Flexport points to pricing gains on the ocean side and air cargo uptick as Peak Season approaches

With the second half of the calendar year fully in gear, ocean and air freight rates are seeing upward momentum, according to a July 2017 Market Update recently issued by San Francisco-based freight forwarding and customs brokerage services provider Flexport.

As Peak Season approaches, Flexport laid out an outline of ocean rates and related capacity availability for various lanes, including:

Asia -U.S. West Coast, with tight capacity, a July 1 GRI (general rate increase) partially implemented at $350-$400 per 40 foot container and carriers announcing Peak Season Surcharges for July 15 at $540, $600, $675, and $765 for 20’, 40’, 40’ HC (High Cube), and 45’, which Flexport expects to be partially mitigated;
Asia-U.S. East Coast, with space currently open, depending on the carrier, and a July 1 GRI being partially implemented at $300-$450 per 40’, and Peak Season Surcharges (PSS) of at $540, $600, $675, and $765 for 20’, 40’, 40’ HC (High Cube), and 45’, which Flexport expects to be partially mitigated;
Asia-Europe, a Peak Season Surcharge slated for July 15 at $300/20’ and $600/40’, which Flexport said it expects to be partially mitigated while capacity is expected to be “extremely tight as we enter peak season. Capacity will not increase during peak so space will continue to be constrained as volume increases”;
India-U.S. East Coast rates are holding steady and space is somewhat tight; and
India-U.S. West Coast rates are increasing and space is tight

Flexport COO Sanne Manders said in an interview that when looking at these rates it is important to remember heading into peak season that there are some imbalance in the various ocean carrier alliances, with some having more space than others while independent carriers have more space availability.

“The larger carriers are more likely to stick to their PSS, and we think it is going to be partially mitigated and small carriers will follow….as there is a nice price umbrella in the market and can bring in more revenue,” he said. “It could also be that there are medium-sized companies with low load utilization that will drive their rates to the bottom, like last year. But what we have seen in the last couple of week is that the prices on the West Coast have gone down very quickly, whereas rates were very high around April and May, which was due in part to the reallocation of vessels due to alliance changes that artificially reduced the supply. There was also some anxiety in the market that with the new contracts prices would be higher, so there are a lot of retailers and bigger shippers that have been pre-loading. Around June 1, prices went down and now the GRI and PSS are heading up a little bit for peak season.”

Manders noted that the peak is real and is there every year and is the moment when the carriers make money, with the Asia-U.S. West Coast rates sticking to a degree.

On the Asia-U.S. East Coast trade lane, there has been more capacity deployed due to the new Panama Canal, with supply chain reallocating East Coast-bound vessels as space is way less tight with Manders saying things are pretty open. With the Panama Canal’s expansion providing more supply chain options for East Coast shippers and ports, Manders said it will have more of a material impact on rates and capacity than it has in the past.

“The vessels that go through the Panama Canal are bigger so there is more capacity deployed, while there are also supply chains for East Coast customers running via West Coast intermodal that may change to the East Coast over time,” Manders explained. “What you are seeing is that the vessels on the East Coast are filling up less quickly because there is more capacity out there.

Looking at the global air cargo market, Flexport stressed that there is no “slack season” for air cargo this year, especially from Asia to North America, which it said is the strongest it has been going back the last six-to-seven years.

Drivers for the air freight market growth cited by Flexport include: e-commerce growth with airlines prioritizing space for e-commerce shipments that are highly volumetric and consume more space than typical hard freight consolidations; new product launches and expected quarter-end project shipments that have been tying up capacity; and residual effects from the ocean alliance shift in April that increased air freight volume.

What’s more, the report noted how demand for international air cargo is still outpacing capacity and subsequently continuing a supply-demand imbalance that began in the fourth quarter of 2017 and gained further traction in 2017. This was most evident in the Asia-Pacific region, with the report saying demand grew 4.9% as capacity increased 3.3%.