Sea and Air Routes Bustling... Shipping and Aviation 'Smile,' Export Companies 'Tear'

US Sharp Consumer Recovery - Freight Supply Shortage Drives Continuous Price Rise

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Je-hoon] Despite the COVID-19 pandemic, freight rates for sea and air routes are soaring. Shipping and air cargo companies, experiencing a rare rebound period, are increasingly optimistic about improved earnings, but export companies are anxious about meeting delivery deadlines amid rising logistics costs.

According to the shipping industry on the 10th, the China Shanghai Containerized Freight Index (SCFI) recorded 1664.56 as of the 6th. This is a sharp increase of 134.57 (8.8%) compared to the previous week, marking the highest level since related statistics began in 2009. By route, the increase was particularly notable on the North American route, home to the world's largest consumer market. The U.S. West Coast route saw rates rise by $22 per FEU (a unit referring to one 12m container) to $3,871, also setting a record high. The U.S. East Coast route showed a similar trajectory at $4,665.

This rise in freight rates is linked to increased consumption in the United States, the world's largest consumer. According to the Japan Maritime Daily and others, cargo volume on the North America East Coast route (from Asia to the U.S.) turned positive starting in July, with rollover (cargo not loaded and deferred to the next voyage) incidents occurring frequently at various Asian ports. Particularly, demand for low-cost household goods in North America is driving this trend.

The air route is also bustling. According to the TAC air cargo freight index released in Hong Kong, as of the 9th, the freight rate for the Hong Kong-North America route was $7.35 per kilogram. After an adjustment period in the third quarter, rates are approaching the annual peak of $8.47 recorded in early May.

The sharp rise in air cargo rates is due to a shortage of belly cargo (cargo hold under passenger aircraft) caused by passenger flight suspensions. According to the International Air Transport Association (IATA), as of September, available cargo ton-kilometers (ACTK) ? including both dedicated freighters and belly cargo ? decreased by 25.2% compared to the previous year. Although global airlines, including Korean carriers, have converted about 2,500 aircraft into freighters and deployed them for cargo operations, improving from the previous low point of a 42% decrease, there is still a long way to go. Recently, there has also been some positive spillover effect from container ship supply shortages.

As freight rates continue to soar, logistics companies’ earnings expectations are rising. In the securities market, HMM is expected to post a profit of around 340 billion won in the third quarter, and Korean Air is projected to record a profit of about 140 billion won in the fourth quarter. For HMM, this represents a V-shaped recovery, and for Korean Air, a glimmer of hope amid extreme passenger demand contraction. The fourth quarter is a seasonally high-demand period due to Black Friday, Christmas, and year-end holidays, and there is also increasing demand for emergency quarantine supplies amid the global COVID-19 pandemic.

The unexpected boom is expected to continue next year. In the shipping industry, HMM is looking forward to eight 15,000 TEU (a unit referring to one 6m container) class container ships to be introduced next year. The aviation industry is preparing for a surge in transportation demand related to COVID-19 vaccines if they are developed and produced.

On the other hand, export companies are struggling with soaring logistics costs. Recently, global shipping companies have concentrated on China routes, making it difficult to find shipping space. In response, HMM has also taken steps to support domestic companies by operating temporary direct flights from Busan to Los Angeles (LA) until early next year.

This content was produced with the assistance of AI translation services.