Capacity squeeze hits supply chains
Space restraints on ocean and air make planning difficult
Air and ocean volumes on key trades have rebounded with vigour this year, but capacity constraints in both modes are making supply chain planning increasingly difficult, according to Expeditors International.
In a response to investor questions filed with the US Securities and Exchange Commission yesterday, the Seattle-based logistics provider said air freight tonnage grew 49% year-on-year in April, and by 40% over the first quarter of 2010.
Ocean volumes rose 14% in the first quarter, compared with a year earlier, and climbed 18% in April.
“Intra-Asia has been very strong for us,” said Expeditors.
“Asia-US business is very strong and Asia-Europe is much stronger than last year. US exports are [also] very strong, both to Europe and to Asia.”
It said the rise of freight rates in both ocean and air markets was a natural reflection of capacity restraints, with ocean capacity now “much more problematic”, although air freight is also struggling with capacity issues, “causing a rather healthy charter market to emerge”.
With slots in short supply, Expeditors has prioritised existing customers, rather than attempting to win market share with its available capacity.
Expeditors had, “to some degree”, been able to pass on the cost of higher ocean and air rates to customers more effectively so far this year than in late 2009.
“That said, on a comparable basis, year-on-year air and ocean freight margins are lower, primarily because carriers’ costs in 2009 were much lower, and reflective of the spot market conditions that existed,” said the company.
“The time lag varies by size of account and amount of rate increase imposed based on lanes and commodities being moved.”
Expeditors predicted air and ocean carriers would continue to manage capacity “very carefully”, given the losses sustained in recent years.
It said the most effective way for operators to maintain profitability would be to park excess capacity – not only to save operating costs, but to maximise the utilisation of assets still in service.
In a response to investor questions filed with the US Securities and Exchange Commission yesterday, the Seattle-based logistics provider said air freight tonnage grew 49% year-on-year in April, and by 40% over the first quarter of 2010.
Ocean volumes rose 14% in the first quarter, compared with a year earlier, and climbed 18% in April.
“Intra-Asia has been very strong for us,” said Expeditors.
“Asia-US business is very strong and Asia-Europe is much stronger than last year. US exports are [also] very strong, both to Europe and to Asia.”
It said the rise of freight rates in both ocean and air markets was a natural reflection of capacity restraints, with ocean capacity now “much more problematic”, although air freight is also struggling with capacity issues, “causing a rather healthy charter market to emerge”.
With slots in short supply, Expeditors has prioritised existing customers, rather than attempting to win market share with its available capacity.
Expeditors had, “to some degree”, been able to pass on the cost of higher ocean and air rates to customers more effectively so far this year than in late 2009.
“That said, on a comparable basis, year-on-year air and ocean freight margins are lower, primarily because carriers’ costs in 2009 were much lower, and reflective of the spot market conditions that existed,” said the company.
“The time lag varies by size of account and amount of rate increase imposed based on lanes and commodities being moved.”
Expeditors predicted air and ocean carriers would continue to manage capacity “very carefully”, given the losses sustained in recent years.
It said the most effective way for operators to maintain profitability would be to park excess capacity – not only to save operating costs, but to maximise the utilisation of assets still in service.
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