That Sinking Feeling: Keeping shippers from running back to seafreight

After the breakup

The Hanjin Bankruptcy is already ancient history in the fast-moving world of logistics, but it’s worth reconsidering how spooked shippers were as maritime traffic floundered on the high seas. Judging by current demand for airfreight, that sentiment is still at play. “The reliability aspect is what’s causing more concern than anything else,” explained Brandon Fried, executive director of the Airforwarders Association. Shippers, Fried stressed, not only demand reliability, they deserve it.

It’s no secret that maritime yields are in the dumps, or that shippers are wary of another supply chain disaster, but there are indicators that maritime is starting to recover. In its first-quarter results, Maersk said that, “Due to gradual improvement in container rates, Maersk Line continues to expect an improvement in excess of US$1 billion in profit compared [a loss of $384 million in] 2016. Global demand for seaborne container transportation is still expected to increase 2 to 4 percent.”

It’s also easy to sensationalize the impact of the Hanjin bankruptcy. Jeffrey van Haeften, vice president of global cargo sales for Emirates, proposed the following exercise to put things in perspective. “The largest cargo ships these days are able to carry around nineteen to twenty-thousand 20-foot containers,” he explained. “You literally need hundreds of freighters to carry the cargo that can be transported in one large container ship. The market for seafreight and airfreight normally tends to be very different – you do not see the same kind of products travelling both by air and by sea. However, any spillover from sea to air because of market conditions, time or capacity constraints can have a significant positive impact on air cargo volumes.”

Van Haeften also stressed that seafreight tends to become airfreight “only where there is an aspect of time-criticality involved.” He cited the fashion industry as the classic example, where product cycles are getting shorter, and new collections have to reach global stores and customers before trends evolve once more.

The rail mode is also emerging as a potential source of competition to airfreight, especially between China and Europe, where China’s “One Belt-One Road” policy is now a reality, moving freight between the two markets in well under two weeks. “China rail is investing $1 billion into rail,” explained Andrés Perez, Swiss WorldCargo’s head of business development and customer experience. “This could be a risk for air business.”

Thomas Blank, Kerry Logistics’ managing director for Europe, said that the Shanghai-based logistics company has already had customers shifting cargo from seafreight to the train, shortening the transit time. “It’s an acceptable price differential for them,” Blank said. “Ten years ago, people would have said [rail] was unreliable, but today, train schedules run like a clock and, on the other hand, customers have become more willing to try new modes.”

Finally, the airfreight market is cyclical. Right now, said Whitehead, airfreight is riding high. “But ultimately, the market is the market,” he explained. “You don’t set the market; the market is there, and you play your game in the market.”