Logistics Update May 2024

Ocean – freight rates are falling but still at a high level

Ocean freight volumes are rising during what is generally considered a low-demand period, notably after New Year's and Chinese New Year, particularly on the trade route from Asia to Europe, being one of the major global trade routes. A combination of sustained demand for shipping capacity, canceled sailing schedules, and an uncertain outlook, due to ongoing tensions in the Red Sea, led to a rapid increase in ocean freight rates. Moreover, there's little expectation for immediate solutions to the significant challenges facing the industry, however prices have begun to decline and seem to be converging towards a new normal.

DI Trades (DI Handel) Logistics Barometer price index for a select number of major routes, shows that average ocean freight rates, at the aggregate level, have been falling since end of January 2024. More specifically, the index shows average freight rates falling from index 180.9 in week 4 of 2024 to 132.3 in week 17, where index 100 represents 2019 prices. 

Maersk Q1 investor relations earnings call indicated that disruptions caused by Houthi militants in the Red Sea are anticipated to persist until year-end. The effect of this prolonging disruption is intensified by the higher than anticipated demand for container shipping.

In response, major container carriers have recently announced Peak Season Surcharges and General Rate Increases (GRI) on both short and long-term contracts as contingency measures to offset the cost impacts of the Red Sea disruptions.

Furthermore, a notable discrepancy has emerged between short-term and long-term contracted rates, reminiscent of the rate dynamics seen during the COVID-19 pandemic. In some cases, the disparity between short- and long-term rates on the same trade route can exceed USD 3,000 per 40-foot container.

We recommend that you – as always - keep a close dialogue with your carrier/freight forwarder(s), especially on priority/time requirements - as alternative routing in some cases can be found. Top of Form

Air – Airfreight demand outpaces economic trends

Airfreight traffic has surpassed global trade and industrial production. In February, demand for airfreight remained robust with an 11.9% year-over-year increase in cargo tonne kilometers (CTKs), marking the third consecutive month of double-digit growth.

IATA noted that airfreight traffic has exceeded both global trade and industrial production, which exhibited minimal change in January compared to the previous year. The association suggested that factors such as e-commerce growth and increased interest in sea-air solutions due to the red sea situation may be contributing to this disparity.

While ocean freight commands attention, a similar trend is unfolding in airfreight. Demand continues to exceed expectations on many critical routes, partly due to surplus volumes resulting from challenges in the Red Sea region.

Despite this, airfreight rates have shown relatively stable patterns compared to ocean freight. Significant increases in airfreight rates were already observed during February and March.

DI Trades (DI Handel) Logistics Barometer price index for selected major routes, shows that prices have generally been quite stable at the aggregate level, however some specific routes have seen price surges. Shanghai to Frankfurt has for example seen an increase of 14.5% from March to April, whilst the index for selected major routes only shows an increase in the rates of 4.5%.

Road – Balanced supply and demand and still lack of truck drivers

According to Transport Intelligence, the spot rate index remains lower than the contract rate, indicating a genuine decrease in volume. However, the gap between spot and contract rates has been narrowing since August 2023, implying a more balanced supply-and-demand situation.

DI Trades (DI Handel) Logistics Barometer price index for transport of freight by road, shows a stable development of rates. For select major transport routes in Europa, the barometer shows prices for week 16 2024 at index 121 (2019 = index 100), which is 3,5% higher than last week, and 2,7% higher than same period last year. Of the selected major routes, Duisburg to Warsaw remains the closest to 2019 price levels, with an index value of 104 for week 16 2024. 

Looking ahead, the lack of capacity is not anticipated due to the poor outlook for the European economy. This bleak outlook is also mirrored in forecasts from logistics service providers (LSPs), such as DSV, who expect minimal or stagnant growth in the road freight market in 2024.

Over half of European trucking companies are unable to expand due to a shortage of skilled workers, particularly truck drivers, as highlighted in a 2023 study by the IRU (International Road Transport Union) surveying more than 1,000 European road goods transport operators. This shortage has resulted in reduced productivity for nearly half of these companies and a revenue decline for 39%.

The EU, Norway, and UK collectively lack over 233,000 truck drivers, a figure projected to surpass 745,000 by 2028 if significant action is not taken. The truck driver workforce in Europe is aging, with an average age of 47, and a third of the drivers over the age of 55, expected to retire in the next decade, while less than 5% are under 25 years old.