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Ocean capacity is rising, demand is cooling, and 'the market is starting to turn'

Container spot freight rates on the main east-west ocean trades showed their first decline since the end of April - a first sign that the market is emerging from the peak season, at least in terms of pricing. This week's World Container Index (WCI) from Drewry saw Shanghai-Rotterdam drop 1%, to $4,873 per 40ft, while on the Shanghai-Genoa, the week-on-week decline was slightly steeper, at 3%, to end $6,300 per 40ft. The decline came despite the fact that carriers had begun the week hoping new FAK (freight all kinds) rates, ranging from $7,900 to $8,500 per 40ft, introduced on Wednesday would help keep prices elevated. However, in the early part of this week Linerlytica noted "aggressive rate cuts by Gemini partners triggering rival carriers to slash rates through the end of July". It added: "Hapag-Lloyd led the rate cuts last week with rates of below $5,000 per 40ft, which triggered Maersk and CMA CGM to cut their rates to $4,800-$4,900 per 40ft for sailings in the final week of July. "Current carrier rate offers range widely, from $4,500 to $7,000 per 40ft, but are on a clear downward trajectory," the Hong Kong-based analyst said. Today's Shanghai Shanghai Containerised Freight Index (SCFI) - which records rates quoted for the forthcoming week and, as such, indicates the behaviour of the following week's WCI - recorded a 3.5% drop on its Shanghai-North Europe base port leg, to $5,422 per 40ft, and a 4.5% decline on its Shanghai-Mediterranean base port, to $6,358 per 40ft. Whether the change in direction of rates is due to declining demand is unlikely, however, with large roll pools built up in China over the past 10 weeks still to be cleared. Rather, suggested Xeneta's senior shipping analyst, Emily Stausbøll, the main culprit was carriers introducing more capacity. "The shift is driven by carriers continuing to ramp up offered capacity across the main fronthaul trades, and the front-loading demand that fuelled the spike beginning to ease," she explained. "Shippers pulled forward volumes at the start of the peak season to avoid expected Q3 bunker adjustment factor increases and protect supply chains from the Middle East disruption rippling across global trades. "The irony is that this front-loading contributed to a capacity squeeze that then pushed spot rates higher than they likely would have been otherwise. "The front-loading means peak season effectively started in May this year rather than July, and, logically, it will also be over sooner in the absence of underlying growth in container shipping demand. "This, combined with increasing offered capacity, is perhaps why we are starting to see a softening in rates," she added. According to Xeneta data, capacity offered by carriers on the Far East-North Europe was up 9.5% week on week, as per a four-week rolling average, and up 11% week on week on the Far East-Mediterranean trade. A similar picture unfolded on the transpacific trades this week, with the WCI's Shanghai-Los Angeles route decreasing 3%, to $6,272 per 40ft, while the Shanghai-New York leg was flat, at $7,879 per 40ft. According to Xeneta, transpacific capacity into the US west coast this week was up 6.5%, compared with the week before, and up 15.4% into the US east coast. However, with Drewry noting that nine blanked sailings are scheduled for the transpacific next week, "carriers' proactive capacity management should prevent spot freight rates from falling significantly". Ms Stausboll agreed: "It is too early to call this a sustained decline and spot rates remain massively elevated compared with pre-crisis levels - Far East to US West Coast is still up 252% since the end of February. "Increasing military strikes between Iran and the US, while not translating directly into higher freight rates, could also pause the softening if the situation deteriorates further. "But the direction of travel is becoming clear: capacity is rising, demand is cooling, and the market is starting to turn," she added. However, on the transpacific the momentum could turn again, US west coast forwarder Freight Right observed, should the uncertainty around US tariff policies become clearer. "The next two weeks are likely to determine the direction of the transpacific market - if tariff uncertainty is resolved with lower or eliminated duties, import demand could quickly rebound, potentially creating an extended peak season through August and September, and pushing ocean rates higher again. "However, if tariffs remain in place or increase, market participants expect booking volumes to weaken further, putting additional downward pressure on freight rates," it said.

The hidden flaw in global supply chains: why optimisation alone is no longer enough

