ship and graph

Peak season impact on container freight rates

Jul 10, 2024 | , , , , , , ,

The last week of June saw further gains on sea freight spot rates from Asia into Europe and North America, as a series of peak season surcharges (PSS) were imposed and new FAK levels from 1st July creating double-digit increases in spot freight rates.

With spot and FAK rates across all three carrier alliances approaching five figures, analysts predict that if the peak season extends into the traditional August/September period, 40ft spot rates could rise to $14,000-$15,000. And possibly higher, with a much longer application than originally anticipated into 2025.

Surcharges Affecting Asia-North Europe Trade
Along with other carriers CMA CGM has imposed a $1,500 PSS on Oceania-North Europe shipments and a $500 emergency space surcharge per box on India-North Europe shipments. Similarly, Hapag-Lloyd will implement a $1,000 per 40ft PSS on the Far East-India trade.

Spot Rate Indices and Transpacific Route Increases
Drewry’s World Container Index (WCI) composite index grew by 12% last week, with the Shanghai-New York leg showing the steepest growth at 17%. Similarly, the Shanghai-Rotterdam spot rate increased by 10%. Shippers on transpacific routes could see further double-digit rate jumps next week, with CMA CGM set to implement a $2,400 per 40ft PSS on all shipments from Asia to the US starting Monday.

As always. Metro are working tirelessly to mitigate the impact of these increases on our customers.

Space Shortages, Elevated Rates, and Container Equipment Shortages
Due to strong demand, many shippers are paying above quoted rates to secure space. Space availability from Asia to Europe has dropped by 30%-40%, leading major importers to pay space guarantee surcharges.

Higher rates are expected to persist until Golden Week, with some Asia-North Europe spot rates already breaching five figures. An early peak season, lasting until Golden Week in October, driven by importers’ determination to avoid Christmas stock shortages, indicates strong orders lasting at least until then. Should the peak extend, the market may not significantly decline until Q2 next year, even with additional capacity coming in.

Additionally, container equipment shortages are becoming more prevalent, with average container prices in China reaching their highest level in two years, and leasing rates on China-Europe routes tripling.

Ports are becoming congested globally – on all continents. The outcome of this is increased port blanking’s or sliding’s. These can be voluntary by the carriers, but more often than not are now involuntary and caused through long waits outside the port and an inability to discharge vessels, without having a major impact on their schedules.

The result is, whether you are on contract, spot or FAK pricing – if a vessel doesn’t call at the port,  you will not get your product moved until the next one does. And then, when the following vessel from whichever alliance does call, you do not get any retrospective protection on capacity that is simply ‘lost’.

Every importer and shipper who trades with China and Asia on a wider scale is being affected – it is impossible in the current and short term market to avoid the disruption.

In summary, spot rates show substantial growth, with space shortages increasing and elevated rates likely to persist until at least Golden Week, compounded by container equipment shortages and rising costs.

These trends suggest continued high rates and strong demand well into next year. However, we will continue to mitigate these costs where we can, but in a market where $10,000 + a FEU is becoming normality we will always endeavour through our pricing mechanisms and thoughtful considered approach to ensure that you receive the best pricing and reliability of service available in the market.

We will continue to communicate this to you daily/weekly/monthly, and as frequently and for as long as we need to, until the market settles.

We see challenges as opportunities to shine, and deliver a collaborative market-leading solution, that is appropriate for your business and tailored to your expectations.

With carriers in the ‘driving seat’, they are cherry-picking which contracts to honour, rolling lower-yield containers and blanking vessels, to try and recover schedules.

With the market this challenging, there is no ’silver bullet’ and many shippers that try to play the spot market are coming unstuck.

Metro are leveraging our long-standing carrier relationships and sensible annual contracts, to secure our customers space and set rates.

To learn how we can enhance your ocean freight solutions, please EMAIL our Chief Commercial Officer, Andy Smith. 

Parliament blur

A New Government – a New Britain; Strengthening UK Supply Chains for Economic Resilience

Jul 10, 2024 | , , , , , , , , , , , ,

The Labour party’s manifesto outlines a commitment to bolster the resilience of supply chains in key sectors, a task that Transport Secretary Louise Haigh will spearhead.

Recent global events, such as the war in Ukraine and pandemic-induced disruptions, have underscored the necessity of this mission. These crises have driven up energy prices and disrupted the supply of critical goods, exacerbating inflation.

Enhancing supply chain resilience not only mitigates risks but also presents growth opportunities and as the world faces more frequent external shocks, a resilient supply chain becomes crucial to safeguard the economy, because vulnerabilities can halt or divert production.

