Capacity, rates to rise for peak season: The Freight 50

[caption id="attachment_64839" align="alignright" width="450"] Photo via FedEx[/caption] The lead-in to the 2020 peak season has already been distinct from prior years , as months that normally see a lull in air cargo activity have instead featured strong cargo yields, with reduced demand still surpassing the sharper reduction in capacity. While cargo carriers have done their best to increase capacity as much as possible despite the widespread reduction in passenger travel, and plan to further increase capacity as the holiday season approaches, peak season cargo space is likely to come at a premium price, according to some of this year’s Freight 50 carriers. At No. 1 and No. 3 respectively overall for 2019 traffic, the world’s top express carriers FedEx and UPS had already introduced surcharges as demand rose earlier in 2020, some of which have since been reduced while others remain in place. Peak season surcharges are the norm for the integrators, which in previous years have sometimes struggled with the surge in volumes. With e-commerce volumes already rising in 2020 and likely to increase even more this peak season, surcharges are a certainty. In the company’s most recent earnings call, FedEx’s Brie Carere, executive vice president and chief marketing and communications officer, called the higher rates expected this peak season “part of the new normal.” Review the Freight 50 ranking here “We believe that e-commerce will remain elevated as a percentage of retail and that obviously capacity is a finite commodity in the market,” Carere said on the call. She added that FedEx is working with its customers to “find a win-win solution,” but said that part of the solution from FedEx’s side must involve peak surcharges. “It will not be just for this fiscal year, but I anticipate customers to pay more for pricing in November and December moving forward,” Carere said. “I do think that that will be a structural shift in the market.” In terms of capacity, the integrators were able to utilize their extensive freighter fleets to increase frequencies during the pandemic, and that will continue during the upcoming peak season. UPS added 335 flights during the second quarter and utilized its large 747 freighters, CFO Brian Newman said on the company’s second-quarter earnings call in late July. Looking ahead, newly installed CEO Carol Tome said the express operator has the capacity to manage anticipated volumes, although “there are capacity constraints in the United States,” which UPS intends to manage through pricing — or peak surcharges — and planning with customers. Aside from the major integrators, many all-cargo and combination carriers among the Freight 50 anticipate continuing to pursue the heightened cargo demand and subsequently elevated airfreight rates as peak season approaches. United Airlines, which operates no freighters but has repurposed many of its passenger aircraft for all-cargo operations, anticipates the higher rates airfreight has commanded during the pandemic to allow it to continue cargo-only charters “as long as the global fleet of widebodies is not flying like it normally is industrywide,” said Andrew Nocella, United’s EVP and chief commercial officer, during the carrier’s most recent earnings. United stood out among its U.S. combination carrier peers for the quarter in terms of cargo revenue and ranked at No. 19 on the Freight 50.

Capacity, rates to rise for peak season: The Freight 50

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