For decades, supply chain network design has been built around a simple premise: if organisations can model enough data accurately enough, they can find the optimal network. Companies have used optimisation models to reduce transport costs, consolidate facilities, improve inventory positioning and create more efficient operating networks.But the environment in which these models operate has fundamentally changed. Global supply chains are no longer being tested by occasional disruption. They are operating in a permanent state of uncertainty, shaped by fuel price volatility, geopolitical instability, shifting trade patterns, sustainability pressures and changing customer expectations. In this environment, the biggest risk is not making the wrong calculation. It is asking the wrong questions. Many supply chain models are still designed to identify the cheapest or most efficient network under a defined set of assumptions. The problem is that those assumptions increasingly fail to hold. A network that appears optimal today can become a competitive disadvantage when fuel costs rise, trade routes are disrupted or production economics change. The challenge facing supply chain leaders is no longer simply how to optimise a network. It is how to understand whether that network remains effective when the world changes. The limits of traditional network design Traditional supply chain modelling has its roots in operational research and planning. It typically takes a bottom-up approach, integrating large volumes of historical data and using that information to identify an optimal outcome. This works well when the system being modelled is relatively stable. However, supply chains are not static systems. They are interconnected networks where decisions influence one another continuously. A decision to move production closer to customers may reduce transport costs, but increase manufacturing costs. A facility consolidation may improve efficiency but reduce resilience. A sourcing decision may look attractive until tariffs or geopolitical changes alter the economics. Every decision creates consequences elsewhere in the network. This is why isolated optimisation exercises can produce misleading answers. They may optimise one part of the supply chain while unintentionally creating weaknesses elsewhere. The issue is not that optimisation is wrong. It is that optimisation based on a single scenario creates a false sense of certainty. The move from prediction to preparedness Supply chain leaders do not need another model that tells them what will happen. They need models that help them understand what could happen. This requires a different approach to strategic decision-making. Instead of asking, 'What is the lowest-cost network based on current conditions?', organisations should ask, 'Which network structures perform well across a range of possible futures?' A robust supply chain strategy is not necessarily the one that performs best in one scenario. It is the one that performs consistently across multiple scenarios, including those that were not expected. This is increasingly important as businesses face uncertainty that cannot be forecast with precision. Designing for resilience, not just efficiency The traditional focus of supply chain optimisation is efficiency. But many optimisation efforts can introduce fragility. When networks become too tightly tuned to a specific set of assumptions, small changes can create disproportionate consequences. This does not mean we must abandon efficiency. Cost remains critical, but we must seek to understand the relationship between efficiency and resilience. Advanced modelling approaches are now enabling organisations to explore these trade-offs more effectively. Rather than separating transport, facilities, inventory and operational decisions into different analytical exercises, multidimensional models evaluate how these critical dimensions interact. This allows leaders to identify strategic tipping points between different cost centres, and pinpoint the moments where a previously successful strategy becomes unsuitable because the environment has changed. The rise of top-down strategic modelling One of the limitations of traditional approaches is that they often become constrained by the complexity of the data they consume. Many large organisations have data spread across multiple ERP systems, and such fragmentation means it can take months or even years to build a network model. By the time the model has been built, it is often tied to a historical set of conditions that were only precise to a previous operating environment, and so the model is outdated and inaccurate. Strategic decisions, however, are rarely determined by every operational detail. They are driven by a smaller number of critical relationships and choices. A top-down modelling approach starts with the strategic understanding of how the network works: the role of different locations, the relationships between production and distribution, and the factors that influence commercial outcomes. By creating a top-down abstraction of the network, rather than a model that is overfitted to static data, supply chain leaders can better manage uncertainty, as the model won't be brittle to fluctuations in the operating environment. Equally, top-down modelling is powerful as it enables sensitivity analysis, revealing which parameters prompt the biggest changes in network performance. This insight indicates the best opportunities for optimisation, and where precise data is actually needed. This provides strategic clarity before organisations commit to major network decisions. The future of supply chain strategy As our world becomes increasingly more volatile, the organisations that succeed will be those that understand supply chains as complex systems rather than linear cost equations. There needs to be a shift, to start questioning what decisions create the greatest strategic advantage over time. That shift represents a fundamental change in supply chain thinking. The future of supply chain network design will be defined by the ability to understand complexity, anticipate uncertainty and make decisions that remain valuable when conditions change. Organisations that adopt next-generation technology will reap the benefits of better decisions and gain advantage from the transformations they enable. This article was supplied by SimPath as Partner Content.

APAC-Europe air cargo volumes drop 15% year on year

Air cargo volumes between Asia Pacific and Europe have dropped, with ex China volumes taking a hit and ex Hong Kong volumes continuing to decline. For Asia Pacific as a whole, volumes to Europe were down 10% week on week and 15% year on year, shows figures from WorldACD Market Data. Volumes from e-commerce hotspot Hong Kong were down 23% year on year, after four consecutive week on week declines, according to the week 28 (6-12 July) figures from WorldACD. The decline followed the end of the EU's de minimis exemption and its introduction of a temporary €3 customs duty on low-value parcels imported from outside the EU as of 1 July. This decline in volumes reflected "the impact of the removal by the EU of de minimis import tariff exemptions since 1 July", said WorldACD. EU member states agreed in December to introduce the customs duty charge per item on parcels valued below €150. This is intended to bridge the gap until the EU Customs Data Hub is launched in 2028. In addition to a drop in air cargo volumes from Hong Kong, air cargo volumes from e-commerce hub China were down 13% week on week and 15% year on year. Plus, volumes from Taiwan to Europe were down 24% week on week. WorldACD noted that in terms of week on week impact, typhoon Bavi "particularly affected capacity and chargeable weight from Taiwan and to a lesser extent volumes and capacity from China and other parts of East Asia".