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‘The World Isn’t Back to Normal Yet’: Volatility Roils Air Freight and Ocean Cargo

The global COVID-19 pandemic has caused disruptions in nearly every aspect of society and industry, and according to Mike Piza, senior vice president of Apex Logistics International, freight markets have suffered from the economic impacts as well.

“It’s been a really unique year and there’s been a lot of volatility in the freight markets,” Piza said on a webinar for the Footwear Distributors & Retailers of America (FDRA) Sourcing Summit. “I think if you could sum up 2020 International freight market perspective, I would say that there’s a lot of uncertainty, a lot of volatility. And we went through periods in March, April, May, June where there was this huge PPE craze on the air freight market.”

Piza said this drove air freight rates up into the $17 to $19 per kilo range, which he said he had never seen before.

“And coming right off that, now we’re seeing an abnormally high ocean freight market,” he said. “Ocean carriers have done a lot of blank sailings and it’s really driven up the spot rate of ocean freight, so there’s a greater demand and capacity. And the world isn’t back to normal yet, and so as retail stores reopen and inventory levels have to be brought [down], we anticipate that those rates will remain high.”

Piza noted that ocean freight rates into the West Coast are now into the $2,700 per 20-foot unit (TEU) range, which hasn’t happened in a long time.

“I think you’re just getting a lot of volatility and a lot of uncertainty on the freight markets,” he said. “We’re not even taking into account some other factors that are going on. This year is an election year, so there’s always some volatility around an election year. Then you’ve got the Section 301 tariffs that are out there that cause more uncertainty because you don’t know if they’re going be out there. There’s a lot of uncertainty and volatility… and what we’re expecting for the rest of the year is for that to continue.”

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He said there are some solid indications that it’s probably going to be a strong fourth quarter as retail stores continue to open up and some other factors that show demand will be high on air freight.

Discussing the low capacity issues that have arisen, since many packages are flown in the belly of passenger planes and the pandemic has caused a large decrease in traffic between, for instance, China and the U.S., Piza said he expects that problem to continue.

“It’s definitely been the year of the freighter, so you’re seeing very high usage of freighter aircraft, a lot of charter activity,” he said. “But that also keeps the rates a little bit higher. We don’t anticipate the passenger aircraft to come back; people aren’t traveling. Those commercial international flights are really driven by the business traveler for the most part and we can’t see in the near future that that travel is going to get back to normal and all of a sudden those passenger aircrafts are going to be flying all over the place again. So, we think it’s going to take some time to be back to normal.”

While standard brick-and-mortar retail has been deeply impacted during the crisis, cross-border e-commerce demand, which was already growing at an accelerated rate, is expected to be pushed even higher by COVID-19, domestically and internationally.

“At Apex, we focus on the international, cross-border product,” he said. “If you place an order from China, we’ll deliver that product right to your door in the USA. So, we’re seeing a lot of uptick in that international cross-border e-commerce business and that trend is going to continue.”

There are also issues surrounding costs and fees that have been in flux.

“We’re focused on a few different things,” Piza said. “Customs has done a number of things–they’ve increased the minimum so anything under $800 dollars can now enter the country duty free. So that’s a big factor and we’re seeing a lot of people trying to take advantage of that by switching which countries they source from. Custom is also refining some of the ways that you can file the entries. So, one of the things that they just recently did was they created a new entry type to facilitate these e-commerce entries. This also helps speeding up the process of getting through customs.”

Talking further about footwear sourcing, particularly out of China and into Vietnam, he said people are “really looking to source outside of China and maybe get a better trade balance and Vietnam has been a big beneficiary of that.”

“I think one of the things we’re seeing is that Vietnam never had any direct flights to the USA, so you always had to go over Singapore, Hong Kong, Middle East,” Piza added. “As a result of all this additional volume, we are now seeing direct flights. We’ve launched a direct charter service from Ho Chi Min [airport] into the U.S. Other carriers have done the same thing, so you’re getting this injection of capacity into the market with direct flights, which I think are very helpful, and it’s going to facilitate direct trade and capacity.”

The same thing is happening with the European Union, with flights directly into London and Amsterdam now from Vietnam.