News #59 - Airfreight contracts begin to reflect threat of a Q4 capacity crunch


“Capacity will be king in Q4,” said one forwarder at the recent CNS Partnership event in Dallas – that is now becoming clear in the data and shipper airfreight contracts, according to Xeneta.

Volumes are coming off the spot market, it explained. In April, the spot market share was 41%, down 4 percentage points from a year earlier. And, with fears of a busy Q4, shippers and forwarders are starting to plan ahead.

“There’s the reality of now, where you will see load factor decline on markets, because of the increase in capacity, sitting alongside preparations already under way for Q4,” said Xeneta’s chief airfreight officer, Niall van de Wouw.

“That’s top of mind for shippers, forwarders and, to a lesser extent, airlines, and they are jockeying for position after a ‘strong’ peak season last year.

“Before then, there was no experience of the magnitude of the e-commerce behemoths and their impact on air cargo’s traditional peak season market. This year, the traditional market is looking to de-risk, and will plan to be better prepared.”

One major airfreight forwarder added: “We’ve seen this ecommerce rush happen at the end of last year and already into the first quarter of this year. The overall impact, has been felt by everyone. It’s not just China, it’s broadly speaking across Asia Pacific.

“It’s an impact on capacity, it’s an impact on the pricing levels out of Asia Pacific, it’s an impact for service out of countries where you have significant hubs. So transChina hubs, like Narita or Hong Kong or Taiwan, are impacted. And that is something, in my view, that’s going to be with us for the foreseeable future.”

Mr van de Wouw explained: “Q4 is just around the corner in planning terms, and freight forwarders are already looking beyond the summer to secure market share because they are concerned about what e-commerce is going to do out of southern China and Hong Kong later in the year.”

He added, however, that both shippers and forwarders were concerned about being locked into rates for any length of time, with the length of price validity in contracts shortening.

“We see a big swing from agreements increasing in length to a reversed trend of more short-term contracts, as shippers look to buy a bit of time because of the black swan event in the Red Sea.

“We also see more agreements between shippers and forwarders that contain a mechanism to deal with market rate changes throughout the validity of their contracts. This reflects how the need to manage market volatility is surpassing the typical wheeling and dealing over the last few cents in contracts.

“Shippers will prefer longer-lasting relationships with freight forwarders that know their business, delivering good operational performance at a competitive rate level. Freight forwarders want predictability of their revenues to avoid having to go to tender each quarter to secure the business. So, these mechanisms can work for both parties,” he added.

Airlines, however, have different needs.

“If airlines think Q4 is going to be busy again, they’re not going to sell all their capacity now. They must decide how much they want to commit now, knowing they can possibly get up to 50% more revenue for that same capacity on the short-term market in Q4,” said Mr van de Wouw.

The airfreight forwarder added: “It’s not going to be the cheapest rate that gets the business, because I think we’re going back into the market where you have to be a forwarder who can actually get capacity if the customers want their volumes.”


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