Consultant Insight: Ocean demand succumbs to air, but will rail disrupt both?

[caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] As air capacity disappears, the hunt for alternative transportation is underway for shippers. All transportation modes have been impacted by the pandemic and, for some, fluctuating rates and longer delivery times have become the norm, at least for now. Industries that operate with lean inventories are particularly vulnerable, as are those in the food, beverage and perishables market. Forwarders, 3PLs and technology solutions are being fully utilized to find available capacity without breaking the bank and to ensure timely deliveries. There has been a modal shift from air cargo to ocean freight over the years due to pricing and changes in inventory management. However, this has quickly reversed as the demand for medical supplies, equipment and pharmaceuticals spiked along with the number of coronavirus patients. The need for speedy transportation drove this modal shift and resulted in a sharp increase in air cargo rates. Declining demand for ocean freight transport has resulted in reduced capacity. Alphaliner estimates that container ship operators have idled a record 13% of their capacity in the last month, and shipping lines have withdrawn vessels with capacity totaling 3 million containers. In addition, the number of cancellations continues to rise. Known as “blanked sailings,” the cancellations now stretch into June, indicating that operators expect the traditional peak shipping season to be muted this year by global lockdowns. The reduced capacity and blanked sailings are also having a ripple effect on ports. The port of Virginia, for example, announced it will close down one of its cargo terminals and reduce truck gate hours. “We just don’t have the volume to keep it open,” a port spokesman said . The Port of Charleston lowered its fiscal year 2020 volume forecast for the second time in a little over two weeks and now expects volumes to be down 1.4% versus previously anticipated year-over-year volume gains. Likewise, Europe’s largest port, Rotterdam, also expects a decline of 10% to 20% in throughput for 2020. This will result in less demand for trucking and rail services. Most freight forwarders have also noted declines in ocean freight demand. Based on Panjiva data for March, Kuehne + Nagel YoY volumes fell by 14.1%. Expeditors DSV and DHL also saw volumes fall. However, volumes for C.H. Robinson and DB Schenker were positive, probably due to stronger activity on the trans-Atlantic lane compared with the trans-Pacific lane. Trucking demand and pricing is also fluctuating. However, currently, the demand is primarily focused on servicing warehouse to essential storefronts and manufacturing. In Europe, congestion at various country borders is resulting in delays. An emerging alternative is rail between Asia and Europe. Rail usage, heavily subsidized by the Chinese government, is on the rise. According to China National Railways, volumes on the China-Europe network increased 18% to 174,000 20-foot equivalent units (TEU) in the first quarter. In March, a monthly record of 73,000 TEU was carried. Rail is less expensive than airfreight and takes 16 to 19 days, compared with an average of 30 days for ocean freight. Freight forwarders are offering this as an additional transportation option for all types of commodities including foods and beverages, high-tech, medical goods and more. DHL Global Forwarding recently increased the frequency of its trains and is reporting high levels of utilization and demand in both directions. Maersk Line is also expanding its rail usage by introducing additional trains with short-sea shipping services. Combined, this service reduces the average traditional ocean route time by half. Even postal operators have begun to move items by rail between Asia and Europe; recently, China Post, Lithuania Post, Polish Post and railway operators collaborated to move mail. Unable to secure air capacity and with mail backing up, the three postal operators successfully moved mail and medical goods via the Asia-Europe rail, and they plan to move an additional 2,000 tonnes of mail by way of rail transport from China in the next few months. While demand for freight transportation for nonessential items is currently low, the concern is what will happen when demand returns to normal. How quickly will transportation providers be able to add capacity without causing prices to go through the roof, or causing congestion at transportation hubs? Also, will rail continue to be a viable option? The outlook is uncertain as numerous forecasts continue to be revised downward on an almost daily basis. Demand will likely change, as will trade routes. How this will impact transportation mode choices remains to be seen.

Consultant Insight: Ocean demand succumbs to air, but will rail disrupt both?

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