Tight capacity in freight markets across multiple transportation modes is continuing to brew up a recipe of climbing costs and missed loads for shippers, according to several reports released this week.
The Shipping Conditions Index produced by Freight Transportation Research Associates (FTR) fell in October to -11.6, reflecting “sharply worsening” market conditions, the Bloomington, Indiana-based firm said Tuesday. That figure marks the index’ lowest reading in three years, driven by a sudden increase in capacity utilization in October, along with a tough rate environment and higher freight demand. And while the firm forecasts the index may rise slightly after October, it is not expected to rise into positive territory until at least late 2022.
“The uncertainty around the Covid-19 pandemic and the potential for pent-up freight demand once the vaccine becomes widely available should help keep shippers conditions under pressure through the next 18 months,” Todd Tranausky, vice president of rail and intermodal at FTR, said in a release. The index tracks four major conditions in the U.S. full-load freight market: freight demand, freight rates, fleet capacity, and fuel price. Combined into a single number the results show good, optimistic conditions for positive numbers and the reverse for negative ones.
Similar trends played out in the air freight sector, where cargo demand improved in November even as capacity remained constrained, the International Air Transport Association (IATA) said today.
More specifically, November freight volumes improved compared to October, but remained depressed compared to 2019. But meanwhile, capacity has sunk even faster, due to the loss of available belly cargo space as passenger aircraft remain parked during pandemic travel restrictions and passengers’ reluctance to board planes. “Air cargo demand is still down 6.6% compared to the previous year, however we are seeing continuing month-on-month improvements,” Alexandre de Juniac, IATA's director general and CEO, said in a release. “Severe capacity constraints persist as large parts of the passenger fleet remain grounded. This will put pressure on the industry as it gears up to deliver vital COVID-19 vaccines.”
Those numbers meshed with another air industry report showing that the sector ended 2020 on a "relative high" in December with the first positive year-on-year growth in weekly volumes in over 12 months, according to statistics from CLIVE Data Services and TAC Index. By comparing available capacity with cargo volume and weight, the groups found that their “dynamic loadfactor” measure reached a new high of 73% in mid-December, and hit an unprecedented level of 65% for the week ending January 3, marking 13 percentage points above that same week last year.
And conditions were even worse for cargo routed through sea lanes, where capacity remained tight despite containership companies’ sharp reduction of the number of “blank sailings”—an industry term for cancelled routes—in the second half of 2020. The maritime and supply chain analysis firm eeSea found that just 1.7% in February and 0.6% in March of head haul sailings on the three main East/West liner trades have been cancelled in 2021, compared to the 19.9% and 9.4% cancellation rates for those months last year. Likewise, very few sailings have so far been cancelled for the Q2 2021 period, compared to 14.7% of expected sailings that were blanked in Q2 2020.
“In the first half of last year, blank sailings were widely considered as a way of managing capacity during the Covid-19 crisis. However, this is now being blamed for the unanticipated increase in freight rates and significant delays across the supply chain,” eeSea CEO Simon Sundboell said in a release. “It is understandable that cargo owners are frustrated by the tight ocean capacity. The impact on their businesses is huge. But there seems to be an impression that carriers are deliberately holding back capacity to push up freight rates. We don’t see that.”
