Apparel companies shifting to air freight to offset congestion at ports

Tony MulveyFreight Market Blog

Shippers are facing supply chain challenges from all sidessourcing, manufacturing, global shipping and domestic transportation networks. Domestic transportation networks receive a  great deal of attention, but shippers are having to make expensive decisions before products even arrive on U.S. shores. 

As peak retail season approaches, shippers in the retail space are focused on guaranteeing that products arrive with time to reach shelves (or distribution centers). Shippers have been making it known that supply chain challenges stem from the difficulty securing capacity and that demand is as strong, if not stronger than it has been at any point during the COVID-19 pandemic. 

Congestion is an issue at the ports, especially the ports of Los Angeles and Long Beach, where more than 50 vessels remain anchored in San Pedro Bay. The congestion at the ports, not just on the West Coast, but also at East Coast ports like Savannah, is continuing to build on an almost daily basis. It has reached such a critical point that increased demand is driving shifts into the air freight market. 

While congestion at the ports is just one factor impacting shippers, the ability to secure containers is forcing shifts in how goods are being moved across the Pacific Ocean. In addition to port congestion and a shortage of containers, rates across the ocean have soared to unprecedented levels, well in excess of $20,000 per 40-foot container. Even with some large ocean carriers pausing spot rates, that doesn’t mean capacity is going to be any easier to secure. In all likelihood, securing any excess capacity will likely be more difficult as ocean carriers prioritize long-term, contracted relationships over an influx of demand in the spot market.

Chart: FreightWaves SONAR. Daily spot rate for a 40-foot container from China to the North America West Coast {green} and the North America East Coast {blue} are signaling the difficulty shippers are having in securing excess capacity.  

Numerous apparel companies, including Lululemon, Adidas and Crocs have all announced plans to increase their reliance on air freight in order to have inventory onshore during the holiday season. This move will not only offset the increase in ocean shipping costs but will also secure capacity to get goods onshore. 

The COVID-19 pandemic has brought numerous challenges in the air freight market, notably removing significant capacity at the onset. Slowly over the past year the air freight market has been recovering. Air freight rates out of Hong Kong destined for North America are up 81% year-over-year (y/y) and while the increase seems substantial they are muted compared to ocean rates, which are up in excess of 200% y/y.

Air freight capacity has improved as well, allowing for these large apparel shippers to use air freight as a viable option during the third and fourth quarters. Vietnam, which is vital to apparel and footwear supply chains, is experiencing one of the worst COVID outbreaks in the world and Cat Lai, the largest port in the country, shut down in late July, creating a significant backlog to work through.

FreightWaves’ flagship SONAR platform helps shippers to understand current market dynamics and provides actionable insights regarding how to handle the ever-shifting freight market. The Outbound Ocean TEU Index (OOTI) from Vietnam to the U.S. is an index based on the number of TEUs being booked on containerships from various ports in Vietnam with their destination at various U.S. ports. Including those bookings leaving Vietnam in the next seven days, the index has dipped to its lowest level since late February.

Chart: FreightWaves SONAR. Outbound Air Cargo Tons out of Ho Chi Minh City are expected to grow leading into the holiday season as shippers rely heavily on air cargo.

Conversely, the Outbound Air Cargo Tons (OTAC) from Ho Chi Minh City’s Tan Son Nhat International Airport rebounded in August and are expected to grow into the holiday shipping season.

SONAR helps subscribers understand how these shifts from the ocean to air cargo have an impact on overall domestic transportation markets as well. Port cities are different destinations than some of the major airports across the country.

Interested in getting an edge during the holiday season? FreightWaves is the nerve center of the global supply chain and SONAR is the global dashboard. The SONAR data platform offers the fastest and deepest set of freight market data on the planet. Benchmark, analyze, monitor and forecast everything that is happening around the logistics world with SONAR.