E-commerce boom strains air freight capacity, while overcapacity keeps ocean rates low
The e-commerce boom has significantly impacted the global shipping industry, particularly in the air freight sector. As consumers increasingly shop online, there has been a surge in demand for air freight services to transport goods quickly and efficiently.
This surge in demand has strained air freight capacity, driving up rates and congestion at airports. According to IATA, air cargo volumes are expected to grow by 3.9% in 2023, outpacing passenger traffic growth.
The top five major 3PL players – DHL, FedEx, UPS, Kuehne + Nagel, and DB Schenker – collectively control a significant portion of air freight capacity. It is estimated that these five companies could take up all air capacity at this point.
This concentration of power has given these companies significant leverage in the air freight market, allowing them to negotiate higher rates with airlines. As a result, air freight rates have risen sharply in recent years.
For example, the average air freight rate from China to the United States has increased by over 50% since 2020. This has made it more expensive for businesses to ship goods by air, which has put pressure on their profit margins.
In contrast to the air freight market, the ocean freight market is currently experiencing overcapacity. This is due to a number of factors, including the COVID-19 pandemic, the war in Ukraine, and the ongoing trade war between the United States and China.
As a result of overcapacity, ocean container rates have fallen sharply in recent months. In fact, the average container rate from China to the United States is now around $1,200, down from a high of $30,000 in 2021.
This decline in rates has been welcomed by businesses that rely on ocean freight to transport goods. However, it has also put pressure on ocean carriers, who are struggling to make a profit in the current market.
The overcapacity in the ocean freight market is expected to continue in the coming months as more ships are added to the global fleet. This could put further downward pressure on ocean container rates.
Implications for E-commerce Businesses
The current state of the air and ocean freight markets has a number of implications for e-commerce businesses.
- E-commerce businesses that rely on air freight to transport goods should be prepared for higher rates.
- Businesses should consider alternative shipping methods, such as ocean freight, for products that are not time-sensitive.
- Businesses should work with their 3PL partners to optimize their shipping strategies and minimize costs.
- E-commerce businesses that rely on ocean freight to transport goods should take advantage of the current low rates.
- Businesses should consider consolidating shipments to reduce shipping costs.
- Businesses should work with their 3PL partners to ensure that their shipments are properly packed and labeled to avoid delays and damage.
Overall, the e-commerce boom is having a significant impact on the global shipping industry. E-commerce businesses need to be aware of the current state of the air and ocean freight markets and adjust their shipping strategies accordingly.
Here are some additional key takeaways for e-commerce businesses:
- Diversify your shipping methods: Don’t rely on a single shipping method. Use a combination of air and ocean freight to get the best rates and service for your specific needs.
- Plan ahead: Book your shipments as early as possible to avoid last-minute rate hikes and capacity constraints.
- Work with a reputable 3PL: A good 3PL can help you optimize your shipping strategies, negotiate better rates, and manage your supply chain effectively.
By following these tips, e-commerce businesses can navigate the challenges of the current shipping environment and continue to grow their businesses.
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