September 2020
Coronavirus and Shipping Rates:
What You Need to Know
In the early days of this pandemic, there was certainly some indication that the effects of the Coronavirus would be felt in the shipping industries. All of these months later, though, it’s safe to say that few if any of us anticipated just how disruptive this virus would prove to be.
COVID-19 has changed the landscape of every industry in the world, all around the world. That is not an exaggeration. Ocean and air freighting are not exceptions to this reality. Shipments are moving slower. They’re more complicated from a logistics point of view. And their costs are still on the rise.
Airline Cargo Capacity
Some people outside of the shipping industry might think that passenger airlines fly passengers and their luggage around the world, while cargo aircraft transport goods. Those of us in this industry know that this isn’t the case, with more than 50% of the world’s cargo being transported in the belly of passenger aircraft.
But when’s the last time you seriously considered hopping on a flight for leisure?
The travel industry is tanking, and that’s not just bad news for resorts and airlines. It’s bad news for importers and exporters. Fewer passenger flights means fewer opportunities to load that plane up with cargo, and that drives up demand as capacity plummets. We’re talking basic supply and demand here.
Fewer flights. Less room. Higher prices.
External Factors
It’s not only the reduced availability of flights that are driving up airfreight prices. There are still all of the old standbys to consider, too. Jet fuel prices, for instance, will always affect the price you pay to ship your goods via air. And those aren’t in our favor, either.
On August 2nd, freightwaves.com reported an 11% increase in jet fuel prices over the course of the preceding month.
Because passenger airlines don’t make as much money off of cargo-only flights as freighters do, they’re scaling back those options. And, you guessed it—that adds to rate increases. At the beginning of August, rates from China to the USA had increased by 8.63%, coming in at $5.16/kg.
What About Ocean Shipping?
Ocean shipping is always going to be your cheaper option when it comes to getting your cargo where it needs to go. You don’t need us to tell you that. You also understand why this is the case—longer lead times, lower prices. You want something to get where it’s going faster, you pay for air. Simple, right?
Well, with air freighting being as expensive as it is right now, more and more shippers are exploring their ocean shipping options. While ocean shipping prices are also rising in general, the difference between ocean and air pricing is substantial enough that it’s still going to be the more affordable option.
Poor Timing for Ocean Freight Prices
To say that Covid-19 had poor timing isn’t really saying anything at all. No timing would have been good for the mess that this virus has created around the globe. In terms of ocean shipping, however, it really did strike at a bad time. It came in hot on the tail of a new IMO 2020 regulation. This regulation essentially bans ships from burning fuel with a sulphur content higher than .5%.
That means investing in vessel conversions to burn alternative fuels. It’s a great win for sustainability, but importers and exporters were already bracing for the impact that this updated regulation would have on pricing. Combined with the complications stemming from Coronavirus, you can see how things built up.
Where Is It All Going?
Volatile really is the only word that can describe the situation right now. Back in June, it looked like air freight rates were getting ready to drop back down to something resembling normalcy. Initial demand for PPE was starting to level off. However, that was largely due to the availability of shipping space in the bellies of passenger airliners.
As airlines have continued to struggle, though, and the hope of Coronavirus passing quickly has evaporated, that capacity has not panned out as hoped. Add in the increase in China exports to the US, and we start to see the upward trend once more. Take into account the major discrepancies in ocean shipping depending upon which coast is on the receiving end and the future is even murkier.
What Does This Mean for You?
It means that now, more than ever, you need a global logistics expert on your side. If you’re reading this, then you’re already ahead of the game.
You could make a full time job out of making heads or tails of your options, their rates, and the changes you’re seeing. But you won’t, because you don’t have time for that.
Let JF Moran navigate this volatile landscape for you.
JF Moran thrives in making sense of the world that you do business in. This pandemic presents major challenges. Unprecedented challenges. No one had dealt with this exact situation before—but some are much better equipped to do so than others.
Reach out with any questions that you have regarding current rates and trends. Our decades of experience and expertise are what you need to make the most of this situation we’re all in.