Strong start for air freight out of Asia

Air freight out of Asia has seen a strong start to the year, with forwarders and carriers anticipating relatively tight capacity and firm rates over the coming months. 

Although volumes and rates have dropped well below their levels during the extraordinary peak – and scramble for capacity – experienced in the fourth quarter of last year, capacity since the start of the year remained extremely tight up until the new year shutdown in China in mid-February. 

Forwarders say rates from Asia to the US east coast peaked at around US$5/kg in the weeks leading up to Chinese new year (CNY), with slightly lower rates to the US west coast and between $3 and $4 to Europe. 

Rates to the US are expected to drop to around US$3/kg for the next few weeks, but then move upwards in the second week of March, as part of a pre-Easter mini-peak. 

“Rates to Europe are also coming down [compared with the pre-CNY peak], but my personal expectation is that space will again be rather tight in the second half of the year,” says Hardy Haenisch, director of Hong Kong-based forwarder On-Time Express. 

He expects rates to Europe to be slightly lower than those to the US. “But it is difficult to say right now how it will develop, as all the airlines are talking about [rate] increases,” he adds. 

He says a lot of the new agreements between forwarders and carriers will take effect in April, although during the May to July slack season, rates will drop again. 

“But generally, it seems this will be a tight year and carriers will do their best to make sure there is no excess capacity in the market,” he says. 

William Chiu, Hellmann Worldwide Logistics’ assistant general manager of air freight for China, agrees that rates are likely to remain firm, after a slack period over the next two weeks, with airlines controlling capacity in order to balance demand and supply and keep yields relatively high. 

Forwarders say rates from Shanghai to Europe have dropped in recent days below the $3/kg mark and are currently hovering between $2.60 and $3/kg, plus surcharges, for direct services and premium transhipments, and lower for second-tier transhipment carriers. 

Some expect this to increase back up to around $3/kg in March. 

Forwarders say Lufthansa Cargo is one of several airlines looking to increase rates from Monday, by a reported 10%. 

LC declines to comment on this, but says it is no secret that most airlines made losses last year.

Some months ago, the carrier said it was heading for a loss of more than €100m for 2009, and sources expect that to remain true in spite of the strong demand in the fourth quarter. 

“It was impossible for airlines or shipping lines to make money last year, except in a few niches,” says Nils Haupt, LC’s communications director. 

Although demand has returned somewhat, it is still early days, he says. 

“We had good load factors in January and February, and capacity is still tight on certain routes, which is helping the industry to recover, in terms of yields. It is one thing to have full flights, but you can still go bankrupt if you don’t have the yields. Everyone should be looking to increase them.” 

The strong fourth quarter last year helped somewhat, but underlying yields are still below where they were in 2007 and 2008, he says. 

LC’s volumes in January were 18% higher, year-on-year, but January 2009 saw such a big downturn that volumes are still below 2008 levels. Nonetheless, he adds, the year has started positively. 

“We had a good start from Asia and a peak prior to Chinese new year, and we are hopeful that there will also be an Easter peak,” he says. “We are prepared for one, and confident there will be one. 

“We have taken some capacity out over the CNY period, and we will bring that back in.” 

Doug Overett, UK MD of SBS Worldwide, says that while demand is not particularly strong, compared with previous years, it is matching capacity and, therefore, rate levels are holding firm – “albeit of course, not at the pre-Christmas peak season levels”. 

“Depending on how capacity reacts, potentially with improvements in the leisure sector as we move into holiday season, then we would expect the rates to soften a little further over the coming months,”  he says.

LC has parked four MD-11 freighters

So, will LC bring much of the freighter capacity back this year that it grounded in 2009, or will it keep this capacity grounded in order to try to balance supply and demand? 

“We still have four aircraft on the ground, and I don’t expect to bring them back this year,” says Haupt. 

“And if we can see from reservations that an aircraft will go out empty, then we will not operate the flight.
“But if we get an opportunity to bring any of the freighters back profitably, we will do that.” 

Alongside parking four MD-11 freighters last year, LC added four B777 freighters’ worth of capacity through its Aerologic joint-venture with DHL Express, with four more coming in this year. Weekday capacity will be taken up by DHL, but responsibility for selling this capacity at weekends rests with LC. 

“So there is quite a lot of capacity coming in anyway,” says Haupt. “At least we are only having to fill this at weekends when demand is strongest, but it is still quite a lot of capacity.” 

Robert van de Weg, senior VP for sales and marketing at Cargolux, is optimistic about the year ahead.