News / Slow demand and overcapacity driving a forwarder 'race to the bottom'

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Continuing uncertainty over the global economic outlook has left forwarders facing double-digit declines, leading some to a “race to the bottom”, as spare capacity spikes.

Alphaliner noted another 200,000 teu of ocean capacity hit the market in July, after June’s record-breaking 300,000 teu, leaving carriers at a loss as rates continue to fall.

And there are expectations of a similar impact on air, as holidaymakers return with a vengeance, swelling belling capacity.

One forwarder operating across both modes told The Loadstar: “Airfreight is fundamentally influenced by passengers, and if you’ve hundreds of extra flights from Europe to the US, you are flooding the market with excess capacity.

“From what we can tell, there are not only additional passenger services as part of ‘post-pandemic normalisation’, but it seems flight numbers may exceed those in 2019, because there’s pent-up demand from people left unable to travel for two years.”

Taking the UK as an example, the forwarder noted there were 54 flights a week between China and Heathrow, with additional China services into Manchester, freighter flights into Stanstead and ad-hoc services to meet supply spikes.

Brandon Fried, of the Airforwarders Association (AFA), said some AFA members claimed they had experienced double-digit drop-offs.

One source said all the excess capacity hitting the market had left the firm in in a state of “total discombobulation” on the rates side, some desperate forwarders “wildly” speculating on where the market will go in a “race to the bottom”.

“What we’re seeing is desperation to secure custom, leading forwarders to quote lower rates to secure big accounts with multimodal operations. They feel they’ll be able to make a return on the ocean side and, thus, are willing to see air as a loss-leader,” the forwarder added.

Even so, the source conceded that forwarders had “the power” at the moment, when it came to negotiating with carriers across modes, by dint of the steep decline in demand paired with the surge in capacity.

And Mr Fried believed it was not all bad for forwarders, explaining:  “Our SME members are saying that while the volumes have dropped off, they are still very active, with their market niches keeping them going.”