[140321.EN.AIR] ] Airfreight Capacity Taken Up Mostly By High-margin Cargo: Stifel

 

HIGHER-MARGIN cargo is soaking up limited air freight capacity because of that segment's ability to absorb the elevated rates that are pricing shippers of lower-value cargo out of the market, according to Bruce Chan, vice president of global logistics at investment brokerage Stifel.

The explosion of e-commerce has generated significant demand for air cargo, especially in the consumer-driven high-value segment of the market, with additional demand from the recovering air freight-friendly industrial sectors such as semiconductor and chip manufacturers, Mr Chan wrote in a recent Baltic Exchange blog.

He said shippers of the higher-margin goods were better able to handle the rising rate levels, and that "may price others out of the market. And while the industrial recovery has lagged the consumer economy, resurgence in that sector will tighten up air freight demand too, especially for shippers with critical process inventory."

Heavy users of air cargo, such as semiconductor and chip manufacturers, either slowed or halted automotive production as their suppliers were caught off guard by the pandemic recovery, but Mr Chan said when production is ramped up to meet renewed auto demand, the threshold prices that purchasers would be willing to pay "could be very high."

CEO of Webcargo, Manel Galindo, gave a similar warning during an on-demand session during the JOC's virtual TPM21 conference, reports IHS Media.

"There are some shippers that when rates arrive at US$3.50 or $4 per kilogramme, it is no longer profitable for them to use air cargo," he said. "Block space agreements and contracts are very complicated right now, and only big forwarders can get those types of contracts."

Disruption across the ocean supply chain, including congestion in US ports and container shortages in China, is creating even more demand for air capacity as the industry heads into the second-quarter peak season, and rates out of China are increasing. While spot rates in air cargo are unlikely to hit the sky-high levels reached last May, they are expected to remain consistently high.

Peter Stallion, head of air and containers at Freight Investor Services (FIS), said the air cargo market remained highly uncertain as a result of capacity constraints, rather than issues around demand, which remained strong.

"Depleted inventories in the US have been exacerbated by port congestion and fed back into the air freight market," he wrote in a market update on the Baltic Exchange website.

"Forward pricing has been equally volatile, with pricing only calming down near the back-end of the month [February] after constantly correcting in line with the volatile physical market price. Index prices were in fact tempered by the large amount of charter capacity on forwarder charter networks across the Pacific."

On the European trades, Mr Stallion said prices continued to be supported by low levels of belly capacity and increasing vaccine cargo, but the forward pricing data gathered by FIS indicated "a slight return to normal" pricing from the third quarter.

Source : HKSG / Photo : industrytoday.com.