Bolloré Logistics reports ‘very little peak season activity’, and with exporters having advanced deliveries ahead of threatened US-China tariff deadlines, ‘stocks may now be full enough for exporters to wait until the situation becomes clearer’.
While air and ocean freight volumes posted minor growth in the second quarter of the year compared with the previous quarter, the period provided further evidence of the steady slowdown in activity in the freight forwarding sector which risks continuing into 2020, according to Bolloré Logistics.
“After dismal volumes in April, air freight rebounded modestly in May and June to bring full Q2 levels to about 2% (growth),” the French forwarding and logistics group noted in its latest market report. “Maritime rose by around 3%, though in both sectors the increases were considerably lower than the 5% to 8% levels of recent years.
“Comparing results with the same months in 2018, for example, air cargo activity shrank 3.4% in May and 5.6% in April. A similar sag in sea freight has accentuated since late last year, causing earlier forecasts for 2019 to be scaled back.
“Full-year estimates of 3.7% have been reduced to an optimistic 2% in the skies, and from as high as 4% down to 2.5% in maritime.”
The report highlighted the “global uncertainties,” affecting freight markets: US-China trade tensions that risk spreading to Europe; the perceived unpredictability of future moves by Washington; lower economic growth China; the risk of conflict in the Persian Gulf and disruption to oil shipping; the still unresolved conditions of Brexit’ and lingering worries of a US economic downturn.
“There’s a lot of doubt, and it’s having serious effects on exporting – especially in and out of Asia,” commented Anne-Sophie Fribourg, Bolloré Logistics’ procurement director for sea freight.
“Many exporters concerned about the impact of US-China trade tensions advanced deliveries to head off threatened deadlines earlier this year. The result is that stocks may now be full enough for exporters to wait until the situation becomes clearer before increasing volumes.”
She highlighted “additional unknowns” surrounding the looming rate increases linked to new environmental regulations to reduce sulphur emissions next year.
“At this point, nobody knows how much of the $60 billion cost to shipping companies investing in cleaner technologies will be passed on to clients,” Fribourg noted. “That lack of transparency increases the tendency of exporters to wait until details are known before making decisions for the future.”
In order to offset flagging volumes, ocean carriers have begun lowering capacity through blank sailings to maintain rates.
Meanwhile, air cargo carriers have cut back on available freight space with the same objective. But according to Claude Picciotto, Bolloré Logistics’ procurement director for air freight, these efforts to support rate levels are no replacement for the robust growth in volumes the sector had come to rely on for much of the past decade.
“We’re now down to the levels last seen during the 2015 lull, and moves to prop rates up aren’t going to be enough for airlines and cargo companies that need healthy volumes to pay their bills,” he said. “It’s hard to see where renewed activity will eventually come from because, apart from luxury goods, virtually all export has tailed off across the board.”
That sluggishness may not be over soon, the report warned, underlining that rebounds during slower years have often come with peak season surges in mid- to late-summer. However, this year the “boost” has yet to materialize.
“We’re seeing very little peak season activity, which is not a very good sign for the months to come,” Fribourg revealed. “Without that kind of catalyst, there’s concern this soft spell may extend into next year.”
Picciotto added: “Without peak season, the last hope is Christmas. But even if that happens, it wouldn’t resolve the underlying issues that are creating hesitation and doubt in exporters’ minds.”