No products in the cart.
Has pricing power been disconnected from main-deck capacity?
Today’s blog comes from Cargo Facts‘ European Editor, Alex Lennane. It is excerpted from the “European Perspective” column that will appear in the June issue of Cargo Facts. Those of you who do not already subscribe to the the monthly printed Cargo Facts newsletter, and its companion the weekly emailed Cargo Facts Update, can click here for more information.
Air freight carriers have cut main-deck capacity between Europe and Asia but this has failed to increase rates.
European carriers are slashing capacity to Asia in a bid to stem losses and tighten rates. Air France-KLM revealed that it is implementing “capacity discipline” with “overcapacity particularly true concerning Asia.” Some services are said to have been cut altogether from Hong Kong, where rates have been “tough” for some time, according to IAG Cargo’s MD Steve Gunning.
Nikolas Dombrowski, Product Director Airfreight for Geodis Wilson in Germany confirmed that “some carriers have reduced their freighter frequencies, but at the same time new belly capacity is coming into the market. Not on all, but on many trades capacity is still not an issue and in particular from Hong Kong and Shanghai rates are still at a very low level.”
Rates out of Europe, where Germany continues to enjoy a strong export market to Asia, are stable. “Demand ex-Europe to Asia is constantly high, but surprisingly airlines are still not able to significantly increase their rates after reducing capacity.”
Dombrowski explains that despite tightened capacity, the market remains “extremely competitive” and that it’s not yet “tight enough to get rate adjustments through”.
Exports from the UK, meanwhile, have “definitely tailed off” reports a UK forwarder. “The market will be all about capacity rather than volumes,” he says. “Retail is down significantly, and no one is replenishing stock by air. Maybe in the last quarter, something will happen. Or perhaps this is the new norm.”
Industry predictions that the market will pick up in the second half seem unlikely to come to fruition, although the market has stabilized. Carriers are said to have redeployed aircraft to Brazil, which has put downward pressure on rates on those trade lanes to Europe.
Comments 4
Leave a Reply
That David is the new reality for freighter operators. Massive cargo capacity in aircraft like the 777 will drive pricing from now on, and with the air freight commodity mix requiring less and less main deck unique characteristics, we better get used to it and adapt
Agreed. Think about how many 777-300ERs are now flying, and how many more on order — each one of which can carry over thirty tonnes of freight, even with a max passenger load.
Well well , so basically you guys are saying that the 777-300 is bringing down market rates on the classical routes its being operated and for which the 777 has been basically designed for ? well well !
air cargo business for only freighter operators like the formers TMA/MP/CV has always been just playing around with Capacity; what triggers the air cargo rate is the available capacity , frequencies and service levels. But if now pulling out capacities out of critical markets is not driving up the air cargo rates than reasons must be somewhere else.
still today i wonder why TSA programs and all the after 9/11 maths and security issues have not considered a segregation in carrying cargo in the bellies of passenger airlines. We also dont see Trucks carrying mix loads of Passengers and cargo on the roads (if you do you may land in jail), same as we dont see a Bus carrying passengers and cargo on the roads. Nor do we see cruise lines loading 20ft containers on their decks or inside their bellies. Neither the US nor the EU dare to touch that subject same as all industry participant doesnt question the costs of 100bucks and more to ship by express a 1kg envelope to Hongkong or to NewYork. Good old economical rules are still ruling the world economies but still lots of wrong thinking is being done in the cargo industry by not applying common sense and most important by not knowing the exact costs of transporting a kg of freight from a to z.
Lucien, one interesting point in your note is the question of security issues. I do think that right now the availability of belly space is making it tough for freighter operators, but just one incident of belly cargo being used to bring down an airplane may trigger a massive reaction by TSA and other authorities — pushing all that belly cargo back onto freighters.