The State of Air and Sea

Recently, the downfall of Hanjin container line has sent shock waves across the world. Low fuel prices were supposed to boost shipment traffics but export volume for both air and sea shipments were lackluster. Better known as Bunker charges, the crude oil surcharge used to take a significant portion of sea freight costs. Now that bunker is cheap with a abundance of ships and high competition among container lines, it proved to have made the container liner industry worse than better. On the contrary, freight forwarders are faring better as they take advantage of the cheap freight, booking spaces and fuel prices while sucking the container liners dry.

10 Years Chart

Airfreight
Shown above is the 10 year charting of crude oil prices as a reference. It is a known tale that oil prices have hit lower than the lows of the 2008 recession and fuel consumers were supposed to enjoy a great deal of discount. However, airfreight volume growth in the year of 2016 were forecasted to remain flat with exports from Europe and Middle East expected to grow further while Transpacific trades to fall as compared to year 2015. Below are the estimates in terms of growth in airfreight volume. (Year-to-date figures)

Airfreight Volumes

Asia                           +1.0%

Americas                  -3.3% 

Europe                      +1.8%

Middle East              +4.5%

Africa                        +0.7%

Sea Freight
On the other end, we have the below ocean freight forecast on growth for both 2016 and 2017. The larger arrows represent larger amount of TEUs (Twenty Foot Equivalent Unit) movements. The year 2016 will only see about 1.7% in growth, after factoring in current economic uncertainties and poor global outlook. Due to the strong US currency, US exports were likely to remain flat.

Growth in Ocean Freight (% based in TEUs)

Export and import figures represents a sign of demand and supply in global trades between countries (we should also consider the existence of domestic trades). Believing that each country will lack certain raw materials or products, each nation will need to import goods in order to feed the local demand. It is pretty clear that trades have slowed down despite cheap fuel prices and sea freight rates. With the lackluster global demand, one shall now ponder how organizations will be affected globally. Management world-wide may start to take cost cutting approaches, leading to an increase in retrenchments and unemployment while governments may be forced to consider fiscal policies and market interventions. Will your holdings be affected?