Consultant Insight: Forwarders see higher air cargo traffic on trans-Pac lane

Common themes across freight forwarder third-quarter earnings are higher airfreight rates, more charters and higher traffic on the trans-Pacific lane. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] In its recent earnings call, Expeditors International of Washington’s CEO, Jeffrey S. Musser, noted that North Asia was the only market in which air volumes increased during the quarter. By total revenue, North Asia also had the largest year-over-year gains, which rose 41.4%, while South Asia total revenue increased 35.9% year over year. Other strong markets included Europe and the Middle East, Africa and India region, where revenue rose by 17.9% and 15.9%, respectively. Other markets saw weakness during the quarter, with the U.S. and Other North America markets declining by 0.9% and 11.3%, respectively. Overall, Expeditors’ air revenues increased by 52.8%, but air expenses increased by an even greater 59.4% during the third quarter. Like many large freight forwarders, Expeditors utilized air charters for its customers, resulting in higher average buy and sell rates. Despite being lower in the third quarter, airfreight buy and sell rates remained “historically elevated.” As such, Expeditors expects air pricing to remain volatile until passenger traffic starts to return in a meaningful way. UPS also reported strong freight forwarding demand out of Asia. UPS further noted that slowing demand for PPE was offset by inventory replenishment. Specifically, high air and ocean freight forwarding demand out of Asia was led by the high-tech, retail and industrial sectors. C.H. Robinson which has acquired a number of freight forwarders, many of whom specialize in the trans-Pacific lane, also reported positive freight forwarding revenue. Third-quarter total revenues for the Global Forwarding segment increased 39.2% YoY, primarily driven by higher pricing in air due to reduced air cargo capacity, increased charter flights and larger shipment sizes. In addition, air and ocean net revenue increased as a result of higher pricing. C.H. Robinson also noted market share gains in freight forwarding but did not elaborate further. DHL’s preliminary third-quarter report also indicates continued strong airfreight gross profit margins due to unusually tight market conditions, although less pronounced than during the second quarter. Estimated EBIT for DHL’s global freight forwarding group is expected to increase 25% to €155 million. DHL will report its third-quarter earnings on Nov. 10. Kuehne + Nagel announced third-quarter earnings last month. Air and ocean volumes declined YoY, 12.8% and 5.1%, respectively. While gross profit for the quarter fell 4.0% for air, reported EBIT increased by 33.1% and adjusted EBIT increased by 19.1%. The company noted that automotive and perishables volumes were recovering during the third quarter. DSV also announced third-quarter earnings last month, and both air and ocean volumes increased year-over-year — 4% and 9%, respectively. The highest growth in terms of volumes and freight rates was on trade lanes related to exports from the Asia-Pacific region. DSV reported a pickup from industrial cargo generally and especially from the automotive sector during the quarter, although it was still below 2019 levels. Meanwhile, the DSV Air & Sea division increased the capacity and number of destinations in its legacy Panalpina air charter network. The division also sold Airflo, a former Dutch and Kenyan-based freight forwarder that specialized in the export handling of flowers and vegetables and was an acquisition Panalpina made in 2015. As a result, the disposal led to a better activity mix with less low-margin perishables volumes. Looking ahead to the fourth quarter and perhaps into 2021’s first quarter, airfreight rates will likely remain high and the focus will continue to be on the trans-Pacific lane as shippers restock inventory and demand for PPE continues. How much a coronavirus vaccine will impact airfreight continues to be debated, but when a vaccine is ready, expect some impact on all modes of transportation.

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