Freight market update: Outlook for 2018
2017 was an interesting year for the global freight market. The growth of e-commerce sparked air freight capacity shortages on core trade lanes and drove air freight rates to record highs. The ocean market in 2017 was more stable, with greater predictability (fewer blank sailings), an early and flattened-out peak season, and price levels between 5% and 20% higher than in 2016. This was mostly driven by the unsustainable market in 2016 that led to Hanjin’s bankruptcy and massive consolidation. Further significant disruptions were caused by the Petya malware virus and storms like Hurricane Harvey, leading to delays, re-routings, and temporary capacity issues.
It’s January again, and many in the logistics community are making plans for the year ahead. To help inform our clients' key supply chain decisions for 2018, we've gathered the following insights from Flexport's industry experts.
Air freight rates will continue to climb, driven by carrier capacity discipline
We expect that air freight capacity will remain tight in 2018. The space constraints have made the spot market so much more profitable than block space that we expect airlines to hold the line on capacity growth and block space allocation, especially on the Transpacific, in order to maintain yields from Q4 into 2018. On the Transatlantic, labor issues at Frankfurt and slot restrictions at Amsterdam drove a capacity crunch and resulting rate spike in late 2017, and we expect that spike to subside as those issues are resolved. While rates on the Transatlantic will remain higher than 2017, they should return closer to historical levels as we progress through the first few months of 2018.
To protect our clients as best we can from the allocation issues and price volatility on the air freight market, we are investing aggressively in procuring our own capacity where space is most constrained. This will include regular 747F charter flights from Hong Kong to the US West Coast beginning in Q1 2018.
If you’re not a Flexport client, make sure your freight forwarder has a plan to secure space for your freight in advance so that you don't fall prey to a volatile and capacity constraint market.
The ocean freight market is fragile, driven by a growing capacity surplus
A number of factors will influence the ocean freight market this year: overcapacity remains an issue due to ultra large container vessels (ULCV) ordered in 2015 entering the Asia-Europe trade, with a cascading effect into the Transpacific and Mediterranean trades. The growing surplus of capacity will put pressure on rates in 2018, challenging carriers’ financials. In 2018 shippers should be on the lookout for carrier insolvency and make sure to seek advice from their forwarder to avoid disruptions as seen in 2016. We also advise that you think long term with your carrier selection, as the supply/demand balance will shift in 2019 in favor of the carriers.
Shippers are focusing more and more on streamlining their supply chains end to end, looking at reliability, predictability, speed to market, SKU-level visibility, guaranteed delivery windows, net working capital optimization and CO2 footprint. Carriers and forwarders should be responding to shippers' needs with differentiated products. Flexport is working with select carriers on products to take advantage of variable booking options and service windows, which let you designate which shipments are highest priority and which ones can be allowed to roll, better tailoring your supply chain to your business needs.
As the carrier landscape and your business needs change, use Flexport's precise tracking, SKU-level visibility and supply chain analytics to stay in control and improve your supply chain performance.
If you’re not a Flexport client, you should make sure your freight forwarder has reliable allocations, and high quality visibility to ensure your supply chain won't be at risk in case of disruptive events.
Trucking rates will rise, and capacity will tighten, due to the ELD mandate now in effect
As of December 18, 2017, all truck drivers must log their hours with electronic logging devices (ELDs) rather than paper books. This means stricter enforcement of federal hours-of-service rules, which will improve driver labor practices and overall road safety. However, stricter regulations will put pressure on trucking companies that formerly relied on long shifts to stay competitive. As a result, we expect a 2% to 5% loss in capacity, and higher price levels as a result. Read more about the ELD mandate here.
When it comes to weather, expect the unexpected
Whether it’s a bomb cyclone in January or a tropical hurricane in August, climate change continues to drive extreme weather events year-round. We don’t know what new challenges 2018 will bring, but we do know that contingency planning and exception management have never been more important for supply chain professionals.
At Flexport, we offer data that will let you answer almost any question about your supply chain in seconds, and equip you with the tools to isolate and manage exceptions. And in 2018, we're investing in automation that will make your supply chain more responsive to externalities. No matter which forwarder you use this year, make sure your forwarder is prepared to help you around the clock in the event of a crisis. You will likely need that help.