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Ocean shippers take to air cargo to avoid seaport congestion

THE US import boom is forcing ocean shippers to seek pricier solutions to capture sales and bypass port congestion to get cargo to where it wants to go by air, reports New York's FreightWaves

16 February 2021 - 19:00
THE US import boom is forcing ocean shippers to seek pricier solutions to capture sales and bypass port congestion to get cargo to where it wants to go by air, reports New York's FreightWaves.

The transpacific trade route has been overwhelmed over the past year as consumers divert their attention to spending on durable goods over travel and leisure services while they spend more time at home.



The Ocean TEU Index measures booking requests for capacity, is good indicator of demand and can have leading implications for other modes, such as air cargo.



The index measures the price per kilogramme on the spot market to move freight through the air in multiple lanes - in this instance, Hong Kong to North America. Normally, spot rates in this lane fall to their lowest points of the year in the winter months of January and February, but that has not been the case so far in 2021.



Air cargo rates from Asia to North America have been elevated compared to previous years since April, thanks to a reduction of passenger capacity and heightened demand for personal protective equipment.



Now that the historically cheaper ocean liners are charging record amounts for spot freight just to get a chance for a slots, the cost gap has narrowed between the two modes since the start of the year - albeit the cost of air is still several multiples higher for many goods.



The much faster service and more guaranteed capacity can justify the increase in cost, especially when time is of the essence when capturing market share, said the report.



Forecasting demand has become a huge problem for companies like New York's Peloton and other goods providers that have received a tailwind from the Covid crisis.



Importers are expecting to take massive rate hikes on their contracts even though many like Maersk CEO Patrick Jany expect easing after the first quarter. While supply and demand dictate the rates must increase, the effects of rapid rate expansion are not good in the long term if demand wanes too much.



The domestic trucking market learned this lesson in 2019 as carriers took huge rate increases and invested in fleet expansion, which led to an oversupplied market and multiyear highs for trucking bankruptcies. Gains in rates were mostly erased in the next year.



Reshoring - moving production to another country - is another long-term result of the current environment. As if geopolitical forces were not enough reason for companies to look for other sourcing locations outside China, the capacity crunch is adding to that incentive.


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