The Coronavirus (COVID-19) pandemic continues to impact the entire logistics industry, and the situation going forward is still rapidly changing and uncertain. The daily articles in the logistics trade media often contain conflicting points of view which underscores how difficult it is to accurately forecast when things will return to “normal”, i.e. Pre-Coronavirus.
To get a clearer picture, we have turned to Universal’s operational specialists for their insights on what they are actually experiencing in their day to day handling of air, ocean and truck freight shipments.
The Ocean Freight team has been immersed in tackling the many challenges caused by COVID-19, with its impact on shipping schedules, cancelled sailings and port operations. The overall view is the reliability of ocean carriers service has suffered and deteriorated.
The lack of available space on the Asia, Europe and India to North America lanes has been a big issue, with the main cause being “blank sailings”. China’s rapid economic recovery from the outbreak took carriers by surprise. They had overestimated the number of “blank sailings” needed, which caused a real shortage in available space on vessels. Even when the carriers do provide space, they often “roll over” bookings at the last moment to the following week’s vessel sailing. Some carriers are even offering “roll over protection” by adding an additional $750.00 USD on top of rates. Many in the industry consider this to be taking unfair advantage of a situation that was created by the carriers’ own supply and demand issues.
However, sharp swings in container freight rates are likely to continue this quarter as shipping companies struggle to gauge demand amid an uneven global recovery from the Coronavirus. The cost to ship containers slumped earlier this year as the pandemic lowered demand, with rates bottoming out in late April. Rates have rebounded steadily with economic activity through May, but then jumped 20% in June as carriers removed capacity from the market. In addition, the rates on the Asia trade lane have increased dramatically due to implementation of a July General Rate Increase (GRI).
Many industry experts believe volatile ocean freight capacity is likely to continue for some months. They expect ocean freight carriers to continue their practice of tactical sailing cancellations for the foreseeable future due to the still uncertain and risky outlook for trade and the global shipping network.
We are presently starting to see an increase in volumes from clients who have not shipped in the past few months, especially in regards to imports from Europe and Asia.
While we are hopeful that carriers will start to add more capacity to the market during the next quarter, we are recommending that clients extend their normal order lead times to account for the potential of vessel sailing delays.
At the start of COVID-19, passenger flights came to a complete standstill. This greatly affected the ability to ship via air, as most air cargo moves in the belly space of passenger aircraft. The combination of no passenger flights and the limited option of airlines operating freighters (all cargo aircraft) made it a big challenge to ship by airfreight.
Although some airlines converted their passenger aircraft to carry air cargo, many airlines just ended their service. With reduced capacity for air freight shipments, rates soared.
The first six months of 2020, have been described as the craziest half year in air cargo, with recent studies indicating the average price of transporting one kilogram by air rose by an average of 48% worldwide.
Due to the sudden need for Personal Protection Equipment (PPE), airfreight rates from China rose an incredible 136% compared to the first half of 2019.
Air Canada’s worldwide flight routes were greatly reduced and they eliminated their standard service. All shipments moved on Air Canada’s priority service at very high rates. WestJet and Air Transat stopped their service altogether, along with most of the international air carriers. It became very difficult to get reliable bookings and the service was inconsistent, as carriers would wait until the space on their aircraft was filled and if not, the flight would be cancelled.
While economic activity is restarting after major lockdown disruptions, there has not been a major boost in demand and the rush to ship PPE has subsided as supply chains normalize. General commodities are starting to come back into the airfreight market, as on hand inventories are starting to deplete. However, the capacity crunch continues because passenger operations are recovering very slowly. There is still very little passenger travel, which keeps bellies out of action and belly capacity for international air cargo in June was down 70% over last year.
Air Canada’s standard service and rates started to be available in June. WestJet and Air Transat started flights again in July with limited services.
While the rates have come down slightly from their high points, they will probably never return to pre-Coronavirus levels. There is also still a bit of instability, as most air carriers are not offering rates on a fixed period basis and only quote using spot pricing. In addition, air carriers are implementing emergency handling COVID-19 surcharges on a per shipment basis as a means to mitigate the significant impact of the Coronavirus on the airline industry.
Rates are expected to rise again as the capacity crunch continues due to the slow recovery of passenger operations until passengers feel safe to travel again. Another concern with available capacity would be the arrival of a second COVID wave and another surge in need for PPE. There are also growing concerns that if a vaccine for COVID-19 is found, airfreight demand will soar beyond all capacity availability.
With airfreight rates being so high and capacity still lacking, we are advising clients to consider ocean freight as a viable option. Even though the transit time is longer, pricing compared to airfreight is making it a very attractive alternative.
Our North American Truck Services team noted that rates took a dive at the beginning of the Coronavirus pandemic, as few shippers were open and truck carriers were willing to lower rates in order to secure business.
At the onset of COVID-19, service was never a concern nor an issue, as we were able to utilize our preferred and most reliable carriers to handle the less than usual shipment volumes.
As business gradually picked up, there was not a significant increase in carrier rates and, thankfully, service levels were not affected.
As more and more businesses begin to reopen, increased demand for equipment could cause a rise in rates. We still believe carriers will be cautious regarding rate increases, as there is much uncertainty about when we will return to pre-pandemic levels.
All signs point to an improved business environment for the Truck Services team, however, a lot will depend on how quickly the U.S. can eliminate the effects the pandemic is having on business in general south of the border.
Truck carriers are hoping for a quick return to “business as usual”, but it is evident that it will be a gradual process that will require a concerted effort by all members of the supply chain working together to turn things around.
Summer and early fall are usually the strongest times of the year in terms of volume of truck shipments, so it will be an important time to gauge whether things have returned to “normal”.