Air cargo will always be a lot more expensive than sea transport so, supported by sustainability demands, shippers will weigh their options. At TIACA’s Executive Summit in Brussels last week the issue did not go untouched. Do we see a modal shift driven by a growing price gap and environmental considerations, favouring ocean?
Niall Van de Wouw, Chief Airfreight Officer of the Air and Sea Freight Rate Analytics Platform Xeneta, pointed out that, over the past few years, the cost difference between air and sea freight rates has risen from a mere 6 times to now 21 times higher [in OCT23. It even peaked at 37 times higher in APR20]. On top of that, some shippers feel the need to reduce the impact of transport in their sustainability goals.
Apple, to name just one example, is using its recently unveiled Apple Watch 09 as a billboard for carbon neutrality. The company claims that it will ship 50% of the combined weight of the new models by non-air modes.
“But the Energy Transition has limited room for growth – around 89% of energy is from fossil fuels and the aim is to move down to 77%. Ocean freight already accounts for 97% of transport and air for 3%%, so there is less scope to move,” said Van de Wouw. “The sustainability drive will impact air, however, due to natural barriers, ocean transport is not always available to shippers,” he explained.
An important indicator to be watched will be the reliability of ocean transport, according to Van de Wouw. “Air cargo rates drop as ocean schedule reliability improves and vice-versa.”
This reliability is certainly not to be taken for granted. We all remember the grounding of the Ultra-Large Container Vessel ‘Ever Given’ in the Suez Canal in MAR21, blocking one of the world’s major maritime routes for 6 days and causing even longer delays in the supply chain.
And as this article is being written, 99 vessels are queuing to pass through the Panama Canal, which is suffering from low water levels due to draught. Geopolitical tension is another disrupting factor for ocean shipping in the Persian Gulf and the Black Sea. And the design of the Ultra Large Container Vessels (ULCV) itself, demanding high-stacked steel boxes, means it is vulnerable to the force of gales, risking a loss of boxes and capsizing.
Overcapacity is a problem in both air and ocean freight, which has an impact on rates. It has not stopped major ship-owning companies from investing heavily in new ULCVs, which, however, cannot pass through the Panama Canal.
In the short term, uncertainty remains, Niall Van de Wouw admits. “It is hard to predict what the ocean market will look like from APR24, since stricter competition laws may again come into force. Other decisive factors may be the push for green and, of course, the cost.” He pointed out that niche markets might be underserved, and these would thus provide opportunities for air cargo, again.
Marcel Schoeters in Brussels
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