Positive straws in the wind in December saw business confidence begin to recover, and the trend has continued into 2012, with purchasing indices, corporate hiring and stock markets all turning favorable. Just how far the airfreight industry has to go to benefit from this more upbeat mood is clear from IATA’s disheartening cargo statistics for 2011.
As the International Air Transport Association pointed out in its year-end summary, measures to match capacity with demand by reducing the freighter fleet were offset by introduction of new twin-aisle passenger aircraft.
Global airfreight markets showed sequential month-over-month growth in November and December, confirming the view that international trade may be stabilizing. However, the situation for airlines in most markets continued to deteriorate. With freight capacity climbing 4.4 percent in December 2011 compared with December 2010, the freight load factor was just 46.1 percent for the month. For the year as a whole, the load factor shrank to 45.9 percent, down from 48.1 percent in 2010.
Tony Tyler, IATA director general, summarized 2011 as a year of contrasts. “Healthy passenger growth, primarily in the first half, was offset by a declining cargo market. Optimism in China contrasted with gloom in Europe.
“Ironically, the weak euro supported business travel demand. But Europe’s primarily
tax-and-restrict approach to aviation policy left the continent’s carriers with the weakest profitability among the industry’s major regions,” Tyler said in a statement. “Cautious improving business confidence is good news. But 2012 is still going to be a tough year.”
Forwarders purchasing space on the critical Asia-Europe trade lane are understood to be paying between 15-percent and 20-percent less than a year ago. Carriers that should be pricing the increasing cost of jet fuel and new European emissions trading legislation into their kilo rates are in no position to force the issue.
Jade Cargo’s grounding of its aircraft and the loss of Cargoitalia at the turn of the year may help correct some of the supply/demand imbalance, but there is no question that westbound business into Europe remains difficult. Consumer demand is muted and will likely stay that way until the Eurozone crisis moves nearer to a long-term resolution. This has resulted in a modal switch from air to ocean that Austrian forwarder Gebrüder Weiss believes could become permanent.
Damco, the logistics arm of the A.P. Møller-Maersk Group, says the slump in airfreight rates out of Asia over the last year reflects a marked decline from the main Chinese points of origin, Shanghai, Shenzhen and Hong Kong — one of the factors that led to Jade’s demise. Although the pain has not been shared equally across the region, China is still the factory to the world. Its export volumes are still huge, despite a shift of some production toward countries with lower labor costs, so it is still the pattern of Chinese trade that has the main impact on airfreight rates. Export markets such as Malaysia, Indonesia and Bangladesh are holding stable in terms of airfreight volumes to Europe, but this is primarily low-end garment business that represents a lower yield for carriers.
The state of the global economy can look very different depending entirely on where you’re sitting. “If you go shopping in Hong Kong on a Sunday afternoon, you would never believe there is a crisis,” says Tomas Sonntag, who is based there in his role of director, global airfreight procurement for the Air + Ocean segment of the Luxembourg-headquartered Logwin Group.
Logwin moves around 170,000 tonnes of airfreight per year, and saw a 4-percent increase in volumes in the last quarter of 2011 when compared with the same period form the previous year. However, this was driven mainly by intra-Asia business, reflecting both the underlying strength of this market and Logwin’s investment in Asia over the last three years. “Europe did not participate in this [final-quarter increase] and more or less showed zero growth,” Sonntag says. “The slowdown in consumption means that volumes from Asia — and from other regions — to Europe have been rather weak, but they are not declining.”
There is some evidence among Logwin’s top 20 Air + Ocean customers of a shift toward oceanfreight. “But across the entire business, this is not the main factor. Demand is weaker across the board,” Sonntag says.
Logwin continues to pick up new customers in Spain, including the Anjara García fashion label. The company consolidates garments from production facilities across China at its warehouse in Shanghai before transporting them by sea and air to a Madrid facility, where they are picked for final delivery to retailers throughout Europe. Overall, however, it is southern Europe that has seen the most severe slowdown for forwarders. Sonntag comments that Germany’s retail and fast-moving consumer goods markets, together with those of other countries in Europe’s central belt from Austria to Belgium, have held up reasonably well in comparison, with a positive influence on airfreight activity.
Sonntag sees a difficult year ahead for airfreight forwarders and logistics companies, and paradoxically, an improvement on last year’s non-existent peak season may not help. “If we’re honest, the first three trading quarters of 2011 were manageable and airfreight yields were OK. It was not very exciting, but it was ‘safe.’ Later this year, the cost of air capacity could explode, affecting long-term rate agreements with customers,” he says.
“We have seen some forwarders in the past attracting customers with rock-bottom rates,” Sonntag continues. “They have been prepared to take the hit and sell below cost, aiming to recover their losses in peak season. Rate negotiations may have to be rather different in the future.”
Markus Derndorfer, product manager, airfreight, Europe, at Gebrüder Weiss, concurs. “The last quarter of 2011 was difficult on most airfreight trades globally. We saw a small decline overall, and Europe was no worse than the global trend. Indeed, Asian imports were even a bit higher than in the last calendar quarter of 2010,” he says.
Some customers, however, switched to oceanfreight last year for imports from the Far East to Europe. “Supply chains on certain products have changed as part of cost-reduction programs. Companies have seen how it works out and are unlikely ever to change back,” Derndorfer says.
Gebrüder Weiss works on a joint-venture basis with Germany’s Röhlig Logistics in Asia. The partners, which operate at a total of 37 locations in seven countries, see Japan as a potential bright spot as it recovers from last year’s earthquake.
In January, Weiss-Röhlig Japan took over Osaka-based air and sea freight shipping company JHB Express to give it a second operation in Japan, alongside its main Tokyo base. Joe Lässer, director, air and sea, at Gebrüder Weiss, said at the time that “in addition to strengthening our intra-Asia traffic, our major trading partners in the U.S. and Europe will benefit from this expansion.”
Serge Tripet, Dubai-based regional airfreight manager at Damco with global responsibility for sea-air business, has witnessed a sharp slowdown from the recovering volumes seen in 2010 and early 2011. The company forwarded less than 300 tonnes of sea-air traffic via Dubai in January 2012, compared with 13,000 tonnes in full-year 2010. “Retail customers are under no pressure to manufacture just-in-time so they can ship all the way from Asia to Europe. There has been a big increase in ocean traffic,” Tripet says.
Sea-air business involves transferring cargo, 90 percent of it garments and shoes, from deep-sea vessels at Jebel Ali port to aircraft departing Dubai International or Dubai World Central for destinations in Europe. Warehousing the products in Dubai while awaiting the final call from the retailer is rare, and the switch of modes usually takes place on a cross-dock basis within 24 hours.
Damco is receiving some requests for sea-air transport of high-tech products to South America, but the economic crisis is likely to keep European demand down at least through the first half of the year. This will continue to impact air transport, Tripet says. He expects the mixed-mode concept to bounce back as confidence returns to Europe, however, because the major global retail names are anxious to appear “green,” and sea-air emissions are 40-percent to 50-percent lower than from flying the shipments all the way.