Containers

£40 Million Investment in Southampton

DP World have announced that Southampton, Britain’s second largest container terminal, will be benefitting from a major investment which will raise its significance as a premier international freight and logistics hub.

DP World Southampton is a part of DP World and a leading global provider of smart logistics. One of their two UK deep water ports were awarded Freeport status by the government last month. The new £40 million investment intended to improve infrastructure will provide customers with increased speed, security, reliability and flexibility. Changes to infrastructure will include:

  • Dredging and widening of the berths to ensure accommodation of the world’s largest ships. With the partnership of Associated British Ports, this project was completed before Easter and will provide flexibility for their customers with immediate effect.
  • An investment in a new class of eleven hybrid straddle carriers totalling £10million. The vehicles are used to lift containers moved by the quay cranes and then service onward forms of transport via road and rail. This new class of machines will be the most sustainable in the world consuming up to 40% less fuel than its diesel-electric counterparts.
  • Currently £3m is planned to be invested in the redevelopment of the yard for the storage and delivery of empty customer containers. This will increase capacity of the yard by 25% on completion, creating more flexibility for port users.
  • A new Border Control Post (BCP) which includes UK Border Force and Port Health inspection facilities. This will enable multiple government agencies to improve the time they are taking on cargo checks entering the country.
  • A £1.5m quay crane rail extension of 120 metres to ensure that all berths at the terminal will be serviced. In addition, other quay cranes will either be relocated or decommissioned to maximise efficiency, speed quayside loading and save time.

Ernst Schulze, Chief Executive of DP World in the UK said: “DP World Southampton is the most productive port in Britain, turns container trucks around faster than any of its competitors and at 30% also has the highest proportion of its containers moved by rail.”

“At DP World we think ahead to create smarter trade solutions and this £40m programme of investment will ensure that our Southampton terminal continues to grow as a major freight and logistics hub. Our aim is to partner in our customers’ business success and we are already seeing a surge of interest from companies which want to take advantage of the customs zone and tax benefits resulting from Southampton and London Gateway becoming Freeports.”

This investment into the port of Southampton is a welcome arrival to the logistics industry that has faced some gruelling battles with the COVID-19 pandemic and Britain totally breaking away from the European Union at the end of last year.

According to Logistics UK’s 2020 report the logistics industry made an astounding effort to deliver for the nation that year despite setbacks including HGV driver shortages, economic and financial hardship and significant disruption to operations.

Elizabeth de Jong, Logistic UK’s Director of Policy commented: “Despite facing significant operational and financial disruption since March 2020, the logistics industry has stepped up to ensure it continues to supply the nation with the goods it needs, including food supplies and PPE. The COVID-19 crisis has highlighted how critical our industry and its people are to the success of the economy; Logistics UK is proud of the way in which its member businesses, and the wider industry, have worked together to service the needs of the nation during this critical time.”

“To deal with the COVID-19 crisis, logistics businesses managed risks by scaling back operations, taking work back in-house and reducing their reliance on third party services; many also focused activity on their core fleet of vehicles to save costs.”

Air Cargo

Global Air Cargo Volumes Recover to Pre-COVID levels inside 10 Months

The global air cargo market has virtually recovered from the losses that the COVID-19 pandemic caused according to performance data for February 2021 from industry analysts CLIVE Data services and TAC index.

Chargeable weight for the last 4 weeks of the month, stood at 1% compared to February 2019 and 2% ahead of last year’s number. Niall van de Wouw, Managing Director of CLIVE data services commented the following that passenger airlines will be, “dreaming of such a recovery in passenger demand.”

CLIVE data will continue to compare first to market data to pre-pandemic numbers of 2019, to give a meaningful perspective of the industry’s performance. This is planned to occur until at least Q3 of this year. This will be produced alongside the 2020 comparison.

Capacity levels in February 2021 were -8% and -5% of 2019 and 2020 respectively. CLIVE’s load factor calculated both the volume and weight perspectives of cargo flown and capacity available was up 5% pts on February 2019 and 9% pts on February 2020. The overall dynamic load factor was the same as last months while the monthly volumes climbed 7% despite the short month of February as capacity rose 5% over January.

Van de Wouw added: “These are tricky months to compare due to the Chinese New Year and Leap Year variances, so we have to be careful in how we read the market. To give a meaningful view, it makes sense to keep an eye out to 2019 before the pandemic took hold and, on that basis, air cargo demand is now nearly at par with pre-COVID volumes despite much less capacity in the market. If we normalise for last year’s Leap Year, we can see a 2% growth in global volumes compared to February 2020 but that does not tell the tale by any measure – the apparently modest global growth number is masking what lies underneath. Volumes from China to Europe, for example, were nearly 5 times higher in the four weeks of February 2021 than in the similar weeks of 2020. This was caused by the dramatic drop in volumes because of the of the factory closures a year ago in response to the COVID outbreak. Volumes from Europe were down by -11% for the same period.”

“Demand is increasing and there are a lot of passenger planes sitting around that could start flying cargo, but I don’t think that will happen proactively. Given the high financial risks, when it comes to adding capacity, airlines are more likely to follow the market as opposed to trying to stimulate it. But if it makes sense, they will surely fly those aircraft. Air cargo has been resilient and, bit-by-bit, has clawed back the losses we saw only a few months ago. In April 2020, volumes were down -39% but are now back to the pre-COVID level. Who would have that possible inside 10 months? It’s a recovery airline passenger departments will be dreaming of.”

According to TAC index, volume, capacity and load factors continue to reflect the high price of transporting shipments via air cargo at the moment.