Labour’s plan includes several key policies to strengthen supply chains:

  • Investing £1.8 billion to upgrade ports and build supply chains across the UK
  • Ensuring a robust defence sector and resilient supply chains through long-term business-government partnerships
  • Maximising the economic and security potential of AUKUS, the trilateral security partnership with Australia and the US
  • Adopting a strategic approach to managing UK-China relations
  • Striking targeted trade agreements aligned with the UK’s industrial strategy
  • Leading international efforts to modernise trade rules and agreements, promoting deeper cooperation through organisations like the WTO and CPTPP
  • Seeking a new strategic partnership with India, including a free trade agreement, and enhancing cooperation with Gulf partners on security, energy, and trade

The government will work with international partners to align capacities in key sectors and advance international standards for supply chain diversification. Labour’s plan includes creating a Cabinet Subcommittee on National Resilience, conducting a COBRA review, and appointing a Minister for Resilience to coordinate responses.

Looking to a New EU Relationship
Labour’s manifesto also includes policies to improve the UK’s trade and investment relationship with the EU, which includes negotiating a veterinary agreement to reduce border checks and lower food costs. 

Upcoming EU legislation, such as the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), will impact UK companies. These regulations will require companies to disclose data on suppliers and emissions, impacting those with substantial EU activity or those part of the EU value chain.

For example, a UK auto parts manufacturer selling to an EU car company will need to comply with these directives. Labour’s approach aims to remove unnecessary trade barriers and improve economic cooperation with the EU, ensuring UK businesses remain competitive and compliant with new regulations.

For over 40 years Metro has been providing stable and effective solutions for customers entering new export markets, or sourcing from new suppliers.

Supporting their regulatory compliance and finance requirements, with multi-modal transport services and guidance on insurance and packing, to protect their products.

Our MVT supply chain platform incorporates a suite of reporting modules, including the tracking of global CO2 emissions and templates for CSRD reporting.

If you have any questions, rate requests or would like further information on our global export capability, please EMAIL our Chief Commercial Officer, Andy Smith.

LHR BA landing

Air Cargo Demand Grows Strongly in Q2 2024 – and will continue for the rest of the year

Jul 10, 2024 | , , , , , , , ,

Robust growth in global air cargo markets for April 2024 marks a strong start to the second quarter, with airfreight rates on key trades out of Asia remaining “firm” in June, despite the market entering the traditional quieter summer period or ‘slack season’. Quite simply there isn’t one.

Total demand, measured in cargo tonne-kilometres (CTKs), rose in double-digits compared to April 2023. This marks the fifth consecutive month of double-digit annual growth. Capacity, measured in available cargo tonne-kilometres (ACTKs), grew by 7.1% compared to April 2023, with international capacity up by 10.2%.

Despite economic uncertainties, air cargo demand remains strong, with the Purchasing Managers Index (PMI) for global manufacturing output and new export orders turning positive in April, indicating growth. This is the first time in two years that new export orders have been risen, suggesting a robust outlook for air cargo for the rest of the year and likely beyond.

Key economic factors

  • April PMIs for global manufacturing output and new export orders were 51.5 and 50.5, respectively
  • Industrial production increased by 1.6% year-on-year in March
  • Inflation remained stable in major economies: US (3.4%), EU (2.6%), Japan (2.5%), and China (0.2%)

Regional Performance in April

  • Asia-Pacific – Demand grew by 14.0% year-on-year
  • North America – Demand increased by 7.0% year-on-year
  • Europe – Demand rose by 12.7% year-on-year
  • Middle East – Demand increased by 9.4% year-on-year
  • Latin America – Demand grew by 11.7% year-on-year
  • Africa – Demand rose by 10.6% year-on-year

That’s a lot of stats but we are demonstrating the consistent demand and growth in what should be a soft period. eCommerce is a huge contributor to the above absorbing any excess capacity on scheduled carriers and adding hundreds of dedicated charters a week into the market. This has an impact on general air cargo and through supply and demand dynamics pushes the prices up, or certainly does not allow them to fall.

Spot rate index round-up
The Baltic Exchange Airfreight Index (BAI) shows that rates from Hong Kong to both Europe and North America remained up on a year ago and also increased slightly compared with May levels.

From Hong Kong to North America, the average spot rate in June was up nearly 17% compared with a year earlier, while Hong Kong to Europe, rates in June increased over 22% year on year.

The market has remained surprisingly strong through what is normally a low season in the year, as extra belly-hold capacity comes on stream for the summer, reflecting continuing robust eCommerce activity.

Rates are also significantly higher year on year out of some other big markets in Asia, notably from India and Vietnam and particularly on lanes to Europe.

Generally we are seeing huge demand on most inbound lanes into Europe on air freight with congestion at global hubs still prevalent.

