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Improving reliability is among positive signs for ocean freight

A closing gap in the demand and capacity imbalance is also putting downward pressure on rates.
13 September 2022 •

As demand slows and pressure on ocean shipping supply chains eases, container lines are slowly improving the reliability of their schedules.

Global schedule reliability improved by 0.5 percentage points month-on-month in July to 40.5 percent. Although this is still far lower than the 60-85 percent levels consistently achieved by carriers from 2018 to July 2020, July 2022 represented only the second time since the start of the pandemic that schedule reliability improved year-on-year, according to shipping consultancy Sea-Intelligence.

As seen in the September DHL Ocean Freight Market Update, July was the third consecutive month that saw schedule reliability improve month-on-month. The lowest reliability was again recorded on the Asia-US East Coast trade (15.9 percent) while the South America-Mediterranean trade was the best performing trade (64.0 percent).

Kelvin Leung, CEO, DHL Global Forwarding Asia Pacific, noted that any improvement in service reliability was a welcome change. “At 40.5 percent reliability, we are not yet where we would like to be, but we are encouraged by the efforts of carriers and hope we will see further improvements in the months ahead,” he said.

Another key metric, the average delay for late vessel arrivals, has also dropped sharply this year, now firmly below the 7-day mark. In comparison, the second half of 2021 saw this mark close to eight days.

Easing bottlenecks

One key factor in efforts by lines to boost reliability has been reducing snarl-ups, particularly at terminals. In Europe, for example, there are now clear signs that improved labor availability and a reduction in imports is relieving congestion at ports.

Lars Jensen, CEO of consultancy firm Vespucci Maritime, notes that diminishing vessel queues essentially increase global capacity. In January 2022, 13.8 percent of global fleet capacity was unavailable due to delays but by July this was down to 9.3 percent.

“This has the effect of releasing additional capacity into the global market, in turn increasing capacity at the same time where global container demand is declining slightly,” noted Jensen.

Slowing demand

As recession looms and inflation soars, consumers are seemingly cutting spending, leading to a gradual slowdown in the global container demand. But it is becoming increasingly clear that, of the big two import markets, Europe is being impacted far more heavily than the U.S. due to its greater reliance on Russian energy exports.

“On the demand side, record inflation levels seem to be taking their toll more on European consumers than on Americans up to now,” reported shipping consultancy MSI. “Asian containerized exports to Europe fell by 9.7 percent year-on-year in June. Exports to North America remained firm in July, up 2.5 percent year-on-year and 2.7 percent month-on-month.”

Downward rates pressure

Even though U.S. demand is holding up relatively well, more available shipping capacity and sagging global demand are putting strong downward pressure on global spot freight rates. Some analysts believe the ocean freight market is moving back towards a degree of normalization, or at least shifting closer to pre-pandemic norms.

According to Sea-Intelligence, the extreme spikes in container freight rates in 2021 were due to an imbalance between demand and supply. This was primarily caused by port congestions typing up fleet capacity, which led to vessel delays, as well as a spike in cumulative demand.

In fact, demand was consistently 10 percent higher than capacity from November 2020 to January 2022. This imbalance has improved in recent months, which is now two percent higher than capacity.

“The recent trend towards normalization has in turn also been primarily driven by gradual improvements in schedule reliability and vessel delays, and as long as improvements continue, we should expect that the supply/demand balance will also continue to decline, and freight rates will be under increasing downwards pressure,” reported Sea-Intelligence.

Although spot rates on most trades remain far ahead of pre-Covid levels, Jensen also believes recent declines are the start of a more fundamental trend.

“August is typically an element of the strongest part of peak season, yet 2022 does not have any material peak season,” he said. “As a consequence, the slide in spot rates not only continued, but the pace of the decline also increased.

“The available data in the market shows that fundamental support for very high freight rates has now fully disappeared and further weakening going forward is to be anticipated.”

“Even though the demand-supply balance for container shipping capacity has eased after a rather frantic two years, it is worth noting that we are still a long way from what we used to call normal,” said Dominique von Orelli, Global Head, Ocean Freight, DHL Global Forwarding.

Ongoing congestion in many ports, particularly on the U.S. East Coast, needs to be closely monitored to prepare for any potential disruption. “And we know from the supply chain shocks from the last two years that even a slight shake-up can have a significant impact,” added von Orelli.

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As demand slows and pressure on ocean shipping supply chains eases, container lines are slowly improving the reliability of their schedules.