Robert Frei, Business Development Director at the company commented: “Volatility remains high (also intra month) and, given the much higher pricing levels than a year ago, is having a major impact. Looking at PVG-EUR, for example, if you are 10% off with your procurement today (which would be RMB 3.20) compared to 2020 levels, it would have meant a deviation of 18%. This presents a very risky environment for freight forwarders and potentially an immediate loss of their gross margins of 8-10%. So up-to-date pricing information on a weekly basis is an absolute necessity to manage these volatile periods. We also assume the spread of spot rates is likely to remain high.”

The latest data from TAC Index shows that despite the ‘mundane’ monthly pricing average there is still quite a lot of volatility in the weekly rate levels.

Data shows that the Baltic Exchange Index was +2% over January which also took Chinese New Year into account which is normally considered peak season but looking more closely at the impact on the PVG – EUR compared to previous years, TAX index observed the following:

• 2019 – overall period +8%
• 2020 – overall period -4%
• 2021 – overall period -13%

February 2021 saw the highest drop in yield compared to that of the previous years during the period around Chinese New Year. In absolute terms this compares as shown below:

• 2019 – average RMB 20 /kg
• 2020 – average RMB 17.5 /kg = – 11% to previous year
• 2021 – average RMB 31 /kg = +79% to previous year or +63% higher than 2019

TAC Index added that interesting observations have made when comparing other international routes such as HKG – EUR which stayed relatively flat in terms of pricing levels whereas the PVG counterpart increased by +7%. Meanwhile, HKG – USA went up 2%, whilst PVG – EUR went down by -1%.

air freight

The Impact of COVID-19 on the Air Freight Industry

Due to the COVID-19 pandemic, air freight has been one of the hardest hit industries in logistics.

Lockdown restrictions and travel bans have caused chaos internationally with many flights being grounded. On a normal day, air freight is responsible for the transit of trillions of dollars’ worth of shipments every year. Flying is one of the fastest methods of transport and is considered ideal for low volume, high-value items. With the industry currently at its knees, it has heavily disrupted global supply chains and production cycles for multiple countries. Other sectors of aviation including commercial and private air travel have also taken major setbacks with many airlines having to resort to mass redundancies of their employees.

 

The Pre-Pandemic Air Freight Industry

Before COVID-19, much of the worlds air cargo was carried via passenger aircraft. This was transported in the aircraft hold and made up 40% of annual global cargo. New generation, wide bodied aircraft are equipped with a generous belly hold capacity and are ideal to carry large quantities of cargo. A Boeing 777 passenger aircraft is able to carry as much as 20 tonnes and was frequently used to transport many shipments. Unfortunately, with only 20% of the world’s air traffic in operation at the moment, this has been significantly impacted.

Although freighter aircraft continue to operate by cargo operators and freight forwarders, many of these aircraft are hub focused and are not able to access the same extensive route network as commercial aircraft which is proving restrictive and taking away much of the convenience air freight has always promised.

 

Making Up the Shortfall

To ensure essential cargo continues to be transported, airlines have been utilising their main passenger cabins. The load sheet must be worked out precisely to ensure the weight and balance of the aircraft is not affected and is secured into passenger chairs with netting. It was widely publicised that emergency PPE for frontline healthcare workers was transported from China in this way.

At least 20 airlines have offered their aircraft for global cargo missions including British Airways, Delta and Cathay Pacific. The aircraft are chartered by freight forwarders and operated by the airline’s crew.

 

Low Fuel Prices Making up for Low Occupancy

Low fuel prices have eased the expense of low occupancy flights. This has been a saving grace to many airlines which has enabled them to continue flying to destinations they would otherwise have had to cancel. Aircraft manufacturers, Boeing and Airbus have also offered their freighter aircraft to transport critical supplies including 1.5 million facemasks.

Despite these creative solutions and work arounds, the industry is experiencing a major shortfall in the capacity it is able to transport and is majorly disrupting the transportation of essential goods such as medical supplies to virus epicentres.

Coordinating cargo supplies to demand is a time-consuming business that requires intense labour and negotiation from a lot of people. During the pandemic, this has been covered by governmental departments and national carriers and have usually been organised on an ad-hoc basis

 

Operational Obstacles

Before a shipment reaches its final destination, operators have to address certain challenges including airport curfews, border restrictions and flight time limitations. If the aircraft is permitted to land in a certain country, the crew can be subject to gruelling quarantine and testing regulations. This could see them spending up to two weeks in a hotel room upon arrival causing severe disruption to the operator. Without their crew they are without an aircraft prohibiting them from making other vital cargo journeys.

These issues are likely to cause pandemonium for the future of passenger air travel when lockdown restrictions lift. It is likely that these issues will still be in affect and will continue to prohibit many people getting to where they need to go.

 

Preventative Measures for the Industry

Aviation is an industry that relies on governments to work collectively and cohesively. When it comes to air freight, there needs to be more of a concerted effort made to remain consistent from one country to the other. The COVID-19 pandemic has taught us that new procedures are required to prepare ourselves for future crises. A framework must be developed for all countries to work from and ensure that the transportation of vital supplies is not severely disrupted regardless of the critical threat level of the world.

The development of this framework will involve analysis, risk assessments, training sessions and the re-writing of standard operating procedure.  For aviation in particular, more consideration needs to be given to air cargo and how we can keep operations going in the face of a crisis.  The air cargo industry has proved invaluable during the COVID-19 pandemic; however, more support needs to be given to be able to provide that invaluable service in the future.