Will shippers take heed at industry warnings on airfreight rates

The big question for 2018 : are shippers going to heed the warnings the industry continue to provide with increasing urgency or, as we are seeing now, are they going to continue to push for cheap airfreight rates with little loyalty to their freight forwarder.

Lloyd’s loading list has become the latest to publish an article advising that shippers should prepare for high air freight prices and they are not alone. It has become a recurrent theme since the 4^th quarter of 2017 after some freight forwarders were caught out by the capacity squeeze.

Loadstar have been running articles on this since November, the latest article confirming that rates have not had the downward trend of previous years.  This could be a big problem for those shippers who have got used to the cheapest model secures the shipment and lets get prices from 3-5+ freight forwarders on every shipment.

Shippers have gotten used to relatively cheap airfreight pricing models.  For years rates have remained low much to the frustration of airlines who have found themselves in a cost-cutting war when capacity was robust but this appears to be changing.

The capacity volumes of previous years have changed with larger, more efficient aircraft carry more passengers on most routes right across the globe.  Consequently with additional passenger baggage in similar sized holds less cargo space is available on almost all routes including those most important to freight forwarders.

Couple that with the likes of Etihad’s announcement following their restructuring review to ground half it’s freighter fleet at the end of 2017 and you can see the continuing issues which cheaper freight rates bring. It has come to late for Etihad’s mothballed Airbus freighter fleet which have been deemed surplus to requirements for the time being by existing management under their much publicised re-structuring exercise.

Amazon : How their model will impact shippers.

Amazon now has 21 aircraft specifically for there own platform and have aggressively expanded their visibility at airports around the globe in what appears to be a concerted effort to bring as much of their logistics chain in-house. We are looking at future articles on how Amazon Prime the airline is taking off and their increasing view, which others are watching with interest, that to protect their business model they need to bring logistics inouse.

Unlike a logistics partner like UPS or DHL when Amazon take a plane out of circulation and hold it for their own use it is out of circulation for other forwarders.  With 8 more on order and a stated aim of 40+ aircraft their fleet is impressive as a freighter operator. UPS / Fedex & DHL all operate their own aircraft but these integrators supplement their aircraft by selling unused space to freight forwarders.  Amazon prime don’t appear to have any intention of following this model, preferring a fully-closed logistics solution.

Indeed Amazon plan to offer 200 daily flights into and out of Cincnatti in a closed logistics solution which centres specifically on their own 1^st Party and 3^rd party sellers and as they increase their presence at other airports around the world. Indeed at Manchester Airport in the UK their on-airport facility is less than 8 miles from their Trafford Park distribution centre.

2017 & lessons learned

After the space issues in the final quarter of 2017 which saw rates ex China to the UK balloon to between $6-10 / Kilo in some cases those shippers with major capacity who hadn’t aligned themselves with their forwarder suddenly found large delays and heavy expense trying to get their cargo out of China and onto the shop floor.

All predictions for 2018 remain that this will be the situation again. Forwarders are already seeing rates and continued space capacity issues, not just from China but across the EU – USA routes as well as space capacity issues although diminished are still there.

We at Forwardersmatter.com are seeing shippers who are providing a forwarder with an estimated pre-plan of shipments fairing much better. Working in partnership with their freight forwarder has allowed the forwarder to work in tandem with selected airlines to ensure space is available even when a Block space agreement isn’t in place.

Thus avoiding the volatility and space issues which last minute bookings brings. Yes, the shipper may feel on a job by job basis he could see some short-term price gains by shopping around but over the lifetime of a year in the airfreight world forward planning could well become the norm if lessons are to be learned from 2017 and the expense of dealing with an unplanned for peak season.

Those shippers who haven’t learned and choose their freight forwarder job by job may not realise just how much they are missing out on.