The downturn of the global ocean freight rate has taken a serious turn recently after rising unprecedentedly under the influence of COVID-19. The Shanghai Shipping Exchange Index (SCFI), the representative global container freight index, was at a record high of 5,109 points in the first week of January 2022 but decreased by 75.95% to 1,299 points in the fourth week of November 2022 (comprehensive-based). The fall in the air freight rate is no exception. The Baltic Air Freight Indices (TAC), the typical air freight index, recorded the highest point of USD 12.72 per 1kg in the second week of December 2021 (Hong Kong-US based) but fell 48.98% to about USD 6.49 in November 2022. Like this, since the global transport market is undergoing a sudden change, let’s predict the future outlook with various data.
[Baltic Air Freight Indices (BAI)] 
(Source : Baltic Exchange)
(Source : Baltic Exchange) [SCFI and TAC Index] 
(Source : Shanghai Shipping Exchange, Baltic Exchange)
(Source : Shanghai Shipping Exchange, Baltic Exchange) The Signal for Global Supply Chain Recovery, But… Are the global supply chain bottlenecks caused by COVID-19 and Russia-Ukraine war easing? Let’s look at it using the Global Supply Chain Pressure Index (GSCPI) and the US Supply Chain Index.
[Global Supply Chain Pressure Index] 
(Source : FEDERAL RESERVE BANK of NEW YORK)
(Source : FEDERAL RESERVE BANK of NEW YORK) The Global Supply Chain Pressure Index (GSCPI) is published by the New York Federal Reserve in the US and is made considering the global freight index and manufacturing index. The GSCPI is based on 0 points, and it gradually decreased after recording 4.3 points in December 2021. However, it rose up 3.42 points last April because of the Russia-Ukraine war. It fell continuously afterward and recorded 1 point as of October 2022. It is still a little higher than that of the pre-pandemic, but the drop of the GSCPI could be seen as a signal for the easing of global supply chain bottlenecks.
[RSM US Supply Chain Index] 
(Source : RSM US calculations)
(Source : RSM US calculations) The US Supply Chain Index released by the economic consulting firm RSM is made considering the global freight index, manufacturing, sales, and labor. It is based on 0 points, and it fully recovered to the pre-COVID-19 level as of November 2022 becoming 0.49 points.
(Source : Clipart Korea) It could be said that some of the global supply chain bottlenecks caused by the pandemic and the Russia-Ukraine war eased because of the two data. However, it is too early to say it is a full recovery. This is because the temporary slowdown of demand brought on by the global economic downturn is another cause of supply chain recovery. In addition, there are other risk factors for the logistical disturbance such as rail union strikes in the US, the resurgence of COVID-19 in China, and truck driver strikes in China. Outlook for Container Ocean Transport and Air Transport Global carriers which showed unprecedented performances during the COVID-19 period competitively ordered container vessels. The contract amount of new container vessels in 2021 was about 4.34 million TEU, up about 322% compared to 1.03 million TEU in 2020. The contract amount in the past was 0.81 million TEU in 2017, 1.28 million TEU in 2018, and 0.79 million TEU in 2019. Looking at the contract amount in 2021, vessels have been ordered in large quantities with a high figure compared to that of the past 4 years.
[Contract Amount of New Container Vessels] 
(Source : Shipping Intelligence Network)
(Source : Shipping Intelligence Network) The problem is that the time to deliver the ordered container vessels is arriving. Generally, it takes about 2 years for the ordered container vessels to be delivered. Because the contract amount of new vessels in 2021 was higher compared to the year before, if the ordered container vessels get delivered in large quantities after 2 years in 2023, oversupply could occur in the shipping industry. In addition, the outlook for the container shipping market next year could not be bright considering the decreased trade volume due to factors such as inflation and interest rate hike.
