Air Cargo Shippers Should “Lock in” Rates, Advises Analyst

Charles Clowdis, managing director, transportation advisory services, IHS Global Insight shares his views on the current state of air cargo in this exclusive interview with Supply Chain Management Review.

Supply Chain Management Review: What’s changed in the air cargo rate picture?

Chuck Clowdis: The air cargo picture has brightened a bit since last year. In the past several weeks’ port labor unrest, disruption of service and uncertainty on the West Coast has caused many retailers to fly their goods to market due to the back-up of container ship service at LA/Long Beach primarily. An additional source of light is a continally stronger economy lead by restored levels of consumer confidence; as well as the increasing release on pent-up consumer demand. Manufacturers also are generally more up-beat about demand and production than a year ago.

SCMR: Very good, Chuck. And what remains the same?

Clowdis: The challenge for air cargo operators to fill capacity, and the confidence to add capacity, remain the same as the demand curve for air freight services recovers. However, this “cautious optimism” is discernably stronger than last year.

SCMR: How can shippers mitigate risk regarding sudden spikes in rates?

Clowdis: Shippers can attempt to lock-in rates for at least a year, in my opinion. As long as the recovery is steady rather that roller coaster-like, carriers will be willing to work with shippers to assure capacity and rates for at least one year, or possibly thru next Holiday season 2016.

SCMR: Given all the seaport disruption on the U.S. West Coast, are we seeing greater use of air cargo alternatives?

Clowdis: We have spoken with one high value goods maker who in late October diverted a portion of its products to air to avoid any protracted delays at LA/Long Beach Ports. While they had goods in transit already on the ground in the U.S., it was felt that to be safe, air cargo options would be deployed. This past season may be a wake up call for retailers and should be for the Ports and their Labor forces.

SCMR: Will this trend continue?

Clowdis: It may, however post-Holiday Season demand will dictate. If the west coast port strife continues or expands to other areas, I would expect the Government to step-in to mediate

SCMR: Finally, do you see any new players coming into the market place?

Clowdis: While we have heard rumblings about new players in various markets, and old players re-entering some areas, we approach expansion of air cargo carriers with serious caution. I personally would do extraordinarily thorough research before trying to guess the next major air cargo opportunity. However, the ability to rely upon air cargo when other modes stall was proven again in the season just past.

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