5 industry leaders weigh in on peak season predictions

Following a record-breaking year in demand for air freight, the industry is at the edge of its seat as peak season approaches, bracing for an expected slow-down in growth rates that experts continue to warn of, but has yet to materialize. Carriers and market researches have released mixed results in terms of growth rates during July in the trans-Pacific trade lane. Yesterday, IATA reported that freight tonne kilometers (FTKs) moved in July in the Asia-Pacific region only increased 0.5 percent, year-over-year, while the Association of Asia Pacific Airlines said carriers saw a 5 percent growth in volume. Normally, the peak season starts with a demand increase that boosts load factors and tightens capacity, resulting in raised shipping rates. This year, carriers say that capacity hass already been tight before the peak, which is bad news for both shippers and carriers. The anticipation is intensified by reshaping trade relations between the United States and China, and now intercontinental North America . These effects have yet to penetrate the supply chain, but they are predicted to lead to increased costs of business for those involved in cross-border trade. This week, Air Cargo World talked to five executives at carriers, forwarders and logistics companies to gauge what they are expecting in terms of demand as the peak season approaches in a market that’s next turn is anyone’s guess. To find out what industry leaders are predicting, read on. DHL Global Forwarding The forwarding arm of DHL said that some of its “high-tech” clients are making moves to stay ahead of the market. “In the U.S., DHL Global Forwarding recently met with all of its preferred carriers and most are expecting a very robust peak season,” said Steve Sheets, head of airfreight for DHL Global Forwarding. “As tariff increases on certain goods are looming, we have seen several large, high-tech shippers increase their shipping to beat these deadlines. This could have an effect on the peak season as inventory levels will be relatively high.” Sheets continued that this move by shippers could cause an artificial peak in demand. “There continues to be available capacity from North America, and we feel the carriers pushing large rate increases have overestimated the market,” he said. “We will keep a close eye on this. Overall, the global market is strong and easing trade tensions will support further growth.” SEKO Logistics SEKO Logistics’ vice president of global air freight, Shawn Richard, spoke of the impact of trade relations and increased oil and jet-fuel prices on the market. “Once the seasonal flying currently in place until winter season – Oct. 1 – terminates for the year, demand for air transport services will not be matched by capacity,” Richard said. “Other contributing factors are the fear of ‘trade wars,’ as tariffs continue to be levied on specific commodities. World oil prices may continue to rise and jet fuel costs account for about 20 percent of carrier DOE. Richard said that increased load factors have enabled carriers to “initiate additional surcharges,” such as variable freight surcharges, increased fuel surcharges and higher labor costs, and that carriers need to collaborate with their ground handlers to get ready for increased volumes, which will inevitably determine the success or failure. “Most customers are very focused on longer-term pricing stability,” Richard added, “and are a bit more lenient to a slightly longer transit if the costs are kept in line with their buying experience over the last year.” Avianca Cargo The Latin American market stands to be affected by protectionist policies, both between the U.S. and China, and the unfolding North American Free Trade Agreement re-negotiations. Carlos Arango said that demand for air freight will increase, “although it may be lower than [the rise from] last year due to depreciation of currencies in different countries in Latin America, and higher prices due to trade war between China and the U.S.” He continued that new policies will affect many of the products in the “Washington list” – the rundown of imported Chinese products on which the U.S. in considering an increase in tariffs – going from the U.S. into Latin America. Cathay Pacific Fred Ruggiero, vice president of cargo at Cathay Pacific, said the airline is optimistic about the peak season and told Air Cargo World that it is increasing frequencies “in its North American network” by seven per week on its 747-8s, starting next month. “A lot of forwarders have warned shippers that the fourth quarter is going to be maybe not quite as robust as last year, because last year was phenomenal,” he said. “But if the second and third quarter are any indication, holy cow – let’s face it… the fourth quarter is always busier. And two and three were very, very busy.” Ruggiero added that “we’ve come off two very strong months,” referring to June and July. “Other people are not wearing rose-colored glasses, saying this is the rush before the drop off.” Crane Worldwide Logistics Vice president of Crane Worldwide Logistics, Peter Mento, said there has been a trend in shippers booking capacity earlier than normal, attributable to an anticipation of tariffs. “Before any of these lists of tariffs go live, there is tremendous amount of interest in expediting them before the duties,” he said. “A lot of people in Asia are furiously pushing folks to report as much as they can before” the tariffs go into effect. Mento said that that the current squeeze could very well just be a bubble, but that “with the second round live now, and third round pending, who knows?” “We’re trying to get people to understand that they need to have their ducks in order. Hope is not a strategy,” he said. Regarding the trade war, Mento added, “A lot of people don’t understand that they’re at the mercy of these [tariffs], until they are.”

5 industry leaders weigh in on peak season predictions

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