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Volatile B2C ecommerce volumes have made shippers and forwarders “uncomfortable” about entering long-term agreements, according to Xeneta’s head of airfreight, Niall van de Wouw – but the threat of a busy Q4 has shifted contracting tactics.  

In yesterday’s air freight update, Xeneta and Tiaca noted that the current high-flying airfreight market was indebted to reduced ocean schedule reliability and cross-border ecommerce.  

Indeed, Tiaca director general Glyn Hughes noted: “The strength of demand has been quite staggering. 

“Ecommerce is having such a huge profound effect here, because it’s taking up so much freighter capacity that it’s making the rest of the capacity quite tight, and that’s where you’re getting to see the increase in rates.”

Listen to this clip from the latest episode of The Loadstar Podcast to hear Tom Crabtree talk about how the business models of Chinese e-tailers such as Temu and Shein are transforming air cargo:

But the longevity of both ecommerce demand and ocean shipping disruption is, to a great extent, unpredictable.

“When you look at the strength of demand we’ve experienced, the question is, how long can it continue?” asked Mr Hughes. 

And this uncertainty, noted Mr van de Wouw, had made shippers and forwarders wary of agreeing long-term contracts. 

“The longer-term agreement you have, the more risk; and the risk will be on both sides. Did I enter the right deal, at the right time, at the right level?… It’s a bit more ‘wait and see what will happen to the world’.” 

And according to Xeneta, 70% of contracts in Q1 24 had a validity of three months or less, down 11% year on year, and down 23% from Q4 23.  

“But if we look at the relationship between the airline and the forwarder, we see the opposite,” said Mr van de Wouw. “If we look at the global average, airlines and forwarders are looking for longer-term deals compared with last year – they are looking for more stability,” he said.  

And, he explained, this was likely due to the anticipation of a busy fourth quarter. 

Indeed, CEO of Cargolux Richard Forson told The Loadstar: “Forwarders might find themselves in a bit of a capacity crunch… We’ve had requests to lock-in capacity for Q4, but we always try and keep a balance of what’s sold and what’s kept in reserve.” 

And, as forwarders look to mitigate their risk exposure, the disparity between their contracts with shippers versus airlines has been decreasing. 

“Last year, when they were still procuring a lot on the short-term market, that market went crazy, and they still had longer-term commitments towards shippers at lower rates,” said Mr van de Wouw.  

This put some forwarders in a “difficult position” and meant a lot of contracts had to be renegotiated, he added. 

“Overall, freight forwarders are in a less risky position because they are more aligned with how they are buying and how they are selling, different to the gap they had last year when they were selling long and buying short.” 

Mr van de Wouw also noted a recent uptick in index- linked contracts (ILAs). 

“What we do see in response to this uncertainty is less and less need to gamble when it comes to entering a fixed deal. We see both shippers and freight forwarders alike coming up with index-style deals. They are looking for mechanisms to still have a longer-term deal, but share the risk of volatility in a fair manner.” 

This allows both parties to benefit from competitive rates and some predictability of volumes throughout the contract, he explained.  

Mr van de Wouw concluded: “People are becoming nimbler in responding to these constantly changing conditions, but also looking for mechanisms that will make it more efficient, rather than tearing-up contracts, renegotiating and going out to the market again.” 

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