Global schedule reliability improved by 0.5 percentage points month-on-month in July to 40.5 percent. Although this is still far lower than the 60-85 percent levels consistently achieved by carriers from 2018 to July 2020, July 2022 represented only the second time since the start of the pandemic that schedule reliability improved year-on-year, according to shipping consultancy Sea-Intelligence.

As seen in the September DHL Ocean Freight Market Update, July was the third consecutive month that saw schedule reliability improve month-on-month. The lowest reliability was again recorded on the Asia-US East Coast trade (15.9 percent) while the South America-Mediterranean trade was the best performing trade (64.0 percent).

Kelvin Leung, CEO, DHL Global Forwarding Asia Pacific, noted that any improvement in service reliability was a welcome change. “At 40.5 percent reliability, we are not yet where we would like to be, but we are encouraged by the efforts of carriers and hope we will see further improvements in the months ahead,” he said.

Another key metric, the average delay for late vessel arrivals, has also dropped sharply this year, now firmly below the 7-day mark. In comparison, the second half of 2021 saw this mark close to eight days.

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Easing bottlenecks

One key factor in efforts by lines to boost reliability has been reducing snarl-ups, particularly at terminals. In Europe, for example, there are now clear signs that improved labor availability and a reduction in imports is relieving congestion at ports.

Lars Jensen, CEO of consultancy firm Vespucci Maritime, notes that diminishing vessel queues essentially increase global capacity. In January 2022, 13.8 percent of global fleet capacity was unavailable due to delays but by July this was down to 9.3 percent.

“This has the effect of releasing additional capacity into the global market, in turn increasing capacity at the same time where global container demand is declining slightly,” noted Jensen.

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Slowing demand

As recession looms and inflation soars, consumers are seemingly cutting spending, leading to a gradual slowdown in the global container demand. But it is becoming increasingly clear that, of the big two import markets, Europe is being impacted far more heavily than the U.S. due to its greater reliance on Russian energy exports.

“On the demand side, record inflation levels seem to be taking their toll more on European consumers than on Americans up to now,” reported shipping consultancy MSI. “Asian containerized exports to Europe fell by 9.7 percent year-on-year in June. Exports to North America remained firm in July, up 2.5 percent year-on-year and 2.7 percent month-on-month.”

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Caution should still be exercised in light of ongoing events that could jolt the supply chain once more.

Softening exports out of Asia, more passenger aircraft bellyhold capacity entering the market, and strong economic headwinds are expected to produce a Q4 air cargo peak season which is significantly less vigorous than in 2021 and 2020.

Inflation is weighing heavily on advanced economies and consumer demand, with the International Monetary Fund, World Bank and most analysts heavily downgraded 2022 and 2023 GDP growth forecasts.

“We are seeing this playing out in demand from Europe, and to a lesser extent the U.S., for exports out of Asia as well as in less aggressive new orders,” said Kelvin Leung, CEO DHL Global Forwarding Asia Pacific.

Leung noted that there has been a significant air-to-ocean conversion this year, signalling a slightly more subdued peak season compared to the extremes from the last two pandemic-driven peaks.

“However, there are still so many bottlenecks at ports and elsewhere in supply chains that it would not take much of a jolt to global logistics flows for demand for air freight to get more forceful as we get closer to the holiday season,” he added.

Capacity additions

Global freight capacity has been gradually increasing through the year and has been buoyed this summer by additional bellyhold options on key routes out of the Middle East and on trans-Atlantic and intra-Asia lanes.

DHL’s July Airfreight State of the Industry report recorded that overall capacity in July was up 18 percent year-on-year.  The August report notes that global capacity in August this year was just 11 percent lower than in August 2019, despite airspace closures and ongoing Covid-19 disruption.

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Demand reduction amidst capacity growth

On the flipside, there is a noticeable dip in demand, in part due to lowered consumer requirements with inflation in play.

The latest after-the-fact data for June from the International Air Transport Association (IATA), which was released at the start of August, revealed that global demand, measured in cargo tonne-kilometres, was 6.4 percent below June 2021 levels. Global demand for the first half-year was 4.3 percent below 2021 levels, while capacity was up 4.5 percent.

The Association of Asia Pacific Airlines (AAPA) reported in late August that air cargo markets had “weakened further” due to falling export orders alongside worsening business and consumer confidence levels. The AAPA noted that in July international air cargo demand, as measured in freight-tonne kilometres, dropped by 11.6 percent year-on-year.

