Consultant’s Insight: Express providers optimize networks amid declining volumes

[caption id="attachment_76185" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo Next columnist[/caption] Express providers are managing international networks to match lower volumes to reduce costs and maintain adequate pricing levels. The first quarter of 2023 saw FedEx Express volumes decline 9.2% year over year, UPS international volumes fall 6.2% YoY and DHL Express ’ Time Definite International volumes fall 5.3% YoY. Weakness in the Asia-Pacific (APAC) trade lanes was a major culprit of the volume decline. “Looking at Asia, export activity started very weak due to the extended lunar New Year holiday,” UPS Chief Financial Officer Brian Newman said during an analyst call last month. “It gradually recovered through the quarter but at a slower pace than anticipated.” Asia exports’ average daily volume was down 8.9% YoY, including a 20% YoY decline in the China-to-United States lane during Q1. During FedEx’s analyst call in March, company officials said it saw “softer demand for priority services” and a shift to deferred services on APAC trade lanes during its quarter ending Feb. 28. Last month, the company announced it would reinstate its FedEx International Economy services from APAC markets to more than 170 markets and territories worldwide, which began May 1, in response to the shift to deferred services. The service was suspended during the pandemic due to high demand and limited capacity. Meanwhile, DHL Express’ APAC region was the only one to record a decline in revenue, down 6.6% YoY compared with a 6.2% YoY increase in Europe, 5.3% YoY increase in the Americas and a 4.7% YoY increase in the Middle East and Africa. To mitigate declines on the APAC trade lanes, UPS reduced Asia block hours by “more than the decline in Asia export volume,” according to Newman. FedEx is also reducing total flight hours and temporarily parking aircraft during its fiscal Q4, which ends May 31. Likewise, in its Q1 results, DHL noted it would focus on keeping its network “rightsized for actual and expected volume and weight movements.” Demand remains subdued Reduced demand continues to affect the airfreight market. “Air cargo markets declined by 13.1% [during the quarter] … reflecting weakness in consumer demand amidst general inflationary pressures and rising economic uncertainty,” Subhas Menon , director general of the Association of Asia Pacific Airlines , said in a statement regarding the group’s March data. However, IATA analysis suggests that the impacts of production moving out of China and the associated changes to the supply chain could be possible factors behind air cargo volume declines in the APAC region. According to the 2023 China Business Climate Survey by the American Chamber of Commerce in China , only 45% of the surveyed American companies regarded China as their primary or among their top three investment destinations, the largest drop in the survey’s 25-year history. Of those surveyed, 24% of respondents said they were relocating or considering relocating manufacturing or sourcing outside of China, while 74% said they were not considering it. The Chinese government ending its zero-COVID policy in December has not dissuaded nearly a quarter of respondents from considering relocation. Indeed, express providers could be experiencing shifting trade lanes. DHL noted in its Q4 earnings that “patterns are changing” and the company plans to strengthen its presence in “fast-moving economies while being mindful of geopolitical developments.”

Consultant’s Insight: Express providers optimize networks amid declining volumes

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