Tepid growth continues to weigh on the air cargo industry while passenger demand fuels overcapacity in the market. In May, the International Air Transport Association (IATA) reported that global freight ton-kilometers (FTK) for the year to date had declined by 0.5 percent, and that load factors were down by 2.9 percent. Cargo revenues have correspondingly fallen as well; Air France-KLM, for example, saw revenues decline by 16.1 percent in the second quarter of 2016. And according to the U.S. Department of Transportation, the airfreight market is down in all segments in the United States this year. U.S. domestic cargo volumes (cargo revenue ton-miles) are down 0.6 percent for the year as of this writing, while volumes into Latin American are down by almost 12 percent.
Any discussion of overcapacity must begin with the passenger market. According to The Boeing Company, the trend away from "hub and spoke" routing to direct-flight models in international air travel has been enabled by the introduction of more-efficient widebody aircraft. Robust growth in the passenger segment has driven the increased deployment of widebodies, bringing additional cargo capacity in the form of belly space to the global market. Overall, IATA reports that revenue passenger-kilometers are up 6 percent for the year; load factors are near historical highs but are down slightly compared with 2015. The fastest-growing passenger markets have included international lanes into and out of the Middle East, Africa, and Asia.
Article Figures
[Figure 1] Selected global air forwarders' profit and volumeEnlarge this image
Carriers are responding to the glut of capacity by managing cargo-specific aircraft. Air France-KLM, for instance, has removed over 3 percent of its cargo capacity so far in 2016, much of it in full-freighter aircraft. Cargolux, a freight specialist, appears to have shifted some of its existing capacity to new routes, adding services linking Central America to Europe and Europe to Asia, with a focus on the perishable markets. The potential for market forces to drive a reduction in freighter capacity on traditional routes may be a concern for some shippers, particularly those that are reliant on specialized freighter services, such as the chemical industry and others with hazardous shipments that are too dangerous to carry in the belly space of passenger aircraft.
The continued winding-down of inventories suggests that there is no immediate turnaround ahead when it comes to demand growth. The U.S Federal Reserve in Atlanta reported that investment in inventory was down 0.79 percent in Q2 of this year; reduced inventory investment means there is less physical product flowing through supply chains. This trend will eventually shift, but for the short term, at least, continuing overcapacity means that shippers can expect to enjoy low airfreight rates.
Additionally, there will be continued downward pressure on demand as shippers continue the trend of "mode switching" from air to ocean. This trend experienced a brief reversal in 2015, when ocean volumes briefly plummeted due to port labor issues while air volumes remained steady, but the strategy will likely gain more traction in the increasingly uncertain economy. Currently, three factors drive the air-ocean mix:
The types of commodities shipped worldwide. Certain commodities, such as raw materials, are less amenable to air transport. Moreover, production trends like nearshoring would reduce the amount of finished goods in transcontinental air cargo flows.
Inventory policy. Many companies' focus on minimizing the amount of capital tied up in inventory while goods are in transit tends to favor air transport.
The value of the product being shipped. When the total cost of ownership (TCO) is considered, high-value or short-shelf-life goods like pharmaceuticals, fashion retail, and high tech generally favor air, while other industries favor ocean.
Service-level requirements. Increasingly, modal decisions are being viewed in the context of the actual service requirement. Some shippers are breaking shipments into separate air and ocean components, with the air portion being the minimum amount required to maintain satisfactory service levels.
As for pricing, air shipping is a fuel-intensive mode, so low oil prices have had an outsized influence on the total cost of transport. With oil inventories at elevated levels, prices—around US$40 a barrel at this writing—continue to be depressed. This, together with overcapacity, is keeping airfreight rates low.
Shippers have become accustomed to using the spot market to get the best pricing for their shipments. Large consumer packaged-goods companies that traditionally would have shipped 80 percent of their cargoes under contract have flipped and are shipping a similar amount of cargo on the spot market. This has made the most sense given market conditions, but if those conditions change, shippers with short positions may struggle to get capacity if their relationships and knowledge of the marketplace have atrophied while the market is soft.
