News / Strong demand means air freight shippers must expect higher prices

© Xi Zhang

Forwarders are warning shippers to expect a raise in air freight rates as the market remains strong.

“Carriers are looking to maintain high rates and increases,” said one senior air freight forwarder.

“Customers have experienced low rates for so long that these have become the norm. But they are no longer realistic or acceptable, as carriers seek to maintain positive balance sheets.”

Another added that the strength of the market was giving carriers the confidence to increase pricing, but that it wasn’t a certainty.

“It remains to be seen if the market really is going to support it, but if costs are going to start moving up, then our challenge will be changing people’s mindset from lower and lower pricing expectations.”

Carriers out of China have been eyeing a 20% raise in rates, while Indian carrier charges are double what they were at the start of the year.

Airlines are reporting higher yields, with fixed space contracts growing “significantly”, while one forwarder told The Loadstar: “We are not seeing the lows in spot rates we did this time last year. It is expected to remain buoyant until the May holidays, with perhaps another little spike just before.”

The tightened pricing is justified by demand as carriers and forwarders report continued high volumes, albeit in comparison with a low level at this time last year.

“It certainly is a stronger-than-usual time,” said Mark Sutch, general manager cargo for Cathay Pacific.

“It is unusual to have seen demand for 2016 go so late into December and continue momentum into January, with only a ‘standard’ slow down over Chinese new year.

“I think this is the strongest first quarter I have seen in four years, and that covers many lanes.”

One of the strongest currently is the Indian subcontinent, both to the Americas and Europe, as well as inbound from Asia. Cathay Pacific has added extra rotations to deal with demand, while congestion and the threat of a port strike by dockworkers in India – now postponed – has added to a heightened market, according to forwarders.

“Currently, space is tight ex-India and, to some extent, Bangladesh, Sri Lanka and Pakistan,” said one European forwarder. “Volumes are quite strong but this region has been affected by weather problems in the UAE at the end of March, when flights were delayed and cancelled.”

He added that the Gulf carriers were still working through backlogs, and limiting uplift from origin destinations.

“The Indian sub-continent relies heavily on Middle Eastern carriers, more so than further east. Carriers in India are demanding higher rates and only guaranteeing uplift on express rates – around double the market rates of the start of the year. This is expected to run to the end of the month and possibly into May.”

Asia is also strong, both to the transpacific and to and from Europe.

“The two regions which are performing well for exports are Asia and Europe,” said one major European carrier. “Asia has continued on past the end of March with decent levels of demand and business remains robust in most Asian markets for us at this point.

“Europe has been good so far this year and while it has dipped for Easter, most signs suggest a return to solid demand for the rest of the second quarter.”

Latin America remains flat and “disappointing”, according to several players.