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Market review; 20th June

The IMF’s latest World Economic Outlook puts world trade growth at 3% and 3.3% for 2024 and 2025, respectively, while the OECD and WTO predict trade volumes will grow 2.6% and 3.3% in 2024 and 2025, respectively, which is more than double last year.

Sustained and strong demand caught the container sea freight market by surprise, but if the peak season hasn’t actually started early, any cargo surge in the summer could bring further pain to a market already stretched by a shortage of vessel capacity and box equipment.

Air cargo spot rates from Middle East and South Asia origins continued to increase through May, with rates to Europe more than twice their level in 2023, while tonnages and rates from Asia Pacific origins were also well above last year

The additional two weeks it takes to sail around the Cape of Good Hope has absorbed and additional 7% of the global fleet and while carriers have recalibrated their services to factor in the diversion, there is insufficient capacity to deal with any other disruptions, which is why the impact of port congestion on equipment availability has hit spot rates quickly.

Just as rates climbed sharply due to pre-lunar new year demand, before falling back, the current market volatility, driven by port congestion and scarcity of equipment in many regions, may also subside in a few months, if the demand increase is due to the early start of the peak season.

However, in the short-term shippers front-loading orders and the scarcity of equipment at key export hubs has created a price bubble, with average spot rates from the Far East in May increasing into North Europe and the US West Coast (USWC) by 30% (its highest SCFI reading for two years), Mediterranean up 25% and the US East Coast (USEC) over 20%.

Tighter ocean capacity from Asia into Europe and an early peak season combined with considerable eCommerce demand and the continuing situation in the Red Sea is leading to an upturn in demand and rates for air freight from Asia Pacific and the Middle East, with Sea-Air volumes also driving rates via Dubai, Muscat and Singapore.

Import rates into Europe from Asia have been gradually increasing since the beginning of Q2, while outbound rates remain relatively stable, though about 20% up year on year.

The global air cargo market has been heading towards double-digit growth in volumes in 2024 after a 12% YoY increase in demand in May, according to latest released by Xeneta, however this was before the US clampdown on eCommerce, which has been a significant driving force in demand growth.

Freight rates are already rising on some routes and analysts expect the situation to improve gradually throughout the year, though fuel costs continue to increase.

The spot price index is performing below the contract price index, which is indicative of weak demand, however, price erosion in the spot market is starting to slow down and even reverse, which may suggest some improvement in the demand environment, which is necessary for rate normalisation.

However, operating costs remain persistently high and and indicators suggest that if volumes do begin to recover, supply chain bottlenecks, which have been masked by low volumes, will become acute.

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

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.