KERRYCONNECT - OCTOBER 2023

Executive Summary

The logistics landscape is in a state of flux, with ocean freight experiencing declining demand and increasing capacity. Rates are expected to rise, influenced by factors such as consumer spending and capacity management. Air freight is normalizing post-Covid, but rates remain higher than pre-pandemic levels.

On the regulatory front, bear in mind air cargo prohibitions on specific countries from the Australian Government, and New Zealand is overhauling its Container Checks Portal.

Innovations in supply chain technology, particularly in warehouse robotics and AI, are poised to redefine operational efficiencies, driven by the growth of e-commerce.

In the ocean freight sector, the focus is on long-term rate negotiations and space protection, especially for routes to Australia and New Zealand. Air freight updates indicate a cautious optimism for 2024, with a rise in long-term contract requests. 

Market Trend

Declining demand and increasing capacity is the story of the year so far for ocean freight

So far in 2023, we have seen a surge of freight container capacity on the market that is not being utilized fully. The current rates are unsustainable, and the constant question is not “if” rates will go up but “when”. There is very little room to continue further down, but they will go back up. With GRI announced for most carriers in Q4, we will get a better idea of what price levels the market is aiming for.

As a result, we will continue to see more blank sailings and slow steaming.

As we grow nearing to the end of the traditional peak season and preparation for 2024, it makes sense to investigate what happened in 2023 so far.

If we need an example of the impact carriers removing capacity has on increasing spot rates, look no further than the Far East to US West Coast. Over the eight weeks of July and August a total of 2.2m TEU was transported on this trade – which is 115 000 TEU down from the same period in 2022. It is also a 3.3% fall on the previous eight-week period. These numbers reflect how many TEU of container shipping capacity was transported rather than the absolute amount of capacity on all ships deployed on this trade.

Only in the first weeks of September has capacity risen above last year’s level, which coincided with spot rates starting to fall. Around 25% of earlier announced capacity ended up being blanked because of weak demand and optimistic carrier schedules.

With carriers having a number of options to combat over-capacity; such as idling, demolition, redeploying ships off larger trades and slow steaming, we begin to see making predictions for 2024 requires careful consideration of data and upcoming market forces.

Container volumes showed their best month in August with 15.3m TEU transported Globally.

What to expect in 2024?

At a glance:

• Demand to grow by 2.5%
• Supply to grow by 6.5%
• Spot rates to remain volatile throughout the year, hovering just below or above long-term rates
• Carriers will aim to increase spot rates through smart capacity management and General Rate Increases (GRI)
• Steadier long-term rates than seen during 2023

What are the factors behind the expected volatility in 2024?

Consumer spending

High inflation may mean lower spending on non-essential goods. This might mean we will return to a steady seasonality for ocean shipping, but demand will be the deciding factor. While inflation is easing in most Western countries, it will still remain high in 2024.

Capacity and Fleet Growth

Record levels of capacity will continue to cause a headache for carriers. 2023 has seen an easing of congestion that reached its peak during the 2022 pandemic, while at the same time, there has been an increase in fleet faster than demand in nominal TEU. Carriers can manage their capacity by demolishing substandard ships, slowing their ships down, adding extra loaders to compensate for extra sailing time, and resourcing blank sailings. This means the weekly capacity of any given service doesn’t change but the carrier's total capacity on the route increases. Shippers should expect carriers to optimize the most important trades regarding profitability. This knowledge is an advantage when negotiating long-term service contracts.

Reconfiguration of alliances

On October 10, the European Comission (EC) announced it is scrapping the antitrust block exemption for liner shipping consortia at the end of its existing term on April 25, 2024, on the grounds that the exemption no longer promoted competition in the shipping industry. Carriers must comply with a different set of rules post this decision so that we can expect more changes to the current alliance configurations.

Carbon emissions

New regulations could force change in carrier behaviour. Climate pressures on shipping are growing ever stronger and 2024 will see this on another level with the introduction of the EU Emissions Trading Scheme (EU ETS). This will see carriers applying another surcharge to try to cover for the cost of the allowances they need to buy for the carbon emitted on sailings within and to/from the EU. From a shipper perspective, added costs will be more complex than bunker surcharges. Carriers that have steadily invested in reconfiguring their carbon emissions might have less surprise charges and volatility than those just starting to look into getting there.

2024 is the year carbon emissions standards get real for carriers and shippers alike.