Unlike the ocean freight theory that the market is busy due to restocking (and of course the Red Sea/Suez Canal effective closure) this idea does not make sense for air freight and time critical cargo. It’s simply a case of higher demand and not enough capacity so the signs are for a remarkably busy traditional peak season from September through to Chinese New Year.

Let us get prepared for this and discuss your requirements for known air freight, or possible/expected delayed ‘distressed’ ocean freight, that will need to be sped up in the supply chain.

For urgent, valuable and sensitive shipments we have a range of airfreight, charter, sea/air and land-bridge solutions, with block space agreements (BSA) and capacity purchase agreements (CPA) that protect space and capacity on the busiest routes.

Regardless of your cargo type, size and requirements, we have extremely competitive rate and service combinations, to meet every deadline and budget. Please speak to us. With visibility and planning we will always deliver your product when required.

EMAIL Elliot Carlile, Operations Director, for insights, prices and advice. 

Auto industry Brexit warning

Europe may experience its own near-shoring boom

Jul 10, 2024 | , , , , , , , , , , , , ,

As planes descend into Monterrey airport, an expanse of warehouses and manufacturing complexes stretches out for miles, exemplifying the near-shoring boom that has swept through Mexico in recent years, as Asian companies and their supply chains move closer to the United States.

Drivers of Mexican Industrial Growth
One might argue that this surge in Mexican industrial production and exports to the US is part of a 30-year evolution, initially driven by the North American Free Trade Agreement (NAFTA), which established a free trade area among Canada, the US, and Mexico.

However, additional factors have recently propelled Mexico to replace China as the US’s most important trading partner.

1. US-China Trade War: Trade has shifted from China to countries like Mexico due to the ongoing trade conflict
2. Biden Administration’s Supply Chain Strategy: Emphasis on near-shoring has highlighted Mexico’s role in the China+1 strategy
3. Production-Sharing Schemes: Mexico’s longstanding expertise in these schemes makes it a valuable partner in regional manufacturing and trade
4. Low Labor Costs: Average manufacturing wages in Mexico are lower than those in China

Ironically, many of the companies that are being set up for manufacturing and transition to Mexico are actually owned by Chinese entities and companies. It is a migration of Chinese manufacturing to Mexico and this also has the benefit of lowering supply chain and shipping costs and the big one – reducing some of the duty and anti-dumping duty that has been, and will likely continue to be, levied on Chinese origin goods and raw materials.

Lessons for Europe
A critical element is the presence of a long-standing free trade agreement, because near-shoring thrives in an environment that fosters supply chain relationships and networks over time and effective near-shoring relies on a regulatory and trading environment that supports such activities. 

Expecting near-shoring to emerge without a developed and supportive environment is unrealistic. The EU, with its well-developed internal free trade and regulatory framework, together with external trade agreements with countries like Egypt and Morocco is well-positioned to adopt near-shoring strategies.

In Europe, geopolitical relations with China are a concern, but recent supply chain disruptions are increasingly driving the adoption of China+1 strategies. Europe has been shifting its manufacturing and supply chain activities eastward and into North Africa.

Opportunity
Countries like Turkey, Hungary, Egypt, Morocco, Poland, and Romania offer compelling near-shoring opportunities due to their lower wage rates and higher productivity compared to Western Europe.

The EU is well-positioned to capitalise on near-shoring activities and so too is the UK, with its close EU ties and inherited trade agreements. This has already been highlighted by the new UK government, as a goal to re-negotiate trade agreements with the EU and could make closer sourcing a more prevalent and cost effective strategy going forward in the next few years.

We are seeing regular migration of manufacturing and sourcing closer to the UK and EU and this has many benefits, as long as the material price is comparable with Far East manufacturing costs, which have been the big incentive.

Metro and our associate companies, are well positioned to give advice, recommendations and adapt supply chains regardless of the areas that you are sourcing from or selling to.

We have a variety of services and solutions covering overland trucking, rail freight, short-sea containerised solutions on our own vessels and local warehousing and distribution at most industrial hubs throughout Europe and North Africa. 

Please arrange a call/meeting and we can go through the current and future options, to add value to your global development strategy. We can guarantee that it will not be time wasted!

Stable, well-regulated trading environments and cost-effective, high-productivity production locations in Central and Eastern Europe and North Africa provide a strong foundation for supporting near-shoring initiatives.

Metro’s integrated transport services are designed to support JIT manufacturing requirements across the EU, North Africa and Turkey and are ideally positioned to support new near-shoring requirements.

Our partner network, multi-modal transport solutions and MVT supply chain platforms are all geared towards supporting an evolving sourcing programme and on-boarding new suppliers. 

If you would like to learn how we can boost your ability to source from alternative manufacturing regions, EMAIL our Chief Commercial Officer, Andrew Smith, to arrange a consultation and scoping discussion.

Category: Supply Chain

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