The trans-Pacific market appears to have flipped. In a reversal of the established traffic patterns of the past three decades, U.S. exporters with air freight going to Asia are facing the prospect of bottlenecks, delays and rate increases, while shippers moving air cargo from gateways such as Hong Kong to North America have had no problem finding space at competitive prices.
Forwarders in North America are bracing for tight capacity to Asia in the weeks ahead as a result of lackluster demand for eastbound freight. Like they do every year, airlines have throttled back trans-Pacific freighter flights since the Jan. 23 start of the Lunar New Year break in Asia, but this time there is widespread uncertainty when those flights will resume.
“We are having a lot of conversations with airlines. Carriers are saying that there is a chance that flights that were suspended for Chinese New Year may not come back as quickly as they normally would have,” said Gary Schultheis, senior vice president for air freight in the Americas at DHL Global Forwarding. “The key is, what’s going to happen now? Carriers, particularly the Chinese carriers, are saying it doesn’t look that strong,” he said.
To the airlines, getting their bearings in the market means getting better balance. “We are confident that we can fill up our freighters on the return legs (to Asia) to a satisfactory level, but we are not sure on the outbound,” said Titus Diu, chief operating officer of Air China Cargo.
Airline schedules are driven by demand coming out of Asia, which has been tame. Combined with overcapacity, this has pushed down yields, making carriers wary of flying freighters to North America or Europe with less than full loads. Last year, when yields were higher, unexpectedly soft demand out of China in the aftermath of the holiday break prompted Chinese airlines to cancel many U.S.-bound freighter flights.
The airlines are in a more precarious situation now. “The carriers have made it clear that they will not fly in at a loss,” Schultheis said. “Everybody has learned a lesson from the last downturn.”
Demand from the U.S. to Asia actually has been strong, but this has no impact on freighter deployment on trans-Pacific routes, because westbound rates remain far below the levels in the opposite direction.
“Westbound loads have been very strong. Yields westbound are not bad, but they cannot fund the flight,” said Neel Shah, vice president of cargo at Delta Air Lines.
Industry consultants and executives predict further capacity reductions through the collapse of secondary carriers or the parking of freighters. Most carriers ground their expensive assets only as a last resort, but many have spoken of consolidating freighter routes.
That would reduce capacity and affect transit times, Schultheis said. “If an Asian freighter operator combined, for example, Los Angeles with Chicago and New York, would they turn the plane around or go back to Asia via Europe?” he said. Routing shipments to Asia over Europe would be expensive, he said.
Cutting capacity 5 to 10 percent, he said, would trigger serious backlogs, pushing forwarders to find alternatives to move freight to Asia.
And capacity to Asia already is tight, according to Shawn McWhorter, president for the Americas at Japan’s Nippon Cargo Airlines. McWhorter pointed to Singapore and Bangkok as likely challenging destinations. Direct lift from the U.S. to these markets is limited, and on indirect routings, U.S. exports compete with intra-Asia shipments to these destinations, he said. “Sometimes we have a three-day backlog to certain cities in Asia,” Shah said, adding the situation is manageable.
Giorgio Laccona, CEO of forwarder Global Airfreight and Ocean Logistics, anticipates challenges finding lift from the Northeast U.S. to Japan. “There is only one freighter from there to Osaka,” he said.
Destinations in Asia such as Singapore that already have limited capacity will be particularly affected by cutbacks, warned Malcolm Heath, executive vice president for air freight in the Americas at logistics provider DB Schenker. Shipments to Australia also will be affected, he said.
Shah has seen increasing efforts by forwarders to find workable routes to Asian destinations. “We get a lot more requests,” he said, and cargo agents have been more willing to embrace unusual routings.
Lasting capacity constraints are bound to affect pricing levels, although forwarders say rates have been stable. That could change, however, if capacity removed over Chinese New Year remains on the sidelines afterward.
“We will see what the market can bear,” Shah said.
Contact Ian Putzger at firstname.lastname@example.org.