Black Friday Peak for Air Freight Rates, But Port Congestion May Bring a Xmas Bonus

Black Friday, according to retailers, saw sufficient goods in stock for the annual discount buying spree across the western world.

As a result, air freight rates, which have hit year-highs, are now beginning to ease off, according to market sources.

But it’s not quite over yet – there are concerns that shops in the US may have difficulty in re-stocking next week, as the west coast ports continue to struggle with congestion.

As a result, charter rates out of China remain high for the first week of December.

One charter specialist in Asia said December rates were starting to soften. While they had, at the November peak, hit highs of $600,000 for a round trip from China to the US, rates were now set around $450,000 for the second week, after a backlog was expected to clear in the first week of December.

While charter brokers had anticipated that the month would see less modal shift from sea to air, capacity is expected to remain relatively tight, with the integrators taking a significant chunk of capacity.

“Demand tapers off in the second week of December. There’s not much demand out of Hong Kong, the strongest route is Shanghai-Chicago,” said the charter source.

“January and February look like it will normalize to between $370,000 and $400,000. The shippers just aren’t willing to pay these higher prices for general cargo – although the integrators are still willing to pay higher rates.”

Drewry’s East-West Air Freight Price Index

Source: Drewry

It comes as no surprise to hear that air freight rates in October hit a 2014 peak, according to Drewry East West Air Freight Price Index. Still below last November, when the average buy rate paid by forwarders, including the fuel and security surcharge, hit $3.81/kg, they did nevertheless rise 11.9 percentage points to $3.75/kg.

“The latest increase was the result of strong peak season demand and tighter capacity conditions, with rates for eastbound transpacific rising particularly fast, indicative that pricing on that route was inflated somewhat by a modal shift from ocean to air in response to potential delays at US West Coast ports,” according to Drewry Sea & Air Shipper Insight. “We expect air rates to have remained high through November and into December, but to fall in January with the end of the peak season.”

The charter specialist added that the market had been surprised by the November peak – but not everyone had profited.

“No one saw the November spike coming as sharply as it did,” he said. “And it is still quite brisk. The airlines, such as Cargolux, Cathay and China Airlines, have done well. But some forwarders will be among the guys who lost out. They have been managing their risk by trading on the spot market while on long-term contracted rates with shippers – they will have got stuffed. It might make people rethink their strategies. But no one knows how strong the market to the US will remain. It blows hot and cold.”

UTi last week announced that it was chartering two 747 freighters to bring goods to Chicago for customers who had missed the boat. The second was due to depart Shanghai on December 1.

Despite their reluctance to spend more on air freight outside of the holiday season, shippers have had concerns about importing sufficient goods by sea in advance of the two-week Chinese new year factory closures on February 19.

ILWU negotiations with the Pacific Maritime Association will begin again on December 2, but the “perfect storm” of structural problems at US ports could mean congestion is here to stay for some time.

Source: The Loadstar