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Just 18 months ago, forwarders were predicting that some 35% of air freight’s business would be lost to its sea-going rivals. But as ever, the pendulum has swung again. According to BB&T Capital Markets, major brands including Victoria’s Secret, athletic clothing company Lululemon, Costco and Nike have all stated they will be increasing their use of air freight. And damn the expense.
Or not. BB&T’s Kevin Sterling told The Wall Street Transcript that lean inventories and reduced warehousing costs are the real appeal of air freight for companies shifting goods in a quickly changing market. It’s something people like Emirates’s Ram Menen have been saying for a while. And it looks as if manufacturers are starting to agree as the economy warms up again, and retailers recoil from the scars inflicted during the horrible period of discounting they were forced to endure when big inventories needed to disappear fast.
Shippers are expecting price increases in air freight, and have factored that in. But whether they stick to their guns when they see the massive rise in oil price go straight out of their bottom lines is another question. IATA’s roulette-like Jet Fuel Price Monitor – addictive reading – is currently showing prices at $128.2 per barrel, or 305.3 cents per gallon. A stunning 7.6% rise on last week and 13.5% rise on a month ago. Or a 6.7% rise on two blogs ago.
And this could be exacerbated by the current overcapacity in sea freight, which has bullishly forgotten 2009 and overextended itself once again, sending sea freight rates plummeting to about $1,000 per teu, as lines fight to get the tonnage. The Shanghai Containerised Freight Index, which shows a composite rate from major lines and some local forwarders, last week reported the forty-sixth straight decline in Asia-Europe rates.
It’s nothing if not exhilarating, this industry.
See you at IATA’s World Cargo Symposium next week, where I’ll be keeping an eye out for the newly crowned king of cargo, Des Vertannes, and watching John Batten make sure the industry hears the handlers loud and clear.
And if you can’t make it, log on to The-Loadstar for regular blogs from Istanbul.