Contrasting Fortunes in Q3 Air, Sea Freight

October 24th, 2017

While air transporters returned to the high demand and filled capacities of early 2017, familiar sluggishness haunted maritime cargo in Q3.

​Transporters of air and sea freight experienced diverging fortunes in the third quarter of 2017, with both encountering significant changes in trends from the first half of the year. As a result, freight forwarding experts say the end of 2017 and early 2018 should allow air cargo operators to consolidate recent gains, while raising new concerns among maritime operators.

For exporters using air options, the third quarter brought a reversal of first semester activity, when available capacity remained fairly high amid modest demand growth. Surging volumes over the last three months, however, allowed transporters to fill space, raise rates and benefit from excess demand being moved into express cargo.

"Capacity is down, demand is up, yields have risen and most carriers are doing well," says Claude Picciotto, airfreight procurement manager for Bolloré Logistics in Paris. "Volume on virtually all trades apart from Europe-Africa is robust, with activity to South America so strong there's a two-week waiting period for cargo to Brazil. Otherwise, it has to go express – which pads transporters' yields even more."

A major volume driver, Mr. Picciotto says, has been an explosion in e-commerce – especially between Asia and Europe. Since e-consumers demand their goods quickly, vendors like Alibaba and Amazon won't contemplate slower maritime options when air capacity gets tight, opting instead for faster -- and pricier -- express air cargo.

The Q3 burst mirrored strong growth in early 2017, but which quickly sagged through spring. Resumed vigor in Q3 was preceded by what the International Air Transport Association (IATA) reported as an 11.8% year-on-year boom from May through July. With IATA also noting the 817 tons of new capacity added thus far in 2017 represented just half of that created the previous year, those contrasting curves brought good financial news for air transporters.

"Previously only the Europe-ASPAC trade was booming, but now that has spread to others, causing demand-capacity tensions to tighten," Mr. Picciotto says – noting the resulting rise in rates hasn't necessarily meant higher costs for all exporters.

"Specialists like Bolloré Logistics have the budgetary and forecasting strength to secure long-term capacity ahead of such fluctuations," he says. "That preparedness means we can provide affordable space when clients need it."

Mr. Picciotto expects the current pace in air cargo to continue into December, sustaining what he says has been the 10% rise in volume Bolloré Logistics has registered thus far in 2017.

Contrary developments transpired in shipping. Previously, the return of demand amid artificially reduced capacity had allowed transporters to considerably raise rates, providing relief after two years of constant crisis. Consequently, 13 of the 16 top carriers reported first half operating earnings following years of losses.

But that respite may already be over.

According to Anne-Sophie Fribourg, sea freight procurement manager for Bolloré Logistics in Paris, higher rates responsible for those improved results became unsustainable when third quarter demand unexpectedly dropped in September.

"Forecasts were for full-year rate growth of 16%, but with volumes suddenly plunging in September, rates started to weaken, too," says Ms. Fribourg, noting the first signs of trouble for transporters was the absence of habitually big volumes ahead of China's Golden Week. "December should bring a rise in activity, but it's difficult to see a return of sustained demand before then."

That revives concerns that slackening demand and lower rates will again generate losses for sea transporters. That, in turn, could mean resumption of the heavy M&A activity of the last two years, when financially swamped competitors merged to survive the combination of low demand and rising capacity.

Indeed, Ms. Fribourg expects that consolidation to continue, especially with operators like CMA CGM and MSC scheduled to take delivery of twenty 22 000 TEU mega-ships by 2019. Forecasts predict global container capacity increasing by about 5.5% in 2018.

"Transporters need an 8% increase in demand in 2018 to offset capacity excess, and the recent slowing will complicate that," Ms. Fribourg says. "So we're already seeing considerable uncertainty in the market, and concerns among transporters. Their fear is continued sluggishness into December will leave them in a weaker position to maintain sustainable rate levels in 2018."

Key Figures
  • 20%

    More fuel-efficient for the Boeing 787 and the Airbus A350

  • 70%

    of Urbanisation is expected by 2050

  • 27

    mega-cities are expected by 2050, with at least 10 million people, compared to 1...

  • +18,4%

    of growth for E-commerce retail market in Europe in 2015

  • 82%

    of goods are moved by road

  • 1 billion

    Population in Africa

  • 60%

    of Africa’s population will be urbanized by 2050

  • 7,5%

    of growth for Indian GDP in 2014

  • 4,9%

    of growth for African GDP in 2016

  • 6,1%

    of growth for East Asian GDP in 2015, the world’s fastest-growing region

  • 19 224 teus

    transported by the MSC Oscar, the largest container ship in the world

  • 396 m

    is the size of the MSC Oscar ship

  • 120 h

    is the Non-Stop Flight Record done by Solar Impulse

  • 4,5%

    of growth in 2015 for Global Airfreight demand