Financial and analyst firm Nomura’s export leading indicator (NELI), a composite index made up of forward-looking indicators of Asian exports covering 10 economies – China, Hong Kong, India, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand – is now predicting a “deeper slump in Asian exports” than previous readings.

Nomura believes evidence of weakening export demand has “gathered momentum”, with Asia excluding-Japan export volume growth of 1.5 percent year-on-year in Q2 already much weaker than value growth of 13.8 percent.

NELI is now “pointing south until September”, noted a Nomura report, with Asia’s export growth “likely to slump from the mid-teens currently to low single-digits by year-end, and into negative territory early next year”.

Nomura expects the in the export growth downcycle to occur only around mid-2023. “This is consistent with our view that the initial slowdown phase reflects an inventory destocking cycle, and weak demand in China,” said the report. “But going forward, the weakness is likely to spread as final demand slows across the advanced economies. The downcycle is just starting.”

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Cause for optimism for air import

Heading into the second half of 2022, there were also some positive signs. The Q3 report on the DHL Hong Kong Air Trade Leading Index (DTI), which measures the forward-looking business outlook of Hong Kong air traders, reported a recovery in the Overall Air Trade Index. It was a rise from 35.8 in Q2 to This was “mainly driven by a significant rebound in the Air Imports Index from 36 to 43.1 points, similar to the level prior to the fifth wave of the pandemic”.

An index value above 50 indicates an overall positive outlook while a reading below 50 represents an overall negative outlook for the surveyed quarter.

On the flip side, the Air (Re-)Exports Index recovered at a slower pace from 35.5 to 37.0 points with non-U.S. currency markets showing “an obvious improvement in imports, while Americas was the only market with a dip”.

A balancing act for the future

Bruce Chan, Director & Senior Analyst, Global Logistics & Future Mobility Equity Research at Stifel, noted in a report for the Baltic Exchange that the demand levels and freight rates witnessed during the pandemic had now most likely passed.

However, he argued that demand was moderating slowly, not collapsing, while supply was only gradually loosening. “Our view is that we have seen peak freight volumes, both broadly and on a global basis,” he explained.

“Absolute rates can still move higher. However, the gulf between current rates and those seen a year or two ago should continue to moderate. The process likely happens gradually given the amount of dislocation still present in global supply chains, which means that full normalisation of rates to historical levels probably will not happen until well into 2023,” added Chan.

Still, there is cause for optimism, despite the air of caution conveyed in recent economic forecasts. Leung adde: “Shippers are being more cautious about committing to air freight options which is entirely understandable given downbeat economic forecasts. But the market is still vibrant. Many key lanes have room for growth, especially as peak season looms.”

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Downward rates pressure

Even though U.S. demand is holding up relatively well, more available shipping capacity and sagging global demand are putting strong downward pressure on global spot freight rates. Some analysts believe the ocean freight market is moving back towards a degree of normalization, or at least shifting closer to pre-pandemic norms.

According to Sea-Intelligence, the extreme spikes in container freight rates in 2021 were due to an imbalance between demand and supply. This was primarily caused by port congestions typing up fleet capacity, which led to vessel delays, as well as a spike in cumulative demand.

In fact, demand was consistently 10 percent higher than capacity from November 2020 to January 2022. This imbalance has improved in recent months, which is now two percent higher than capacity.

“The recent trend towards normalization has in turn also been primarily driven by gradual improvements in schedule reliability and vessel delays, and as long as improvements continue, we should expect that the supply/demand balance will also continue to decline, and freight rates will be under increasing downwards pressure,” reported Sea-Intelligence.

Although spot rates on most trades remain far ahead of pre-Covid levels, Jensen also believes recent declines are the start of a more fundamental trend.

“August is typically an element of the strongest part of peak season, yet 2022 does not have any material peak season,” he said. “As a consequence, the slide in spot rates not only continued, but the pace of the decline also increased.

“The available data in the market shows that fundamental support for very high freight rates has now fully disappeared and further weakening going forward is to be anticipated.”

“Even though the demand-supply balance for container shipping capacity has eased after a rather frantic two years, it is worth noting that we are still a long way from what we used to call normal,” said Dominique von Orelli, Global Head, Ocean Freight, DHL Global Forwarding.

Ongoing congestion in many ports, particularly on the U.S. East Coast, needs to be closely monitored to prepare for any potential disruption. “And we know from the supply chain shocks from the last two years that even a slight shake-up can have a significant impact,” added von Orelli.

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