Bolloré expects volatile 2022 for freight market

Bolloré expects volatile 2022 for freight market

Photo source: Bolloré Logistics

Bolloré Logistics believes the ‘epic supply chain chaos’ is far from over as the freight market continues to suffer from capacity crunch, high freight rates and equipment shortage. This indicates that the market will likely remain pressured yet again, for the better part of 2022.

After so long, global supply chain remains burdened with capacity crunch, through-the-roof rates, unreliable services, congested ports, with no apparent end in sight. Perhaps, the only positive point about the global pandemic is probably the strong global demand but of what good is this when supply-chain constraints continue to hamper industrial production, Bolloré Logistics asks in its comment on the current state of the market.

In the latest World Economic Outlook published by the International Monetary Fund (IMF) in October, the global economy is projected to grow by 5.9 percent in 2021, after being revised down marginally, due to “a downgrade for advanced economies—in part due to supply disruptions—and for low-income developing countries, largely due to worsening pandemic dynamics”.

This projection came to light as the Delta variant gained ground, so question is, with the rapid propagation of the Omicron variant, is the IMF’s 4.9 percent economic growth projected for 2022 still feasible?

Airlines transforming passenger flights to freighter flights

The Omicron variant has already started to impact freight capacity, as seen on the Europe – South Africa trade lane when passenger flights (PAX) were immediately stopped as an initial solution to curb the spread of the variant.

Right before that was the incidence where some Virgin Airways and British Airways pilots tested positive for COVID-19 upon arrival in Hong Kong and were subjected to a 21-day quarantine, together with the rest of the crew. The strict quarantine measures led other airlines like Air France, British Airways, and Lufthansa to cancel flights, further reducing capacity on this trade lane.

On their part, air carriers continue to convert passenger flights to freighter flights as is the case of Emirates Airlines which is set to transform four 777-300 passenger aircrafts into full freighters with the earliest delivery expected by the end of 2023.

The fact that Boeing is officially ending the production of the 747 freighter aircraft which is the choice aircraft for air freight may likely impact airlines’ decision to order new freighter aircrafts in the near future. Alternatively, airlines may have to chose between the Boeing 777 freighter or Airbus 350 freighter, which both have limitations in terms of cargo weight, payload, and volume.

“With huge demand and not enough matching capacity, air freight rates will remain high, as has been the case for the longest time and air freight carriers will continue to profit off this demand-supply imbalance”, says Claude Picciotto, Bolloré Logistics airfreight procurement director.

Is adding capacity counterproductive for sea carriers?

High freight rates – which will likely continue well into the Chinese New Year and demand-supply imbalance is also a norm in the sea freight market according to Anne-Sophie Fribourg, Bolloré Logistics’ Ocean business development Director.

In an effort to mitigate capacity crunch, some sea carriers injected additional capacities into the market. For example, CMA CGM added 7 percent more capacity while Maersk added about 1 percent. However, this effort was somewhat counterproductive in that more capacity requires mobilisation of more equipment which sadly are insufficient because they are stacking up at cargo ports due to heavy congestion.

As congestion continues to intensify in ports around the world, vessels are waiting longer to dock, causing huge container backlogs and impeding vessel rotations. Therefore, carriers have now resorted to blanking sailings, which have already been announced on the Asia – Europe and Transpacific trade lanes, despite the current peak season due to the upcoming Chinese New Year.

Another potential development in the sea freight industry is changes in port connections. Fribourg believes that carriers will reduce some services linking multiple regions in an attempt to return ships to scheduled sailings and regain good quality of service.

In all of this chaos, sea carriers are strategising by investing more in end-to-end supply chain solutions. Lately, Maersk has been in the business of buying e-commerce companies in a bid to tap into the strong e-commerce sales growth. Cosco Shipping (after taking a $157m stake in a China based logistics provider) now holds 7.3 percent shares in a newly established logistics supply chain group, launched with other shipping companies and port terminal operators in China.

CMA CGM has also signed an agreement to buy a 90 percent stake in the Fenix Marine Services (FMS) terminal in Los Angeles. The shipping line is also developing their air freight strategy. They acquired four aircrafts from Qatar airways and have also signed a memorandum of understanding with Airbus to purchase four A350 freighter aircrafts.

Bolloré doesn’t see the situation improving until late 2022

Both Fribourg and Picciotto agree that the situation in the industry will likely not improve, if at all, until much later in 2022 therefore Bolloré Logistics aims to continue looking for and delivering alternative solutions such as intermodal transport, charters and signing of long-term contracts with their partners making it possible to secure space at least over the next two years on trades where the situation is very tense.

On their part, clients are advised to give more visibility on their transport needs in order for the company to be able to anticipate and manage external unforeseen events.

Author: Adnan Bajic

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