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Sudden surge in Asia freight
By Ian Putzger
Airfreight Correspondent
Forwarders scramble for space as rates go up
Airlines' endeavours to push their yields upwards have received a shot in the arm from a surge in demand for lift out of Asia that has forwarders scrambling for capacity.
In recent years, the peak season surge out of Asia to North America and Europe was a non-event, leaving carriers frustrated over the absence of the year's most lucrative period when bottlenecks traditionally push up pricing. The slump that hit the industry in the fourth quarter of 2008 rendered many charter arrangements that forwarders had put into place in anticipation of tight demand futile, so this year most refrained from lining up charter freighter capacity.
As a result, the rise in volume, that commenced on some sectors as early as August, has hit forwarders unprepared.
Airlines and forwarders reported strengthening of traffic in much of the region - from Japan to Korea, China and Taiwan, but the strongest spike appears to have occurred out of China.
"We have certainly seen a significant surge ex-China and to a lesser extent across the region," observed Steve Dearnely, chief executive officer of Schenker (Asia Pacific).
The transpacific sector has seen the strongest growth in traffic. According to Rupert Hogg, director and general manager of freight at Cathay Pacific, the recovery of demand to North America set in a few weeks earlier than on the Asia-Europe sector.
Nippon Cargo Airlines has about 20 charters signed up for the remainder of this year, most of them across the Pacific, said Shawn McWhorter, the carrier's president for the Americas. Rival Delta did 13 charters in the first half of October and implemented a Monday freighter departure out of Shanghai on October 19.
Lufthansa and Cargolux have also received bookings for charter flights to Europe.
So far no serious backlogs have occurred, but the earlier cutbacks in capacity have left relatively little breathing room before space gets scarce.
"Obviously with the capacity cuts it doesn't take much to create a tight supply situation and corresponding rise in pricing. We have so far avoided any severe backlogs but have done a few charters to both the US and Europe. These have all been customer-specific, either to handle new product launches or last-minute conversion from ocean to air, rather than general charters to ease any kind of backlog," Dearnley remarked.
Leading air carriers, including Lufthansa, Air France-KLM, Japan Airlines and Delta had signalled plans to increase rates in late summer but seemed to be facing an uphill struggle to implement these. Now, at least in Asia, their
position has improved dramatically as space dried up.
After months of double-digit rate declines, forwarders suddenly face stiff price increases. "Typical peak season rates are being applied. We're close to 2007 peak season rates this year," said McWhorter of Nippon Cargo.
"We've been able to achieve significant yield increases," said Neel Shah, vice-president of Delta Cargo. One European carrier signalled off the record that its targets for price increases in Asia have been largely met.
The spike in demand has hit the spot pricing game that forwarders and shippers played for much of the year. Now their primary concern is to secure lift.
"Our first concern is to have enough space for what we need," said Gary Schultheis, senior vice-president for airfreight, the Americas, at DHL Global Forwarding. "We're continuing to sign block space agreements."
Shah called the pricing development a move in the right direction from a yield perspective, stressing that the prevalent rates this year had rendered the airline business model unsustainable. "I hope we are not going to get into the same rut in January, where we drop rates to unsustainable levels," he added.
At least, the airlines seem reluctant to respond to the surge with the deployment of additional capacity to make money with some of the freighters they mothballed in reaction to the previous slump.
"We are not planning to increase capacity. It remains less than clear that the orders being placed represent a change in consumer sentiment or buying power, and some of it is obviously a late replenishment of low levels of inventory holding," said Hogg of Cathay Pacific. He figures that the current trend will remain until the end of this year. "We remain more cautious about what the first half of next year might bring," he added.
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