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Modal shift continues says Drewry

June 22 2015: Drewry Maritime Research says there is evidence that the air cargo sector took some business from ocean carriers during the US West Coast slowdown. But will the trend stick, it asks:

Following the ratification of a new 5-year labour agreement between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) in May – 11 months after the previous contract expired in June 2014 – there are signs that operations at US West Coast ports are close to being back to full-speed.

There are no containerships left anchored outside either Los Angeles or Long Beach while the latter port has just reported that May was its busiest month since October 2007.

However, much of the recent growth at Long Beach, and indeed Los Angeles, has come from the handling of empty containers. Empties were up by 14 percent in the first five months of this year at the two West Coast gateways, compared to decreases of 2.0 percent for loaded imports and 14 percent for loaded exports.

Port statistics in isolation can be misleading so for the purpose of this analysis we decided to look at another set of data series from a different transport sector to gauge just how back to normal things really are. As we reported in November 2014 the US port delays were forcing a number of shippers to resort to paying for much more expensive airfreight.

US import airfreight prices spiked as importers were desperate to have their stocks ready for the Christmas holiday season, as demonstrated by the Drewry Transpacific Eastbound Air Freight Rate Index, which is published in the monthly Sea & Air Shipper Insight report.

The big picture is of the far cheaper ocean freight sector growing at a much faster rate than air cargo with greater demand for the sorts of goods that are typically moved by containers and the fact that more higher-value goods, the bread and butter for air traffic, are increasingly being trusted to ocean carriers. However, data from the US Census Bureau shows that the trend was bucked last year when measuring the growth for the two sectors into the US.

Despite the faster growth rate, air cargo has barely increased its tiny fraction of the US import container trade, now holding some 2.8 percent share, which is up from 2.4 percent at the start of 2014. Such small numbers make it very difficult to conclusively point to modal shift, leaving analysts to rely on anecdotal reports and a few key commodity statistics.

In normal circumstances there is very little overlap in the goods that ocean and air cargo move but the small bubble they do fight over in the middle include items and parts from the hi-tech, fashion, and automotive industries among a small select group that require expedited transportation. US Census Bureau data again shows that air cargo has been increasing its market share in these areas.

Fashionable clothing, represented by women's blouses, has been switching to air in recent months in readiness for the summer season. The need to get more mundane everyday clothing such as men's vests and T-shirts is less pressing, but even here there has been a small move towards air cargo.

As port operations improve on the US West Coast, the reversal in the long-term shift towards ocean will resume. The prospects of missed sailings in the peak season as ocean carriers look to redress the supply-demand imbalance could potentially prolong the blip for a small number of high-value goods.

- Based in London, Drewry is a specialist research and advisory organization providing analysis and reports for the global maritime industry.

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