As problems continue to plague the US west coast ports, now comes word that effective November 17, many ocean carriers plan to implement surcharges of over $1,000 per FEU inbound to these ports. For retailers, the closer the holiday season gets, the more worrisome the situation becomes; particularly as the holiday season tends to represent the majority of many retailers’ annual revenues. Thus, without fully stocked shelves, retailers may be faced with a precarious situation.
As such, retailers are now turning to air freight. According to a Journal of Commerce article, apparel retailer, Ann Taylor has had to convert some shipments to air freight for the holiday season and estimated the cost at $5m more than its traditional ocean shipping options.
So, can retailers’ dilemma be a boon for air freight forwarders this holiday season? According to the president of the Los Angeles Customs Brokers and Freight Forwarders Association, rising rates and tightening capacity is becoming a concern – a potential opportunity for freight forwarders.
Indeed, in Deutsche Post DHL’s recent quarterly earnings report for the period ending in September, it noted stronger demand in Asia and an increase in buying rates on selected trade lanes. As such, its third quarter air freight tonnage increased by 4.8% as did air freight forwarding revenue, up by 7.5%. However, gross profits declined for the Freight Forwarding and Freight group.
As noted in Ti’s recent brief, DHL Forwarding and Damco’s suffering contrasts with parental prosperity, Senior Analyst, Thomas Cullen points out a problem is the crunch in yields after the airlines aggressive rationalization of capacity collided with the increase in demand.
Panalpina also noted positive gains in air freight tonnage for third quarter, up by 4.0%. However air freight gross profit declined 2.0%. The company attributed this decline in gross profit to a 4.1% decline in currency translation.
So, just as the third quarter saw a rise in air freight tonnage, many freight forwarders expect continued increases in air freight tonnage for the final quarter of 2014. However, forwarders that are a division of an asset-based company (i.e. owners of airplane fleets such as FedEx or UPS) may actually benefit the most. For non-asset based freight forwarders, finding capacity may be difficult in the already tight market. An option, of course, is to charter planes and in fact Atlas Air and Chapman-Freeborn are reporting increases in chartering. Uti Worldwide is one such forwarder that is taking advantage of this option and has chartered two Boeing 747s from Shanghai to Chicago. It is actively promoting this option for those companies that need to bypass the port situation. An interesting move on behalf of Uti, but will it succeed in filling each 105-ton plane? More importantly, will it be able to generate a profit from such a move?
Regardless, it appears air freight is in the midst of a peak season, in fact, one it has not seen in several years. Freight forwarders should benefit in this environment but the question is will they be profitable?
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)