Forwarders brace for a busy peak season and capacity constraints

05 / 09 / 2018

Freight forwarders are expecting another busy peak season with airfreight supply chains coming under strain, despite demand growth weakening.

Panalpina global head of air freight Lucas Kuehner told Air Cargo News that the market is seeing lower year-on-year growth on the Asia-Europe and transpacific trade lanes, but added 2017 was an exceptionally strong year.

Overall, the forwarder is still expecting another strong peak season. He added that there could be some changes to supply chain set ups while strains are also being felt at the major airfreight hubs.

“In terms of the global trade tensions and from a market perspective, we don’t necessarily expect a negative impact on overall airfreight volumes still this year,” he said.

“What could happen, though, is a shift of cargo flows or even the manufacturing base in Asia-Pacific. For example, products could be routed from China to countries like Malaysia, South Korea, Vietnam and the Philippines, relabelled and repackaged, and then flown out from there to their final destination.

“This could cause airfreight capacity crunches and also strain airport infrastructures in those countries.

“Airlines have been managing their capacities well and carriers are also restricting freighter capacity in anticipation of high charter demand in quarter four.

“One way carriers reduce capacity, is by simply flying fewer hours compared to last year, when freighters were pushed to their operational limits.

“Capacity constraints will cause delays and they could worsen if operations on the ground, i.e. trucking, warehousing, ground handling and customs clearance, cannot deal efficiently with the high cargo volumes.”

On pricing, Kuehner says rates are around 15-20% higher than last year and he expects further increases as the sector heads into the fourth quarter peak season.

DHL Global Forwarding global head of airfreight Thomas Mack also said that the weaker growth levels being reported this year was a reflection of the strength of the market in 2017.

“This year the market lost a bit pace and isn’t growing that fast anymore. However, demand is still high and volumes are continuously rising – especially on the westbound ex Asia,” Mack said.

“So even if the airfreight market won’t achieve another record year, we are observing a solid growth.”

Mack added that the market was currently a seller’s as demand growth had outstripped supply since late 2016.

“Carriers have learned from history and make efforts to secure their current market position by strictly managing capacity.

“This of course also affects the rate development – especially having the peak season ahead.”

The forwarder has been taking steps to ensure it can provide enough capacity for customers through block space agreements and its own-controlled airfreight operation.

Despite this, capacity will still be tight during the coming peak season, Mack said.

“While own-controlled lift is a good selling proposition and relief to capacity constraints on certain routes, it cannot address all capacity requirements.

“But as the world largest airfreight forwarder, we have very good relationships to the air freight carrier companies and have secured additional Block Space Agreements for the upcoming peak season.

“However, the new normal is to cater for sufficient access to capacity and remain as independent as possible from the expensive spot-market.

“Shippers will have to play ball as well, accept the fact that rates have tightened and pay a premium for capacity.”

Agility Global Integrated Logistics senior vice president of airfreight Michael Blaufuss said that although the peak would again be busy and capacity will be tight, the industry was more prepared than it was in 2017.

“We have worked in advance with our key customers to set expectations for the peak periods and to provide capacity solutions,” Blaufuss said.

“We have made sure that we are well prepared for handling and delivering shipments before departure and after arrival, with high quality services to meet customer’s expectations.

“This includes on-time, final mile deliveries and smooth clearances at the arrival airports.

“The best tip for customers is to make sure they have accurate volume forecasting in place – this will help the cargo departure planning tremendously and customers transit time expectations will be met.

“We have been securing commercial capacity from our key Asian export markets for Q4 and we feel prepared to work through busy peak periods as a result.”

In the US, CH Robinson also warned of capacity constraints during the peak season, pointing out that volumes had started picking up on the transpacific trade lane in mid-July, while ocean vessels were also overbooked.

The fact that Nippon Cargo Airlines has been forced to ground the majority of its freighter fleet is also having an impact of capacity.

“To sum it up, high load factors and reduced air freight capacity are driving air rates up. While we can still find space for customers, it becomes more challenging each week.

“We’ve seen airlines add charters for the upcoming peak season as the tightening of capacity has become more apparent, but the added space was quickly snapped up by the market at premium prices.”

The forwarder recommended that customers take steps to secure capacity as early as possible and added that cargo facilities could also struggle to handle the peak demand.

 

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