Market demand patterns:

How have market demand patterns been evolving over the last few weeks, in terms of ocean, air, overland and logistics, and what are you experiencing currently? Which sectors have seen the most significant changes in terms of falls or surges in demand? How much have these increases or decreases been?

Air freight

Experts are calling COVID-19 the black swan event of the air freight industry. The vast majority of volatility is due to how much cargo moves via passenger flight bellies: In the first half of 2019, the bellies of passenger planes accounted for more than two-thirds of scheduled air freight capacity. And it’s exactly those flights that have been hit hardest.

The drop in global capacity has been staggering. Total YoY air freight capacity in China has decreased by 4,600 tonnes per day, which equates to roughly 50x 747 passenger planes worth of capacity lost per day. Overall capacity on the Far East westbound (FEWB or Asia-Europe) has fallen by 30% YoY. On the transatlantic, transatlantic westbound (TAWB) overall capacity has declined by 50% YoY, while passenger airline capacity on the TAWB has declined from 65% to 23% YoY.

Prices reflect this global capacity crunch. For example, on the TPEB, a one-way air freight charter from Hong Kong to Chicago that cost $250k in early Q1 cost $1M by mid-March. Rates on the FEWB are up 4x higher than average. This is consistent on the transatlantic, as TAWB prices are up 3x compared to Q4 2019.

As for specific segments, starting in mid-March, healthcare supplies such as personal protective equipment (PPE) have been the primary drivers of air freight demand. We anticipate this trend to continue for the next month, however, consumer demand in sectors such as retail could drop drastically. This will depress air freight rates, free capacity and help stabilize the market.

Ocean freight

By April 2, all three alliances announced an aggressive blank sailing programme removing 30% of capacity on the FEWB and over 15% on the TAWB through early May. Ahead of that announcement, Flexport’s global ocean freight procurement team were watching two interesting ocean freight indicators: cargo ready date (CRD) amendments and the percentage of cargo leaving ports on time.

In a typical pre-Chinese New Year (CNY) scenario, about 10% of Flexport’s ocean bookings are amended (e.g. CRD changes) or cancelled on a client’s request. This is below the industry average, where forwarders cancel roughly 25% of their bookings on carriers (also known as downfall). Flexport has managed to reduce that number by bringing the majority of all suppliers onto our platform and improving upstream visibility, enabling clients to better forecast and our teams to more efficiently (and accurately) procure space on vessels.

As of the end of March, we saw that roughly 30% of our bookings were being amended. Looking at it closer, about 5% of amendments were because the CRD shifted, which is typical, and another 5% was for a variety of reasons, including issues around blank sailings. A survey of our top origin shippers in late March confirms this: there was an estimated 24% reduction in bookings in April compared to March.

What isn’t typical is that ~20% of those bookings were postponed on the consignee's request, including both postponed and reduced orders. While 30% is exceptional for Flexport, it’s not unlikely that for other forwarders this number could be over 40% considering that their baseline is 25% versus Flexport’s 10%.

The other interesting observation is that as of mid-March, only 70% of cargo had departed as planned. Over the past few weeks amendments were made because the supplier wasn't ready, but then it became clear it was because the consignee needed to postpone or reduce orders. That’s a big drop from earlier in Q1 when about 90% of cargo was departing as planned.

What are companies doing to adapt their businesses to the new demand environment?

We’ve seen a spike in client interest in more flexible ocean services, which includes both the fastest sailings available as well as the slowest. Warehouses and distribution centres across the US and Europe are almost at full capacity, forcing consignees to identify ways to slow their inbound shipments or look for container storage at origin or destination.

SKU-level data has proven to be critical as clients and Flexport’s ‘Squads’ determine mitigation strategies. As storage capacity issues continue to rise, consignees will need to understand how logistics costs impact their landed cost per unit. Does it make sense to hold inventory in the US or Europe? Can you choose fast, premium ocean services over airfreight? Granular, SKU-level data can help consignees make more informed decisions.

To what extent are you able or willing to move logistics resources to the areas where demand has not only been maintained but increased – eg food and healthcare?

Flexport.org, our social impact group, has turned all of its focus to the COVID-19 outbreak. Because there’s a shortage of personal protective equipment (PPE), we’re using our supply chain expertise to make sure medical professionals get what they need. An example of this work is our partnership with Atlas Air and United Airlines, where we shipped full cargo planes filled with PPE to protect frontline responders.

Atlas Air delivered a dedicated charter plane for this mission on Thursday, April 2nd. Originating in Shanghai, the plane contained over 143,000 pounds of PPE for medical systems in California, including approximately: 4.5 million medical masks; 116,000 disposable medical protection coveralls; 121,300 surgical gowns.

Crews from United Airlines volunteered to help, arriving at SFO at 6AM to unload and unpack the plane. The cargo was then put on a truck and delivered directly to hospitals that will distribute the PPE across the state based on need.

What new creative solutions are you implementing or working on in order to help service that sector and demand/need – e.g. for food and healthcare freight movements, logistics and deliveries?

