Air Freight Demand Increasing Rates and Backlogs

Strong air freight demand that has been driving up prices and creating backlogs on some trades looks set to continue until the end of 2017 and into early 2018, although ocean freight demand and prices appear to be softening, according to French freight transport and logistics giant Bolloré.

Air and sea freight carriers experienced diverging fortunes in the third quarter of 2017, with both encountering significant changes in trends from the first half of the year, according to Bolloré Logistics’ latest freight forwarding market analysis.

As a result, the end of 2017 and early 2018 should allow air cargo operators to consolidate recent gains, while raising new concerns for ocean shipping lines.

Focusing firstly in air freight, Bolloré Logistics highlighted that Q3 had allowed operators to fill space, raise rates, and benefit from excess demand being moved into express cargo.

“Capacity is down, demand is up, yields have risen, and most carriers are doing well,” the French group’s air freight procurement manager, Claude Picciotto, explained. “Volume on virtually all trades apart from Europe-Africa is robust, with activity to South America so strong there’s a two-week waiting period for cargo to Brazil. Otherwise, it has to go express – which pads transporters’ yields even more.”

A major volume driver has been an “explosion” in e-commerce – especially between Asia and Europe.

“Since e-consumers demand their goods quickly, vendors like Alibaba and Amazon won’t contemplate slower maritime options when air capacity gets tight, opting instead for faster – and pricier express air cargo.”

He added: “Previously, only the Europe-ASPAC trade was booming, but now that has spread to others, causing demand-capacity tensions to tighten.”

However, he noted that the resulting rise in rates hasn’t necessarily meant higher costs for all exporters.

“Specialists like Bolloré Logistics have the budgetary and forecasting strength to secure long-term capacity ahead of such fluctuations; that preparedness means we can provide affordable space when clients need it.”

Picciotto expects the current pace in air cargo to continue into December, sustaining the 10% growth in volume that Bolloré Logistics has registered so far in 2017.

Turning to ocean shipping, Bolloré Logistics’ sea freight procurement manager, Anne-Sophie Fribourg, underlined that demand in the third quarter had dropped unexpectedly in September and that the higher rates that had accompanied the improved performance in the sector in the first half of 2017 had become unsustainable.

“Forecasts were for full-year rate growth of 16%, but with volumes suddenly plunging in September, rates started to weaken, too,” Fribourg said, noting that the first signs of trouble for the shipping lines was the absence of habitually big volumes ahead of China’s Golden Week holiday.

“December should bring a rise in activity, but it’s difficult to see a return of sustained demand before then.”

She underlined that slackening demand and lower rates had once again raised the prospect of lines generating losses which, in turn, could mean resumption of the heavy merger and acquisition (M&A) activity of the last two years − when financially swamped competitors merged to survive the combination of low demand and rising capacity.

“Transporters need an 8% increase in demand in 2018 to offset capacity excess forecasted to increase by about 5.5% next year − and the recent slowing will complicate that,” she said.

“So, we’re already seeing considerable uncertainty in the market, and concerns among transporters. Their fear is continued sluggishness into December will leave them in a weaker position to maintain sustainable rate levels in 2018,” Fribourg concluded.

(https://www.lloydsloadinglist.com/freight-directory/news/Air-freight-demand-increasing-rates-and-backlogs/70729.htm#.WnnI2MhJaUk)

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