The International Freight Market

The international freight market has faced numerous challenges over the last 18 months, and we see no immediate prospect of the challenges subsiding as we move through 2022

Global Seafreight

Recent challenges for the global seafreight market had resulted in a combination of record-high costs, especially from Asia and the Indian sub-continent, combined with record low levels of schedule accuracy. As a result, the shipping lines had managed to increase their profits to unprecedented levels.

The majority of these issues were broadly attributable to the pandemic and its global effects. This resulted in an acute imbalance of supply and demand for seafreight exacerbated by European Port capacity being overwhelmed. This, in turn, put further pressure on the land-side infrastructure and more general UK haulage shortages.

The demurrage crisis that developed in Q4 of 2021 was the result. This has now largely subsided but has been superseded by another major issue.

China’s zero Covid strategy resulted in the emergence of city-wide COVID lockdowns. This has become much more widespread and has affected a number of provinces and major cities. As a result, large numbers of factories have been forced to close and major ports are operating at vastly reduced capacity. For the last two months, exports from China have been much reduced and the shipping lines have voided an unprecedented number of sailings. This has resulted in rates resisting the usual softening which would happen with reduced supply-side demand.

The lockdowns are now starting to be reversed, with factory production and port activity increasing. However, there is a substantial pool of filled export containers that have been held up in China over the lockdown. As these are booked on to new sailings there is the potential for significantly increased freight rates. Additionally, there is still considerable congestion at European ports which has been added to by considerable numbers of Russian containers blocked by trade sanctions.

This upward pressure for rates may be balanced by decreased demand levels in Europe, as the cost-of-living crises develops. The next quarter, historically the seafreight Peak Season will show if this is the case.

European Roadfreight Market

The war in Ukraine and the fast-developing inflation situation are both unforeseen developments in the roadfreight marker in 2022. European roadfreight rates continued to rise in Q1 of 2022, to the highest level on record. This is due to a number of factors, with three main ones:

• Diesel prices continue to rise and the proposed embargo on imports of Russian oil will drive the rise higher. Regular increases of fuel surcharges for roadfreight are now a regular occurrence and there is little sign of relief in the medium term.
• Driver shortages, widely reported since mid-2021, have been exacerbated by the Russian war with Ukraine. Many drivers on European routes are from Eastern Europe, with Poland and Lithuania providing some of the highest numbers. Unfortunately, many of the drivers from these two countries are actually Ukrainian, Russian, and Belarussian. The lack of availability from these countries is having a significant effect on the European driver pool. Some Polish hauliers are reporting that up to 80% of their drivers are from these countries.
• UK border checks are also having a significant influence on European drivers accepting jobs to the UK and hence rates. Whilst export customs regulations have been in place for some time, import regulation continues to be postponed. As a result, the already significant trade imbalance between the UK and Europe has been increased. This lessens the ability of the hauliers to access sufficient back-load traffic to balance the journey resulting, once again, in increased rates.

As with seafreight, these upward pressures may be alleviated by a slowdown of demand due to inflation and the rising cost of living. This will be analysed on our next report.

Unlike many sectors, the international freight market is directly impacted by global issues. A problem in one country can upset your logistics entirely. Have you got a plan to avoid disruption to your business and deal with rising costs? Talk to us today.