In addition to the PPE shipments facilitated through Flexport.org and our partners such as MedShare, United Airlines, Atlas Air Worldwide and RoadEx, Flexport is helping existing and new clients navigate the complexities of importing medical supplies.

There are a few unique challenges when importing medical supplies, which have been exacerbated due to the urgency and sheer volume of PPE needed. Medical supplies are subject to rigorous customs and compliance standards, PPE is typically moved via ocean freight, not airfreight, and many medical supply consignees operate just-in-time supply chains.

Flexport is helping clients importing medical supplies, many of whom are used to sourcing domestically and are first-time importers, on how to effectively clear US Customs & Border Protection, as well as how to build more cost efficient and dependable supply chains. For example, separate from our Flexport.org initiatives, a client needed to import a large quantity of N95 masks, sourced from China. First, the Flexport Customs team helped the client understand the FDA’s recent Emergency Use Authorization (EUA), dictating that only FDA-certified factories in China could supply PPE. The team ensured all declarations and HTS codes met federal regulations so the shipments could immediately clear customs.

In tandem, the client’s Squad helped them determine how many masks they needed now versus the total amount they needed by a future date, all within a tight budget. The end result: the Squad broke the shipments into two. It procured scarce air freight capacity to move the first shipment, then leveraged Flexport’s ocean carrier relationships to procure space on a flexible ocean service to deliver the remaining PPE. This reduced the overall cost of the shipment, and helped the client meet both its urgent need for PPE while educating them on building a more efficient supply chain.

Lastly, Flexport is educating existing and prospective clients through ongoing webinars, daily status emails, and blog content. On the technology side, we’ve also implemented a new module that allows clients to filter all Flexport-owned content on COVID-19, and serves as a control center that goes beyond providing transactional shipment management.

What are the biggest logistical challenges you or your clients are currently facing?

Global shipping challenges in the face of COVID-19 are changing frequently. Most recently, the blank sailings announced by 2M, THE Alliance, and Ocean Alliance implemented in April and into May will pose a challenge. Over 30% of capacity on the FEWB and over 15% on the TAWB has been removed from the market through the end of the month.

These blank sailings could make procuring space and equipment more challenging, depending on regional demand. Consignees will have to find more options if they are still importing. Further, all of this is happening in the middle of the Transpacific contract season as agreements usually run from May 1 through April 30 of the following year.

What are you doing to support and protect employees?

Employee health and safety is always our first priority. In an abundance of caution and in line with state and local public health advisories, Flexport has required all employees in North America and Europe who are able to, to work from home (WFH). While our Asia offices are open, we will continue to provide WFH options to all employees.

Flexport Squads and clients only need a web browser and WiFi to have full visibility into their supply chains, and to keep them running efficiently.

How do you see things evolving from here? What are customers telling you about their forthcoming needs and priorities?

Client concerns are dependent on many variables: industry, severity of regional lockdown, working capacity of their factories.

For example, with air freight rates on the transatlantic and TPEB peaking alongside available capacity being reserved for PPE, many clients are exploring how to expedite their shipments, using premium (or flexible) ocean services for the first time. Premium ocean services can reduce transit times to about 10-12 days, and provide guarantees for delivery dates and ‘first-on, first-off’ capabilities. We anticipate this will spur demand for premium ocean services in the future, with many clients shifting procurement from air to premium ocean freight where applicable.

Some UK/European forwarders have reported big drops in ocean freight import business but big rises in air imports, mostly relating to healthcare items. What are your observations?

As of the end of March, we saw that roughly 30% of bookings had been amended, with 5% because the CRD has shifted (which is typical), and another 5% due to various reasons, including blank sailings. It’s worth emphasizing that a 30% cancellation rate is exceptional for

Flexport.

What isn’t typical is that ~20% of those bookings were postponed on the consignee’s request, including both postponed and reduced orders. While 30% is exceptional for Flexport, it’s not unlikely that for other forwarders this number could be over 40% considering that their baseline is 25% versus Flexport’s 10%.

With the additional blank sailings announced by all three alliances as of April 1, removing over 30% of capacity on the FEWB and over 15% on the TAWB, we also anticipate rates to increase. The aggressive blank sailing schedule will also further disrupt RFP season, which could impact where and how shippers import goods.

Some have speculated that European and US import demand may drop off shortly due to the lockdowns in many countries and markets. Are you expecting this?

Yes, we anticipate a decline in demand, especially in the industrial goods, automotive, aerospace and chemical industries. On the consumer side, we saw about 50% of bookings amended or cancelled by furniture industry clients. The blank sailing schedule announced by 2M, THE Alliance, and Ocean Alliance further corroborates this.

Flexport serves more than 10,000 clients and suppliers across more than 200 countries, offering services including ocean, air, truck and rail freight, drayage & cartage, warehousing, customs brokerage, financing and insurance

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The opinions expressed herein are the author's and not necessarily those of The OLO News.