Ocean Freight Updates

• Space is tight and carriers booking utilization at 85%-90% to AU, NZ at 90%-95%,, irregular blank sailings continue to occur in Q4 traditional peak, we suggest placing booking at least 3 weeks in advance.
• For space issues please always liaise with your preferred forwarder for space protection.
• COSCO congestion on Transshipment via Singapore has eased, average waiting time has been reduced to 1-2 weeks.
• Now is the time to negotiate long term contract rates and look into space protection and loading priorities.

Ocean  Freight Snapshot (up to Oct 30th, 2023)

Air Freight Updates

The rise in long-term contract requests shows that air cargo is normalizing

Air cargo markets continue to move towards normalization post-Covid and while the watchword for 2024 is caution, it should be an improving picture as next year unfolds, according to a senior executive at a leading player. At a recent seminar, Adriaan Den Heijer, EVP Cargo at Air France-KLM Martinair, underlined that after the pandemic – characterized by buoyant demand, the dramatic phasing out of belly cargo capacity, load factors increasing to historic heights accompanied by high yields – the market experienced “a very hard landing at the beginning of this year and one that I would say was harder than we expected”. Turning to the spot market, he estimates that, since the end of last year/Q1 23, rates have come down from two to three times higher than post-Covid levels to 35-40% higher.

Atlas Air unveils new corporate HQ

Atlas Air Worldwide said its new corporate headquarters will be located in White Plains, New York, signifying the company’s ongoing commitment to operations within New York State. The company expects to move from its current headquarters in Purchase, New York in January 2024. In exchange for retaining 400 full time jobs over a period of five years and $4m in investment, US government department Empire State Development has awarded Atlas a $2m capital grant. In addition to its New York headquarters, Atlas maintains its Global Operations Center near the Cincinnati/Northern Kentucky International Airport (CVG); a training centre in Miami, Florida; operations centres in Anchorage, Alaska and Hong Kong; and key logistics centres around the world to support its global network.

SF Airlines further expands its fleet

Chinese cargo airline SF Airlines has expanded its fleet to 85 freighters. According to Xinhua, a Boeing 767-300 freighter has been added to the fleet, becoming the eighth new aircraft unveiled by SF Airlines this year. The freighter will be used in the air-express delivery market, serving the upcoming Double 11 shopping spree and other logistics peaks. In July, SF Airlines launched a twice-weekly service from Ezhou Huahu to Frankfurt using a 747-400 freighter to join its first European service from the cargo airport, which calls at Liege. The SF Airlines fleet includes 747-400ERFs, 767-300BCFs, 757-200Fs, and 737-300/400Fs.

Air Freight Snapshot (up to Oct 30th, 2023)

Customs and Biosecurity Update

The Australian Government has imposed air cargo prohibitions that prevent or restrict air cargo movement from specific countries of concern.

Countries of concern:

• Afghanistan
• Bangladesh
• Egypt
• Somalia
• Syria
• Turkey
• Yemen

The prohibitions are not new, but it is relevant to keep informed. You can check the instrument and the details per country here.

Change is in the air for Container Checks Portal in New Zealand

Biosecurity NZ will be introducing a new version of the CCP in early 2024, used for electronically submitting container inspection results by Accredited Persons. This change is required as part of a complete overhaul of our internal border systems to upgrade the technology and to provide a more stable platform for the future.

DP World Industrial Action

Temporary closures and impact in deliveries are still an issue. If you would like to receive updates on the situation, we invite you to subscribe to our customer advisories, where we let you know of events that can affect your supply chain as they happen:

Supply Chain Innovation

• The global warehouse robotics market is projected to reach $31.3 billion by 2030, driven by increased demand for handling numerous warehouse stock-keeping units, particularly in APAC and North America due to e-commerce growth and robotics advancements.
• FourKites introduced new features in its AI-enabled Appointment Manager solution to automate distribution centre and delivery calendar management - enhancing communication, on-time performance, auditing accuracy, and efficiency while reducing costs.
• HWArobotics presented its innovative pallet shuttle system and tote shuttle robots at the Logistics Summit in Düsseldorf, Germany, showcasing the efficiency and productivity improvements it offers clients.
• Amazon is revolutionising its warehouse operations with Sequoia, an AI-powered system that enhances safety, improves delivery times, and streamlines processes by using robotic arms and computer vision for streamlining order fulfilment.