News / Shippers eye longer-term airfreight contracts to avoid ocean delays

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Shippers have increasingly been committing to longer-term fixed rate contracts in airfreight – but could struggle to retain those rates if the Red Sea disruption causes a spike in air capacity demand.

In the final quarter of 2023, contracts of more than six months’ length accounted for 45% of all agreements, up five percentage points from the third quarter, according to Xeneta data. Six-month contracts accounted for 28% of the market, while contracts of one month or less made up just 14%.

“This was in stark contrast to the pandemic era when most shippers had to manage rates valid for up-to-one-month only,” noted Xeneta.

It argued that shippers, in the face of containership disruption, may commit more to the relatively stable airfreight market.

“There’s still a lot of friction in the global supply chain market and that means there will be opportunities for some sectors,” explained chief airfreight officer Niall van de Wouw.

“If big ocean carriers are not going through the Red Sea, it might delay a million or more containers, with all the knock-on effects. And the fact that you don’t know how long this situation will continue means some shippers will pay for the predictability of air cargo to lessen the impact of the ocean freight disruption.

“In contrast, air cargo seems to be in a more ‘steady state’. It is important for airlines and forwarders to focus on the elements they can control, such as cost and reliability, and to be ready for when the opportunities arrive.”

But shippers are facing cost rises, whether by sea or if they must shift to air.

“The timing of the whole crisis could not be worse, with a two-week global slowdown and pause in working over Christmas and new year – what will the reaction be when shippers return this week and reality and additional costs become transparent?” asked one forwarder.

With increased transit times for shipping of between 10 and 25 days, as lines avoid the Red Sea, sea-air via Singapore, Dubai and Sri Lanka is expected to rise.

“Operationally and cost-wise, it carries benefit in the current market and will do in two to three weeks’ time when the impact really begins to get felt,” said the forwarder.

“The skill is predicting what will unwind now the world has revived itself after the holidays and reality is filtering down.”

But he warned: “Think of the effect on inflation and on the cost of goods.”