Logistics

Ocean freight

• Ocean freight rates have seen a dramatic decrease compared to 2021 and 2022 highs.
• Global trade, including shipping, has entered a period of slower growth. 
• Meanwhile, the container shipping market has seen a surge of orders for new vessels. Combined with the slowing of consumer demand at a time when the effects of port congestion seen in 2021-22 continue to ease, this has had a plummeting effect on freight rates, which are now back to 2020 levels, with market power shifting to the buyer side. 
• The fall in rates does, however, appear to have stabilized and found a floor at the beginning of Q1 2023 (see Figure 1), however, which could be attributed to measures such as service blanking and slow steaming:
  • Service blanking: involves carriers canceling sailings when demand is low to balance out capacities and apply upwards pressure on rates.
  • Slow steaming: the practice of deliberately sailing at lower-than-usual speeds, which reduces fuel consumption and tightens up the market by reducing available capacity, as it increases time taken for vessels to travel from port to port.
• Now that rates have been stable for two quarters, ocean carriers have blanked fewer sailings and adopted a more regular pattern of turning weekly services into biweekly services.¹ 
• H1 2023 has also seen alterations to shipping routes due to the sanctions imposed on Russia prompting oil, gas, and iron ore traders to find new buyers. Longer mileages have been contributing to an increase in shipping demand despite low trade growth.
• However, no significant upside to rates is expected until global demand strengthens. A gradual recovery in consumer confidence is expected from Q1 2024.

^{1 Journal of Commerce}  

Air freight

• The air freight market has stabilized significantly from the volatility experienced up until Q2 2022.
• Lower than anticipated global demand compared to expectations of a “return-to-normal”, combined with strengthening of supply, has pushed rates downwards – especially when compared with the high rates seen over the past two years.
• A key question over the past six months has been the speed and scale at which belly freight (transportation of goods in the lower deck of passenger aircraft) can be introduced into the market. According to industry experts, the air cargo sector will see increased capacity in 2023 with the recovery of belly space on commercial flights.
• However, residual volatility of fuel prices alongside increasing labor costs may counteract this decline and lead to, at minimum, stagnation or even rates beginning to rise again.

Road freight

• Road freight rates have been falling gradually in Europe since Q3 2022, with Q2 2023 rates suggesting that short-term demand is down. With high consumer prices and lagging wages pushing down immediate demand for goods distribution throughout Europe, there has been increased capacity and thus greater competition between providers in the market, which have pushed spot rates down. 
• On the supply side, though Europe is still experiencing a shortage of HGV drivers, the extent of the shortage is slightly lower this year than in 2021, with an estimated 7% of positions (220,000 drivers) expected to remain unfilled, compared to 10% at the end of 2021.⁴  In the UK this figure is lower in comparison to rest of Europe (1%, corresponding to 1,400 unfilled positions). However, if consumer demand rebounds, driver shortage pressures will again be exacerbated.
• The decline in fuel prices compared to Q2 2022 has also contributed to lower road haulage rates. While the fuel market is in a more secure position than it has been since early 2022, inventories remain tight, exposing the products to the fluctuations of the crude price.

^{4 International Road Transport Union}

Diesel price

• In H1 2023, diesel prices decreased, along with falling demand and global economic slowdown; reaching their lowest level since the beginning of the Russia-Ukraine war. The steep decrease in diesel prices has not translated proportionately to declines in freight rates, which remain significantly higher than their pre-pandemic levels. Moreover, diesel prices have now started increasing again in Q3, mainly due to the OPEC+ crude oil production cuts of around 1.16 million barrels per day. European diesel prices are now predicted to rise by about 6% in the second half of 2023.⁵ 
• Early 2023 saw consumer restraint and high inventories leading to capacity excess. However, since the beginning of Q2, there has been an increase in freight volumes in line with typical seasonal trends in the industry, which will start to put upwards pressure on rates. 
• The above factors, alongside expectations of increases to tolls in Germany and Belgium, lead to expectations that the declines in road freight rates will stop in the short to medium term, and prices may even begin to increase again.
• Notably, despite the improved capacity bottleneck situation and lower diesel prices, general road freight rates remain persistently high compared to pre-pandemic levels; and contrary to what has been observed in ocean container transport prices, road transport rates are not expected to revert to historical lows.
• Increasing digitization and the adoption of electric vehicles are emerging trends which are likely to disrupt the road haulage industry. 

^{5 S&P Global}