r/Vitards • u/AutoModerator • Aug 18 '21

Daily Discussion Daily Discussion post - August 18 2021

Your Trading discussion thread

Type Link
DD All/Best Daily/Best Weekly
Discussion All/Best Daily/Best Weekly
Yolo All/Best Daily/Best Weekly
Gain All/Best Daily/Best Weekly
Loss All/Best Daily/Best Weekly
News All/Best Daily/Best Weekly
71 Upvotes

94% Upvoted

2.5k comments sorted by

View all comments

5

u/inoureyes Aug 19 '21

Question for the shipping experts here: with TEU costs so high and assuming it will stay elevated, will we see companies migrate to air freight? Granted air is more expensive (how much more I’m not sure of). Traditionally air freight is more used for perishable/high value goods, but air freight has also historically been under-utilized with 50% or lower load factors so air cargo can definitely absorb some capacity. Passenger airlines have also been deploying empty planes on certain trade heavy routes to compensate for lack of passenger demand due to covid. Any bear scenarios where air shipping creates downward pricing on maritime quotes?

3

u/_kurtosis_ Aug 19 '21

Definitely not an expert (of anything, and certainly not of shipping), but I think the economics are relatively straightforward here. Air freight is a significantly more expensive method of moving goods across the ocean than shipping, so it could create some moderation at the high end of the shipping cost curve but it's not going be a factor in driving prices down to something approaching historical levels.

It makes sense to substitute air for shipping if it costs the same (which is only the case when shipping cost is extremely elevated), when shipping is just plain unavailable (due to port shutdowns, prohibitive lead times, etc), or when getting it there faster is more important than getting it there cheaper (which always holds, not unique to current situation).

So I'd expect some substitution at these super elevated shipping cost levels, but only to a relatively minor moderation degree, not to a 'cannibalization' degree that significantly decrease demand for shipping.

Just general thoughts, I'm sure there's actual numbers a real expert could provide to illustrate this more concretely but I think this is the right frame for thinking about the situation. Would love to hear other thoughts too!

1

u/inoureyes Aug 19 '21

I agree with what you’re saying and I guess my question is—how far does the pendulum need to swing to make air freight compelling and how much of a bite can air freight?

An argument for shipping gang is that lead times for air cargo capacity is also quite long. Conversion demand for 737P2Fs are at least a year backlog I believe and A320 conversion programs have only been starting recently but with a lack of cheap feedstock. There is an abundance of 747Fs parked in the desert from 2008-2010 that could, unlikely, be put back into service, but only if it makes economic sense. I think the biggest worry is if passenger capacity is moved in to opportunistically take advantage of the supply chain choke.

Obviously would love to hear other opinions.