Air forwarder outlook
The picture for air forwarders has been mixed as they continue to adjust (and readjust) to the weak market. In their most recent quarterly reports, the global airfreight forwarders Kuehne + Nagel (K+N) and Panalpina showed growth in gross profit and airfreight volumes. Meanwhile, DHL Global Forwarding and Expeditors saw decreases in both figures. (See Figure 1.) Some of the big airfreight forwarders have viewed the market as ripe for expansion. Others have been "high-grading" cargo—strategically turning away business that would not provide sufficient financial returns.
While forwarders work on their airfreight strategies, vertical integration by retailers will be a key theme for the short term. The most notable example is Amazon, which has announced that it will lease 20 Boeing 767s for use in domestic service. Large retailers such as Wal-Mart Stores might increasingly find benefits in owning their own freight network—particularly if they are faced with soaring logistics costs. Separately, Amazon China has also registered to operate as a freight forwarder in the United States.
While the market continues to struggle with supply and demand, there is hope on the horizon for airfreight operators. In the first quarter of 2016, cancellations of aircraft orders outpaced new orders at Airbus, and the forecasts for growth have been subdued.**superscript{1} While there is still significant overcapacity in the market, this is the first glimmer of hope for rate stabilization in a long time. Until that happens, though, shippers can expect to enjoy continued low rates.
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”
Artificial intelligence (AI) tools can help users build “smart and responsive supply chains” by increasing workforce productivity, expanding visibility, accelerating processes, and prioritizing the next best action to drive results, according to business software vendor Oracle.
To help reach that goal, the Texas company last week released software upgrades including user experience (UX) enhancements to its Oracle Fusion Cloud Supply Chain & Manufacturing (SCM) suite.
“Organizations are under pressure to create efficient and resilient supply chains that can quickly adapt to economic conditions, control costs, and protect margins,” Chris Leone, executive vice president, Applications Development, Oracle, said in a release. “The latest enhancements to Oracle Cloud SCM help customers create a smarter, more responsive supply chain by enabling them to optimize planning and execution and improve the speed and accuracy of processes.”
According to Oracle, specific upgrades feature changes to its:
Production Supervisor Workbench, which helps organizations improve manufacturing performance by providing real-time insight into work orders and generative AI-powered shift reporting.
Maintenance Supervisor Workbench, which helps organizations increase productivity and reduce asset downtime by resolving maintenance issues faster.
Order Management Enhancements, which help organizations increase operational performance by enabling users to quickly create and find orders, take actions, and engage customers.
Product Lifecycle Management (PLM) Enhancements, which help organizations accelerate product development and go-to-market by enabling users to quickly find items and configure critical objects and navigation paths to meet business-critical priorities.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
Businesses were preparing to deal with the effects of the latest major storm of the 2024 hurricane season as Francine barreled toward the Gulf Coast Wednesday.
Louisiana was experiencing heavy rain and wind gusts at midday as the storm moved northeast through the Gulf and was expected to pick up speed. The state will bear the brunt of Francine’s wind, rain, and storm damage, according to forecasters at weather service provider AccuWeather.
“AccuWeather meteorologists are projecting a storm surge of 6-10 feet along much of the Louisiana coast with a pocket of 10-15 feet on some of the inland bays in south-central Louisiana,” the company reported in an afternoon update Wednesday.
Businesses and supply chains were prepping for delays and disruptions from the storm earlier this week. Supply chain mapping and monitoring firm Resilinc said the storm will have a “significant impact” on a wide range of industries along the Gulf Coast, including aerospace, life sciences, manufacturing, oil and gas, and high-tech, among others. In a statement, Resilinc said energy companies had evacuated personnel and suspended operations on oil platforms as of Tuesday. In addition, the firm said its proprietary data showed the storm could affect nearly 11,000 manufacturing, warehousing, distribution, fabrication, and testing sites across the region, putting at risk more than 57,000 parts used in everyday items and the manufacture of more than 4,000 products.
Francine, which was expected to make landfall as a category 2 hurricane, according to AccuWeather, follows the devastating effects of two storms earlier this summer: Hurricane Beryl, which hit the Texas coast in July, and Hurricane Debby, which caused $28 billion in damage and economic loss after hitting the Southeast on August 5.