Airlines Lose Asia Cargo Despite Falling Rates

Airlines Lose Asia Cargo Despite Falling Rates

Shippers in Asia are shifting as much marginal cargo away from air freight as possible to cut supply chain costs even though air freight rates ex Asia are now at historic lows, according to leading 3PL executives.

“The fact is that many companies are under cost and labor pressure and are looking to reduce total supply chain costs,” said Paul Chien, CEO of Taiwan-based logistics major Dimerco. “Therefore, they are buying and moving by ocean freight or other transportation modes — sea-air, air-sea and trucking — to save costs.”

Air freight exports from the Asia-Pacific region, the biggest air freight market in the world, have fallen 2.5 percent so far this year, and rates are now down to levels last witnessed in the 2009 world recession, with pricing in June retreating on most Asia-origin trades to North America and Europe.

Claus Schensema, MD of GAC China, said the trend was particularly apparent in the U.S., where customers that had  previously sought to expedite product as quickly as possible into the West Coast were now happy with all-water services via the Panama Canal. “Cash flow is king,” he said. “Lots of customers have moved to ocean freight from air because no one wants inventories on their books.”

Consumer behavior is also a factor in the trend. “People are happy to wait for the latest iPad or TV, which just wasn’t the case a few years ago,” he said. “This is true in China as well as the U.S.”

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In June, Drewry’s East-West Air Freight Price Index, a weighted average of air freight rates across 21 East-West trades, fell by 2.7 points to 94.3 points, its lowest level since it was launched in May last year.

“We expect air freight pricing to remain under pressure until the end of this holiday season, after which carriers are expected to rein in capacity which should buoy rates,” said Simon Heaney, research manager at Drewry.

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[Ed. - Updated Aug. 7, 2013, at 8:29 a.m. to incorporate additional information.]