The fall of the ocean freight rate cannot help but have a negative impact on the air freight rate. The ocean freight rate skyrocketed during the peak of COVID-19, and shippers chose air transport as an alternative. This was because air freight enabled transportation within a few days with just a little extra compared to the expensive ocean freight rate that took a long time to transport. Because of this, the air freight rate suddenly surged just like the ocean freight rate, but the fall of the SCFI meant shippers no longer needed to select air transport as an alternative. Therefore, the demand for express cargo where air transport is needed is expected to decrease, and the supply of belly cargo is rapidly expanding following the recovery of demand for international flight passengers.
The fall of the ocean freight rate cannot help but have a negative impact on the air freight rate. The ocean freight rate skyrocketed during the peak of COVID-19, and shippers chose air transport as an alternative. This was because air freight enabled transportation within a few days with just a little extra compared to the expensive ocean freight rate that took a long time to transport. Because of this, the air freight rate suddenly surged just like the ocean freight rate, but the fall of the SCFI meant shippers no longer needed to select air transport as an alternative. Therefore, the demand for express cargo where air transport is needed is expected to decrease, and the supply of belly cargo is rapidly expanding following the recovery of demand for international flight passengers.
[Global Air Passengers (RPK Billion)] 
(Source : IATA, Air Passenger Market Analysis)
(Source : IATA, Air Passenger Market Analysis) According to the International Air Transport Association (IATA), the Revenue Passenger-Kilometers (RPK) increased by about 57% in September this year compared to that of September last year. This is about 74% of the level in 2019, meaning that the RPK is recovering steadily for the past 3 months.
The recovery of demand for air passengers means that the supply of belly cargo volume is recovering safely. Due to the decrease of the SCFI, air cargo volume downturn caused by the economic recession, and belly supply expansion due to the recovery of international flight passengers, the future outlook of the air freight rate is not bright either.
The recovery of demand for air passengers means that the supply of belly cargo volume is recovering safely. Due to the decrease of the SCFI, air cargo volume downturn caused by the economic recession, and belly supply expansion due to the recovery of international flight passengers, the future outlook of the air freight rate is not bright either.
(Source : Clipart Korea) In short, the outlook for the demand and supply of air and ocean transport is negative. The reason for the ocean transport is the large delivery of container vessels ordered during the COVID-19 pandemic, and the reason for the air transport is the expansion of belly supply following the recovery of international flight passengers. Therefore, if economic crises such as inflation and interest rate hike do not recover dramatically, next year’s outlook for the global transport market is not that bright.
Unlike carriers, when the freight rate decreases, shippers try to make contracts with low freight rates (compared to that of other companies) as they believe the rate will decrease even more. When looking at past cases where the market was led by shippers, most of the shippers’ efforts to decrease the freight rate succeeded under the one-sided sacrifice of carriers. However, things have changed. Now, the number of players dropped sharply due to the reorganization of the ocean industry, and the market dominance of large-sized carriers increased. Considering the current reality, it is difficult to imagine carriers decreasing the freight rate extremely low even down to the level of decreasing profitability like in the past although shippers are large-sized shippers. Therefore, there should be appropriate compromise between carriers and shippers based on long-term contracts, respecting one another. If that is the case, abilities to accurately predict and identify the logistics market will be important such as predicting ocean and air freight rates and securing cargo visibility.
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▶ This content is prohibited from secondary processing and commercial use without prior consent.
Unlike carriers, when the freight rate decreases, shippers try to make contracts with low freight rates (compared to that of other companies) as they believe the rate will decrease even more. When looking at past cases where the market was led by shippers, most of the shippers’ efforts to decrease the freight rate succeeded under the one-sided sacrifice of carriers. However, things have changed. Now, the number of players dropped sharply due to the reorganization of the ocean industry, and the market dominance of large-sized carriers increased. Considering the current reality, it is difficult to imagine carriers decreasing the freight rate extremely low even down to the level of decreasing profitability like in the past although shippers are large-sized shippers. Therefore, there should be appropriate compromise between carriers and shippers based on long-term contracts, respecting one another. If that is the case, abilities to accurately predict and identify the logistics market will be important such as predicting ocean and air freight rates and securing cargo visibility.
▶ This content is protected by the Copyright Act, and the copyright is held by the contributor.
▶ This content is prohibited from secondary processing and commercial use without prior consent.
