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Drewry's sees imminent shift from air to sea freight for some commodities

RISING air freight rates and falling prices for ocean carriage is bound to lead air shippers to choose seafreight, say Drewry Supply Chain Advisors.

With ocean and air rates moving in opposite directions, the difference between the two is at a record high and, the longer the situation continues, the more likely that suitable traffic will switch from air to sea, Drewry noted.

Shippers have developed more sophisticated IT to keep track of their inventory and have greater faith in the reliability of shipping services, Drewry said.

Chuck Clowdis, managing director of transportation advisory services for IHS Global Insight, agrees, but adds:

"Air cargo will see last moderate rise this week and maybe early next week," he said. "But it may not be sustainable, as there was no real peak season this year."

The shift towards the much cheaper ocean freight mode has gathered momentum in recent years as shippers have developed more sophisticated IT systems, leaner inventory strategies, and greater faith in container service reliability.

The dramatic decline to ocean freight spot market rates has served to widen the pricing differential to air rates to record levels.

Analysts at the London-based think tank reported last week that spot market ocean freight rates are in a rapid tailspin. Highlighting the extent of the decline, average container rates for October on the backhaul Europe to Asia trade - where ships are barely two-thirds full - were more expensive than they were for the far bigger headhaul Asia to Europe leg.

This was the first time this had occurred since Drewry started benchmarking the aggregate trade rate indices in 2011. Despite similarly sluggish demand trends, air freight spot rates have held up much better than ocean rates.