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Cargo airline margins have triggered some debate on LinkedIn this week. There is general agreement that forwarders have the upper hand – and that airlines fail to protect their already miserable margins, preferring instead to take whatever is offered.
RegionalCargo’s Juan Rodriguez Anza makes the point: “It is about time that airlines recoup their investment in very expensive assets (aircraft) and a high risk environment (fuel and currency exchange rates), and just don´t let forwarders reap all the benefits without the corresponding economical risk airlines face.
“It has now become a fact of life that forwarders shop around, obtain the best (sometimes absurd) rates and do not commit their freight to any carrier.”
He adds that this trend will only end in tears – ultimately for both forwarder and carrier. “We soon will see that no airline will fly freighters and will only have belly space (priced marginally) available for forwarders, while the integrators, with a much more balanced and rational rate scheme (with traceabilty and transparency) eat away at their market.”
It is forwarders forcing this situation – yet when questioned on working with belly-only carriers, one major forwarder said: “We prefer to work with airlines which demonstrate that they believe in airfreight by operating a freighter fleet, while we are trying to avoid supporting airlines which are dealing with freight only as a spin-off of their passenger activities.”
And yet without proper pricing, this situation could become inevitable.
And yes, the integrators – of course – do have a far more rational rate scheme. In comes the annual news that UPS is to hike its rates – as they all will.
The integrator, known for its inflexibility – yet efficiency – is raising rates for ground and air shipments by 4.9% next year, while next-day airfreight and second-day airfreight in the US, Canada and Puerto Rico is going up 5.09%. And this comes on top of a 6.9% increase in August in the US, Canda and Mexico.
When was the last time a non-integrated carrier announced a planned, annual rate increase? And why not? Can carriers continue to complain about the market share that has gone to the integrators and their own terrible margins without attempting to emulate some of their better strategies – such as asking for rates which give them a sustainable business?
It’s the airlines that spend on the assets, that fly the cargo, that take the risk. And yet they are still prepared to be bullied by forwarders who, led by a strong sales team, promise shippers rates that are not sustainable.
Bangkok Flight Services’s Dave Ambridge writes: “The forwarders put huge pressure on airlines to reduce rates and offer cheaper and cheaper rates. Foolishly the airlines do this time and time again and dilute their already very poor yields. The airlines are only charging fuel surcharges, and then offering kickbacks on that as well! It makes no commercial sense at all.”
AirFrance-KLM’s bizarre announcement that it no longer wanted to be a ‘leading air cargo carrier’ suggested that the airline no longer wanted to chase market share at the expense of yields. And yet forwarders report they have seen no rate increases (or any changes at all) not only from the Franco-Dutch carrier, but from anyone.
Of course, one of the best ways of tightening the market is to reduce capacity – and Lufthansa Cargo has already acknowledged the possibility. If the market decreases further, the carrier will take out between 20 and 30% of its capacity. It’s a bold move that someone has to take.
But let’s let Dave Ambridge sum up in his inimitable way: “Wake up airlines and charge rates where you can actually make some money for a change. If this means you carry less kilos in the short term, then so be it.”
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