UPS Sees ‘Ocean Squeeze’ Pushing Shippers to Air

UPS says it is seeing some ocean freight shipments switch to air because of an “ocean squeeze” on capacity, and the company expects more shippers to move to expedited transport as demand increases this fall.

D. Scott Davis, UPS chairman, president and CEO, said ocean carriers already are seeing backlogs, with slow-steaming of vessels and difficulty in finding containers raising concerns for shippers.

By The Numbers: International Air Freight Industry.

“I think right now, there is somewhat of an ocean squeeze,” Davis said in a conference call with investment analysts on Thursday. “Containers are hard to get. … So we are seeing, I think, shippers plan ahead a little more, perhaps plan to use a little more air.

“I think a number of our customers … did feel exposed last peak season and got in a jam. That’s why there was such chaos trying to get goods out of Asia in late November and December. And so there’s a little bit of a ‘not this time’ mentality,” he said.

International demand led UPS’s earnings growth in the second quarter ending June 30, with international package volume rising 20.1 percent over last year and international cargo revenue growing 37.4 percent.

Kurt Kuehn, UPS’s chief financial officer, says the gain is partly a shift by shippers who used “slower and lower-cost modes” during the recession who now want to get goods in place “without over-investing in inventory.”

“Assuming the economy stays reasonably strong, it could be a fairly interesting time as there is some backlog on the ocean side already,” he said. “The slow-steaming, in effect, takes substantial capacity out. So a lot of companies that wouldn’t normally think about using air freight earlier in the holiday season have been talking about that.”