As the UK recovers slowly from the impact of the coronavirus pandemic, the Government continues to offer logistics operators support. Its latest announcement is that the HGV levy will be suspended for 12 months from 1 August, to help hauliers as they keep goods moving round the country.
The levy, originally introduced in 2014 and updated in 2019, applies to all vehicles weighing 12 tonnes or more. The amount payable depends on the size of the vehicle and its emission rating, but can be as much as £1,000 for the largest HGVs. The charge is usually payable alongside the annual road fund, which will now be suspended until August 2021. The levy also applies to foreign vehicles operating on UK roads, but will also be suspended for these HGVs. More information here.
Elsewhere, however, the Government is now beginning to withdraw some support. For example, it was announced that temporary measures put in place to support shippers paying customs duties and import VAT will not be extended into July. These measures had been in place since April, with the aim of helping shippers in financial difficulties because of coronavirus.
From 1 July, duty deferment users and EORI-registered importers must pay the duties and import VAT by the due date. EORI is an identification number that businesses must use in all customs procedures when exchanging information with Customs administrations. Businesses still suffering financial difficulties may be able to secure an extension from HM Revenue & Customs (HMRC) under the Time to Pay provisions, but this will require prior approval. Businesses concerned about their ability to pay need to email the Duty Deferment Office (email@example.com).
Some businesses set up extended payment arrangements with HMRC under the measures, cancelling their Direct Debits. These firms will now need to reinstate these Direct Debits in time to make payments promptly.
Warehousing space in demand
According to new research from CBRE (the American commercial real estate services and investment firm), the UK logistics sector recorded its highest ever take-up of warehousing space in the second quarter of the year, investing in 12.78m sq ft of space. The research highlights the pace of the growth in online retailing during the lockdown period, with 44% of space taken up by online retailers. This included a spike in short-term leases, but online retailers and supermarkets also agreed a number of long-term deals, in anticipation of a permanent customer shift towards online.
Even with some areas of heavy manufacturing and non-essential trade hit hard by the pandemic, the warehousing sector has suffered very little disruption, at least in aggregate terms. The second quarter saw more than 30 new deals agreed with an average unit size of more than 350,000 sq ft. 90% of take-up was in the East Midlands, South East, Yorkshire and the North East.
Freight rates keep climbing
Ocean freight spot rates on Asia-to-Europe routes continue to climb as lockdowns across Europe are eased and demand climbs. With carriers continuing to manage capacity, rates are now at their highest level for five years, having fallen at the beginning of the pandemic.
Rates on Asia-to-North Europe routes increased by more than 10% last week and are now 25% higher than a year to go. Rates on routes to Southern Europe rose 9% last week. Routes heading in the opposite direction have also increased slightly.
By contrast, the cost of transatlantic shipping has eased. Rates fell 5% on Europe-to-the US routes and by 2% on US to Europe. Demand on these routes has been slower to pick up, and more routes were cancelled last week. The 2M Alliance (between Maersk Line and MSC) announced it’s blanking a number of sailings until September. It has promised to review demand and adjust capacity on an ongoing basis.
The cancellation of one particular 2M service, the TA4/NEUATL4 route, will be a blow to shippers in the North West, as this service stops at Liverpool en route to New York. More cancellations from other shippers are likely in the coming weeks given the demand outlook. There’s also concern amongst carriers about the potential for further US sanctions on the European Union over the subsidies provided to Airbus, which could depress demand further.
The volatility of the container rate market in recent months is forcing carriers to reassess the viability of some long-term contract rates. Some are suggesting they may limit contracts to three months.
China-India dispute threatens disruption
Elsewhere, businesses moving goods from China via India or purchasing from India could face delays and disruption amid rising tensions between the two countries over a border dispute in the Himalayan region. With Chinese raw materials used in a number of Indian-made products, including some of the world’s most consumed pharmaceuticals, there are concerns that consignments coming from China are not being cleared by Indian customs authorities.
It was reported last week that that in some cases businesses have been waiting a week for consignments to be cleared, with no news on when they’ll be able to access their goods. The India Cellular and Electronics Association also warns that shipments in its industry are now being inspected, rather than going through the normal fast-track process.
For Indian manufacturers only just coming back online following the shutdowns of the pandemic, this is a problem they could really do without.
Air capacity jumps higher
According to statistics from OAG, the world's largest network of air travel data, the first week of summer saw the largest week-on-week growth in air capacity since the pandemic began. Airlines are starting to reschedule more services, with capacity up 21% last week (adding 8.2 million seats) compared to the previous week.
However, capacity is still only at 41% of the level in the same week last year. Governments are now relaxing rules on air travel and opening up to tourism, so the airlines are hopeful they can save some of their summer schedules. But a lack of passenger demand could lead to cancellations.
With fuel prices increasing but demand falling, air freight rates continue to balance out having hit record highs during the pandemic. Rates on US-to-Europe routes fell almost 10% last week. China-to-Europe rates were down 7% and Europe-to-the US rates more than 5% lower. This is good news for businesses that rely on air freight, though airlines may now struggle to make a profit on the belly-hold cargo-only flights they’ve been running with passenger planes.
How Santander can help
All of the issues covered in this week’s update have the potential to impact our clients’ international supply chains. We work with a number of logistics partners with specialisations in particular markets or sectors. We’re especially keen to hear from any clients facing supply chain difficulties. Our partners are happy to provide impartial advice on a range of potential solutions that might help you overcome such challenges.