Metal Buyers to Fight for Lower Ocean, Air Freight Rates

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Global Trade, Logistics

An article on the SDV Live logistics site on air and ocean freight rates may come as a surprise to consumers struggling to cope with freight costs arising from the Asian sea and air routes.

Certainly, we read a great deal about how low ocean freight rates are, but anecdotal evidence suggests many consumers are still squeezed by rates that do not appear to have fallen in line with market commentary.

Quoting Bolloré Logistics’ freight manager Denis Sanguinetti, the article laments lack of demand coupled with overcapacity, depressing growth prospects. Speaking first about ocean freight, Mr. Sanguinetti advises that in the second quarter alone, “20 new ships with a capacity of between 8,000 and 16,000 TEUs or twenty-foot containers will be delivered, mainly on the route from Asia to Europe.”

“Demand, meanwhile, will grow by between only four and five percent worldwide…as capacity grows at 7.5%,” the article suggests – that is, 1.5 million new TEUs expected to come online in 2013, with a marked increase in super-sized container vessels with a capacity over 10,000 TEUs.

These larger vessels will be focused on the highest-volume trade routes of Asia to Europe and Asia Pacific to America, but the smaller vessels will then be knocked on the lesser routes, creating overcapacity there, too.

Sanguinetti predicts volatility in freight rates this year with weakness a feature until such time as the lines take action to mitigate the overcapacity, some of which we have already seen – slow sailing, withdrawing loops and ultimately laying up vessels, for example.

Air Freight Lowdown

The air-freight market faces even greater headwinds, says Georges Van Hove, manager of airfreight procurement at Bolloré Logistics, in the article, partly because of competition from the sea.

Van Hove estimates that around 10% of the worldwide air cargo market is switching to sea transport in a bid to reduce costs at a time of continued economic slowdown. He expects demand to fall even on routes such as Asia to Africa that have showed strong growth in recent years. Demand for air freight between these two continents will reach just 1% in the first quarter of this year, compared to almost 10% in the same period last year.

Air shipping also suffers from overcapacity.

Just as we have seen established passenger airlines like American Airlines and British Airways suffer from competition from new entrants, so the air cargo market has seen new international freight shipping entrants such as Qatar Airways, Emirates Airlines of Dubai and Ethihad Airways of Abu Dhabi, ideally placed between East and West, adding new planes at an unprecedented rate and eating into established-carrier air-freight markets.

Freight Rate War

So a pricing war is raging among both ocean and air freight carriers.

Shippers should haggle for rates and resist any attempts to raise them. A brief survey taken by MetalMiner has shown greater-than-10% price differences between sources on the same routes as both agents and carriers fight for business.

The market may be tough for the logistics industry, but the silver lining may be some relief for metal buyers.

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