Shippers and forwarders expected to target longer term deals in 2024
14 / 12 / 2023
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Shippers and forwarders are returning to longer term and fixed-capacity agreements as the air cargo market continues to normalise.
In a recent market update, Flexport vice president and global head of airfreight Zeid Houssami said that part of this switch to longer fixed-capacity contracts was partly driven by the rise of e-commerce demand, with companies such as Temu and Shein looking to secure predictability in terms of cost and speed.
The switch is also driven by improving shipper confidence that next year’s market will be more predictable and consistent as supply and demand is more balanced.
On forwarders, Houssami said that last year companies had increasingly utilised the spot market with around 70% of deals being done on an ad hoc basis.
However, he expects this trend to change next year and start heading back to a more normal split and a shift back to annual and semi-annual rate agreements.
“2024 should be much more normalised,” Houssami said. “Most forwarders will look to leverage a more stable procurement portfolio of about 50% fixed or block space agreement (BSA) and about 50% spot.”
“As a risk mitigation strategy, forwarders will continue to balance both and doing that to offset some of these longer term selling strategies on the shipper side.”
Another trend identified by Houssami was a consolidation in the number of forwarders used by shippers.
He explained that during the pandemic, shippers ramped up the number of forwarders they engaged with as they tried to secure space.
However, managing relationships with as many as 10 different forwarders is time-consuming and costly and with capacity shortages being less of a concern, shippers are likely to switch back to using a smaller number of forwarders.
Houssami also revealed Flexport’s supply and demand expectations for next year; the forwarder is expecting demand to rise by 2-3% while capacity supply is expected to be up by 3-5%.
“We are looking at air cargo demand rising in line with GDP growth while we will continue to see supply start to get injected primarily out of Asia, specifically China, as passenger capacity starts to come back. Next year is really going to be a chance for the market to catch its breath and think more strategically about supply chains,” he said.
“Overall, expect a fairly stable 2024 with a more traditional peak season. Going into January, we are expecting the year to start fairly strong leading up into Chinese New Year as companies look to push out inventory before the market shuts down for a few weeks.”
Houssami added that there were also unexpected “black swan” events that could affect the market, possible ocean shipping disruption with low water levels in the Panama Canal, geopolitical tensions and questions over when older freighter capacity may come out of the market.
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