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Even the ever-optimistic Ram Menen is downcast, (according to those who managed to get their visas for Air Cargo India). Demand is falling – in double digits. And as demand drops, so too do the prices.
It’s not just airlines that are charging nothing more than the price of a fuel surcharge. One source reports that a longstanding shipper customer was asking for a better deal on his air freight. “The past means nothing, price is everything.”
I know it’s forbidden to talk rates, but in the good times on one Asia-Europe trade lane, forwarders could command rates, of, let’s say, ‘A’ (HK$26). Forwarders are now offering ‘A-minus-the-profit-margin’ (HK$14-15). But shippers are demanding yet more – and some forwarders are now offering ‘Z’ (HK$10). Which is a big difference from the giddy heights of ‘A’. In fact, it’s simply paying shippers to handle their cargo. Would you expect McDonalds to pay you to eat there? (Maybe that’s a bad analogy, but you get the gist.)
The choice is losing a customer or taking the hit and keeping market share. And then, of course, trying to limit your hit by passing it on to your supplier; in this case, the long-suffering airlines, who are then faced with the same dilemma. 
Deep pockets win. And, no doubt, those deep pockets will claw back the money during the next peak –  by which time many more airlines will have left the market. (By the way, RIP Spanair, Malev and – although the Americans cheat at bankruptcy –  World Airways. There’ll be more to follow, undoubtedly. Watch the vultures start to circle in Europe.)
But while airlines are operating for the price of a cup of tea, over in sea freight, the carriers have pulled it together. No one would dare suggest that there has been something of a behind-the-scene chat about rates, (although EVO, the Dutch Shipper’s Council has its suspicions – or see here for the Dutch version) but almost all the carriers have followed Maersk’s lead and announced rate increases of about $750 per 20ft container. And, say the forwarders, no one expects the shipping lines to break ranks. Rates will go up by at least 100% – and everyone – barring the shipper – is happy. Can the shippers cope with this? “They’ll have to.”
Either way, what continues in air freight is the hideous see-sawing of rates that everyone despises, with terrible losses in the bad times and absurd profits in the good. You want air cargo to be sustainable? Then this system has, somehow, to change. OK, right now there’s too much bellyhold and not enough cargo. But someone has to be strong, keep rates tight, be tougher on customers and hope that everyone follows suit. Flying half-empty planes for no money doesn’t make sense. Really, it doesn’t. 
* PS. Revelations about poor payers just keep on coming…But sadly The Loadstar can’t go into any more detail. Not at the moment, anyway. 

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  • Unknown

    February 08, 2012 at 12:00 pm

    Depressing, on the other hand higher sea rates might help air cargo 🙂
    Seems nothing has changed since I joined the industry back in the sixties- the topic is always the same – how to improve ever declining yields.
    They won't as long as carriers do not measure net contribution vs gross – never mind those combination carriers who just measure tonnage.
    I suspect many do not have a clue what their net income from cargo actually is. nothing changes looking on the bright side – they provide work for the unemployed 🙂