Companies that participate in global trade use two basic forms of transport: ship and air transport.
The cost of transportation is very important because shipping costs affect the final price of the product and affect consumers who buy imported products.
- Transportation prices directly depend on supply and demand.
This year, unusual events have caused the trends to diverge from the normal annual cycles that shipping companies, suppliers and retailers are used to.
In this text, we will look at the price trends in shipping and air traffic during the past year.
We will also analyze the impact of COVID-19 and try to see what can be expected in 2021.
Ship freight traffic and price movements
2020 shipping trends were influenced by several factors, with COVID-19 and US-China trade regulations having the biggest impact.
The start of the year saw a reduction in demand for shipping services, as traders were wary of restocking as the pandemic spread and the world feared looming uncertainty.
Globally, shipping companies reduced their capacity to have complied with smaller and smaller demands while keeping their prices as balanced as possible.
However, demands increased sharply towards the end of the year and since then shippers have kept prices at a higher level.
This rush is typical for the peak season, but this year it started at the beginning of September.
One of the main reasons is that retailers have strategically stretched out holiday shopping by starting it earlier in the year.
They did this with the idea to reduce the possibility of crowds in stores just before and around the holidays, so that it would still be possible to maintain social distance and protect customers from COVID-19.
The peak season for ocean freight traffic is mostly over by November, but this year it's still running stronger than ever in late December.
This extended peak season is the result of increased demand.
Some forecasts predict it will continue into February, but there is no way to know for sure.
The second reason is that spending money has shifted from buying services to buying goods.
For example, people cannot go out to restaurants, bars, cinemas and other places or travel as they usually do.
They used that money to buy goods, especially things for their homes.
The increase in demand for goods was also influenced by the rapid restocking of companies that were previously reducing existing stocks due to the uncertainty that came with COVID.
It is also important to note that shipping from Asia to the United States saw some unusual activity earlier in the year before COVID-19 became a global issue.
Air transport trends
Demand trends for air freight are in line with those for ocean freight, but air freight availability has seen a sharp decline this year.
90% of air freight is typically handled by passenger aircraft.
The rapid decline in passenger travel and the increase in demand for goods, especially personal protective equipment (primarily masks), led to a jump in airline prices at the beginning of the year.
These rates stabilized by the middle of the year, but as the season progressed, prices rose again.
Although there were some delays, things were still going pretty well.
However, air freight is currently more expensive than usual.
The impact of COVID-19 on freight transport
The transportation of goods has been affected by COVID-19 in a number of ways, both directly and indirectly.
The looming fear of the virus has affected the way businesses make decisions, and restrictions and regulations have affected how people spend money.
As we know, rates in the transportation of goods are directly affected by supply and demand.
At the beginning of the year, COVID caused a brief drop in demand before steadily increasing in the second half of the year.
Air freight had reduced availability (i.e. reduced supply) as travel restrictions reduced the number of passenger flights.
Ocean freight transport has remained with the same fleet, and the number of ships is unchanged, which means that the supply cannot be expanded to meet the growing demand.
In general, freight rates fell sharply at the beginning of the year before experiencing steady growth.
Once demand began to increase, it caused the overall to shift in a way that increased shipping costs.
Impact of digitization on freight transport
According to the US Census Bureau, the United States has seen a large increase in small businesses over the past year.
Many people lost their jobs or saw how easily others lost their jobs and decided to start their own.
Global digitization and the shift of shopping towards e-commerce has enabled retailers to connect with both customers and suppliers online.
Although online shopping was not the spark of this increase in transport prices, it definitely added fuel to the fire.
Internet B2B marketplaces like Alibaba.com make it easy for merchants to source products from around the world.
The B2C e-commerce model is quite simple and easy to copy, so many new entrepreneurs try to start their own online store or use Amazon.
It is common for American business owners to source their products from suppliers in countries where production costs are lower.(China, India, Vietnam...)
With more companies making their products overseas, the demand for increases with freight transport.
Who is affected by these changes?
When transportation costs fluctuate, someone has to bear those costs.
It could be suppliers, traders or even consumers, but the money has to come from somewhere.
Sometimes it pays for suppliers or retailers to cover these costs in order to maintain loyalty among their customers.
However, some smaller businesses cannot afford to bear that burden.
Businesses must decide what is best for them.
As consumers, we all fear that this situation will not last and that sellers will not be forced to raise the prices of their products.
What to expect in 2021
2020. The year was unusual in freight traffic due to COVID-19, and 2021 is equally unpredictable.
What happens to transportation in 2021 will depend on when transportation requests return to the regular annual cycle.
Unfortunately, it is difficult to predict what will happen, as cases of COVID-19 are on the rise again and many states are going into lockdown again.
The introduction of a vaccine against the virus may restore hope in seasonal transport trends, but it is still too early for any better estimates.
In addition, the inauguration of a new US president could have some impact on US cargo and tariff flows to Asia.
Some of the regulations that caused freight rates to drop in early 2020 had to do with "Trump Tariffs".
Planning for next year will be difficult, but our best advice is to prepare for as much flexibility as you can.
Have a plan A, but also a plan B and C. Expect the unexpected.
In a perfect scenario, a COVID-19 vaccine would return us to life as we once knew it, but no one can say for sure that will it be exactly like that.