Team Worldwide is struggling with visibility this summer. “For the first time in many years, we are somewhat at a loss to predict what the upcoming peak season will be like,” said Bob Imbriani, vice president of corporate development for the Winnsboro, Texas-based freight forwarder.
That poor visibility stems from lack of clear signals from two sides. Team Worldwide’s customers have been reluctant to give forecasts of their traffic and make commitments, and airlines have been on the fence with their capacity plans. The forwarder has made some tentative arrangements, talked with airlines about space allocations and examined alternative routes in case of bottlenecks, but firm decisions have been put off until clear signals on the demand and supply situation manifests itself.
A year ago, forwarders had lined up charters out of Asia in anticipation of a robust increase in demand for the peak season, a stance driven by the experience of a massive rise in demand bumping up against a lack of available lift in late 2009, as the air cargo market began a recovery from the 15-month economic downturn. The peak of 2011 never arrived, however, and demand for lift out of Asia has been sluggish ever since amid ongoing economic woes.
This year, nobody has lined up charter flights, and the general consensus is that charters will only enter the picture on an ad hoc basis in response to particular challenges. “There will be some freighter charters, but a lot less,” predicted Charles Kaufmann, head of air freight for the Asia-Pacific region at DHL Global Forwarding.
“There is definitely no real demand for charters or extra-sectors at this stage,” said Nick Rhodes, Cathay Pacific’s director and general manager of cargo. With its Hong Kong base and its presence in China, the airline is usually one of the first to feel a change in demand out of China.
Hit by weak demand and high fuel prices, airlines have made drastic cuts in their freighter capacity. Cathay has sidelined one older B747-400BCF and is looking to take two more out of service. The carrier is reducing freighter capacity to Europe by 25 to 30 percent, while its main-deck lift to North America is shrinking 20 to 25 percent. Other airlines have made similar curbs to their capacity.
For all those cuts, however, there is still sufficient lift in the market, even overcapacity in some sectors. Reductions haven’t matched the decline in demand, and new, larger freighters and widebody passenger aircraft have entered the market.
Carrier and cargo interests expect to see demand rise in the latter half of this year, but they’re skeptical about a huge increase in cargo for the peak season. “There is no real indication of any significant pickup for the peak season,” Rhodes said. “Demand looks fairly flat, but stable, for the next few months, and then we live in hope that it will pick up from September onward — but no more than that.”
As a result, markets such as Thailand and Vietnam that traditionally have seen bottlenecks during surges in demand aren’t expected to pose any significant challenges this year. “We will see fewer bottlenecks than in the past,” Kaufmann said.
Forwarders appear confident block-space agreements will suffice to secure enough lift out of Asia. Cathay has noted interest from a number of forwarders in additional block-space allocations for the peak season, “but it is important to remember that most of the agreements for 2012 have been signed up at lower levels than previous years, so for some this is simply a return to normal space allocations,” Rhodes said.
Shippers’ short planning horizon raises the possibility of surprises, Imbriani noted. Shawn McWhorter, president for the Americas of freighter operator Nippon Cargo Airlines, recalled the scramble for lift that marked the 2009 peak season. “The reason it was good was that it was unexpected and no one set up capacity in advance,” he said.
“A lot of capacity has come out of the market. If there is a surge in demand, people will have to resort to charter,” said Justin Bowman, group commercial director of charter broker Air Charter Service.
Most operators rule out the likelihood of a repeat of the 2009 peak, though. That episode was characterized by several factors that don’t exist today, Kaufmann said, including depleted inventories that required urgent restocking, economic improvement in many large economies, and a genuine shortage of available freighters to cope with the sudden spike in cargo volume.
“Then you had B747-200 freighters parked in the desert that would take a while to bring back into service; today the airlines have reduced frequency, but they have not taken freighters out of their fleets,” he said.
Moreover, belly capacity has increased as passenger demand allowed for the addition of widebody aircraft on many Asian routes over the past 12 months. To some extent, this has canceled out the cuts made in freighter capacity.
On the demand side, there is a growing chorus of voices arguing that dramatic surges during the peak season are over because of better supply chain planning and a tendency to spread out traffic more evenly over the year. One example often cited is Spanish fashion chain Zara, which has replaced the concept of four major collections in a year with a large number of new collections, resulting in smaller volumes shipped at higher velocity.
DHL Global Forwarding has moved toward more year-round capacity arrangements with airlines, Kaufmann said. Shippers, he added, have increasingly embraced cheaper transportation modes or combinations of modes, taking advantage of improved supply chain planning capabilities. In addition, more shippers are embracing rail or multimodal options rather than air freight in Europe, he said.
Nevertheless, Rhodes said it’s too early to declare the demise of the traditional peak season. “We certainly do not foresee the type of dramatic rebound witnessed in 2009,” he said, “Having said that, I believe it would be premature to say that the year-end peak is a thing of the past. We still believe in Christmas.”
Contact Ian Putzger at firstname.lastname@example.org.