, which is very bad for profitability.

For exports, our team can assist with potential re-routing of cargo where needed and for cargo outside of Shanghai, it can be transported to other airports. For import, as the situation in Pudong continues to recover, we may recommend the use of other airports in the region.

Cargo owners increasingly switched from sea to air in 2021, with port congestion and a narrowing price gap helping the air freight market grow twice as fast as sea cargo, recording 11.2% growth and we expect to see this phenomenon repeated as Shanghai emerges from lockdown.

The price difference between air and ocean narrowed during the past year, making the shift to air slightly less costly than before the pandemic. Then, the average price of global air cargo was 12 times more expensive than sea shipping.

Towards the end of 2021, the cost to move goods by air was about 2.5 times more expensive than pre- pandemic.

OVERLAND
While the EU introduced full border controls on goods from GB in January 2021, the UK has phased in EU import controls, and the latest import controls due in July 2022, have been deferred for the 4th time.

Freight trade association, BIFA, has written to the government to highlight the financial losses incurred by forwarders as a result of making investments in IT, software, staff and equipment, to facilitate the changes that result from the Border Operating Model.

The decision to defer food checks and security declarations due to come into force in July is raising fears that more import shipments will not be properly declared by importers, or subject to HMRC scrutiny.

Without safety and security declarations being imposed on the 1st July, Border Force officials cannot see what needs to be stopped and which arrivals are without pre-lodged declarations and concerns are mounting that import shipments are simply bypassing oversight and weaknesses will continue to be exploited until import safety and security declarations are introduced, which will not be before the end of next year.

Reports in the trade press accuse some hauliers of taking opportunistic shortcuts without understanding the repercussions that may follow and while deferred entries ended last June there are suggestions that some hauliers still use the entry in declarant’s record (EIDR) shortcut, with others ticking the ’empty vehicle’ option for GB inbound.

We always saw the EIDR delayed declaration scheme process as fundamentally risky, which is why we recommended full clearance and consequently no liability to HMRC.

Driver shortages, though ongoing, are easing, which will (in time) filter through to increased market volumes and softening rates.

The TEG Road Transport Price Index, compiles aggregated and anonymised transactions.
The average price-per-mile for haulage and courier vehicles in April 2022 was the highest April figure since we began monitoring prices.

Year-on-year for April, however, the index has increased by 8.8 points. Its current level of 117.5 points represents the highest figure for April since we first put the index together in 2019.

For haulage vehicles, there’s been a 5.2 point month-on-month increase in the average price-per-mile figure. Year-on- year, it’s now 6.3 points higher than last April.

However bleak our market reports may seem on occasion, we have the solutions, processes and capability to protect your supply chain, however demanding your needs are.

To discuss any of the issues highlighted here, or to discover the value that PSP Worldwide would bring to your supply chain please EMAIL our managing director, Colin Redman.

We continuously monitor the evolving logistics environment and share important supply chain news and developments, so that you can make the informed decisions that will protect your supply chain.