The recent US West Coast port congestion issues have temporarily reversed the long-term modal shift from air to ocean as shippers seek alternative ways to make sure their goods hit the stores in time for the US holiday season, UK-based shipbroking consultant Drewry writes.
According to recent numbers, international air freight growth is starting to keep up with container traffic growth and even overtake it in certain months.
Some shippers pre-empted the disruption in the container sector by moving cargo earlier and via the longer all-water route to the US East Coast, but as the countdown to “Black Friday” and the start of the holiday season got ever closer, more expedient solutions were required.
“Average transit times from Asia to the US East Coast are 15 days longer than to the West Coast. As well as having to contend with longer lead times Asia-USEC spot freight rates also command a considerable premium that has grown since it looked like the 1 July port labour contract expiration wasn’t going to renewed quickly,” Drewry said.
Data from Drewry’s World Container Index shows that the USEC rate premium over USWC services has expanded from about USD 1,500 per 40ft container in June to around USD 2,100 per 40ft by the end of November.
Following four months of stable pricing, East-West air freight rates surged in October on the back of continued strong peak season demand and the conversion from ocean transport. Drewry’s East-West Air Freight Price Index rose by 11.9 percentage points in October to a year-peak of 115.6 points, the second highest level since the data series started in May 2012.
Drewry’s data shows that the Asia to US route was responsible for most of the overall hike in East-West air freight rates with Transpacific Eastbound Air Freight Rate Index up by 17% against September. In contrast, container freight rates on the route were in decline with the Drewry Transpacific Eastbound Freight Rate Index falling by 7% in October.
Generally, air rates have held up better than ocean rates, and the rise in air freight pricing relative to much weaker container shipping rates is widening the pricing differential between the two modes.
Drewry’s East-West Air Freight Price Multiplier gained 3.5 points in October to x16.5, the widest margin since October and November of last year.
Drewry expects air freight rates will continue to show a rise for November as the shopping season hits full swing, while tighter capacity will also support stronger pricing on certain trades. The backlog at US west coast ports has the potential to soften the traditional drop in Asia to US rates in December and depending on how long the issue remains unresolved could prop up air rates through until Chinese New Year.
“Congestion on the US West Coast ports is a costly reminder to shippers of the need for risk planning, particularly in peak seasons. The issue will help to inflate air rates and demand temporarily, but it will not reverse the longer-term trend towards ocean,” Drewry concludes.