IPC International Community magazine an association member publication
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IPC COMMUNITY 20 SPRING 2023 sian oil products began Feb. 5, 2023, which will further disrupt global jet fuel supply. Jet fuel typically represents 20–25% of total costs, so higher jet fuel will likely keep air freight costs up. Strong demand for air travel will likely increase air freight capacity in 2023. About half of air freight capacity is in the belly cargo hold of commercial airlines. The reopening of China will increase commercial air travel, which will, in turn, increase air freight capac- ity. This should drive air cargo prices lower, especially on China routes. Prior to China's reopening in January, Asia and Oceania air travel had only recovered 57% of 2019 levels, according to IATA, while global air travel had recovered 75% of 2019 levels and North Amer- ica had recovered 92% of 2019 levels. LAND FREIGHT Tr u c k i n g f r e i g h t r a t e s a l s o declined in 2022. Spot prices this year were down 25% over last year while contract rates were off 6% by February. However, prices have remained higher than pre-pandemic levels. Spot prices are about 25% higher than pre-pan- demic levels and contract rates remain about 36% higher. Prices should decline modestly in 2023 on weaker demand but are not likely to fully return to 2019 levels, a year wherein rates were extremely low. Spot rates will likely find a floor in the first half of this year. Con- tract rates, which are negotiated over a longer time horizon, will normalize later in the year as shippers are likely to wait for prices to bottom before renegotiating. This means contract prices should drop more than spot prices— which have already experienced a notable decline—through much of the year. The differ- ence between spot and contract rates means downward pressure on contract prices will continue. Contract rates are likely to drop another 5–10% in 2023. The trucking market continues to soften as consumers move away from goods con- sumption and shift toward spending on services like travel and entertainment. More- over, higher interest rates mean the demand for large-ticket, interest- rate-sensitive goods—like house- hold appliances or autos—are likely to be weak. The U.S. Bank Freight Payment Index reports freight shipments declined 7.1% in the fourth quarter of 2022 over 2021. Chart 4: What happened with oil prices in the past two years?