Air freight Pressures to Continue throughout Q1 2018

In a discussion last week on peak holiday season trends, DGFF’s US VP for marketing and sales, Paul McMillan, said the market had been “highly constrained” since coming out of the Golden Week in Asia (in early-October), and this would continue not only during the current pre-holiday period around the world but through to Chinese New Year.

“We are absolutely in an ‘up’ air freight market,” he said. “The e-commerce space is definitely driving this, along with robust economies around the world. When you start to look at some of the markets − Asia inbound, and outbound into the US and Europe, Europe into Asia, intra-Asia especially, intra-Americas as well − the freight volumes are growing at almost double-digit levels, year over year, which we have not seen for many years.”

McMillan said the story for rates was one of “double-digit” increases, and in order to secure capacity and get volumes flown, customers were, simply, having to pay a higher price. “This is the market dynamic today.”

DGFF’s current market analysis highlighted a “peak season demand surge” outbound from Asia “leading to tight capacities and increases in buying rates”, as well as “congestion inbound to China, South Korea, Japan and Australia”. It also noted that inbound to North America, maindeck, and ad-hoc space was only available at premium rates, and that demand continued to be high inbound to Latin America.

DGFF forecasts little change in the strong market conditions into 2018, with no let up in the trend of demand exceeding capacity, accompanied by upward pressures on rates, in January and February, on Asia-US, Asia-Europe and intra-Asia trade lanes.

And on Europe-to-Asia routes, specifically − and perhaps rather surprisingly − this will be case over the fullquarter.

Backlogs are anticipated inbound to Asia, with additional flight cancellations expected before and during Chinese New Year.

March is likely to bring a minor easing in demand outbound Asia to North America and Europe, and intra-Asia, but capacity will still be tight with backlogs forming, DGFF’s analysis added.

DGFF’s predictions mirror some from other major forwarders, such as Panalpina. as reported in Lloyd’s Loading List, Panalpina’s head of global air freight, Lucas Kuehner, believes this year’s final-quarter air freight rates on key routes are likely to be significantly up on the same period last year, with peak-season characteristics continuing well into 2018.

He said Panalpina was prepared for a peak season this year that could run right into January and only slow down after the Chinese New Year − sustained by continued strong demand from the e-commerce sector. “We believe that the first quarter of 2018 will continue to be strong. The second quarter is really where the gazing into a crystal ball begins.”

Kuehner added: “We think some of the very strong demand we are seeing at the moment is due to restocking, which will come to a stop around Q2. But it’s really just experience speaking here.

“If I look at all of the facts and the indicators, then there’s no reason why the current challenges will go away. I think the air cargo community − shippers, airlines, forwarders − have to get used to a market environment where capacity is scarce and at its limit, at least for several more weeks, probably months.”

Other forwarders have also predicted that strong air freight demand that has been driving up prices and creating backlogs on some trades looks set to continue until the end of 2017 and into early 2018.

Focusing on new market development, McMillan pointed to the growing strength of North America-Asia trade lanes – and in particular, to China − driven by e-commerce.

“We started seeing an increase in outbound freight flows from the US to China last year,” he noted. “This year, we actually had a ‘peak’ season of US exports to China, which was solely based on e-commerce demand for consumer goods. And with the right planning, we were able to put more capacity in the market to somewhat address it.With estimates showing that by 2020, 25% of the Chinese population will be buying goods online sourced from outside China, DGFF is anticipating the trend will continue.

“We really expect the trade flows to reverse, year over year, as the demand for foreign-based goods in China and across Asia really starts to take hold of consumers,” McMillan added.

(https://www.lloydsloadinglist.com/freight-directory/news/Air-freight-pressures-to-continue-throughout-Q1-2018/70885.htm#.WsTRCsiGOUk)