By Karen E. Thuermer
Published in Air Freight Management, October 2012
The air freight industry in the United States continues to be in a state of flux as that nation’s economy struggles to rebound and pull out of what has become known as the Great Recession. Unfortunately, most air freight forwarders with operations in the United States see economic conditions as a series of stops and false starts.
John Hill, executive vice president of Lima, Pennsylvania-headquartered Pilot Freight Services, refers to economic conditions as “very sluggish.”
“Even overseas there is not super growth right now,” he says. “What remains the largest segment in North America are basically imports to Asia.”
Most forwarders indicate little optimism for growth, at least for the immediate future.
“It’s all about Europe having a cold, and us sneezing,” says Brandon Fried, executive director of Washington, DC-based Air Forwarders Association. “Security used to be the No. 1 issue among air freight forwarders, but now it’s the global economy.”
He contends that once the European crisis is abated, business will pick up. “But that will take some time,” he adds.
The U.S. Presidential elections are not expected to have any impact, other than to cause companies to hold off on investments until they see what the outcome will be.
“There’s a lot of money on the sidelines,” says Matt Parrott, director of transportation for St. Albans, Vermont-headquartered A.N. Deringer. “I think a lot of companies are unwilling to spend because the U.S. Dollar is still so weak and the U.S. deficit is so high.”
The financial crisis and uncertainly of the Euro only exacerbates the problem, economic experts say.
Impact on Carriers/Air Freight
Air freight is often regarded a leading economic indicator as to where markets are headed.
The long and complicated Great Recession has resulted in air carriers grounding much of their wide body fleets. Prior to that, high fuel prices caused carriers to downsize fleets. European and North American carriers, particularly, are now flying smaller aircraft on most second tier routes.
“This means that, whereas carriers might have once had positions for 15 or 16 cargo pallets on board an aircraft, today some do not have pallet positions at all,” Mr. Fried contends.
Nevertheless, the air freight business in North America has been tenuous for some time. Long gone are carriers such as Emery and BAX Global that offered upper deck capacity.
“Heavy weight cargo lift in North America doesn’t exist the way it used to,” says Mr. Hill. “What’s left are basically integrated carriers that would rather fly envelops than cargo because the yield is so much better.”
And now with less belly capacity available on airlines due to their use of smaller, narrower bodied aircraft, and the fact they offer fewer flights, forwarders and their customers are faced with fewer air options.
All combined, forwarders contend these factors have eliminated a fast forwarding network.
“There’s not a lot of growth as far as expedited transportation is concerned,” Mr. Hill remarks. “Everyone is pulling back and it seems no one is willing to put up an entire network for air cargo.”
A developing trend, however, is the move away from airlines’ use of regional commuter carriers operating smaller regional aircraft on point-to-point routes. Delta, for one, is starting to get out of those agreements and serve cities with bigger aircraft.
“We are seeing a return of larger planes to smaller destinations, particularly where it is economical,” Mr. Fried says.
Still global economic woes are causing many traditional air shippers to question the use of air freight in their supply chain.
“We see ocean freight growing in response to the need to trim transportation spend,” observes Mr. Zablocki. Consequently, many have adjusted their production and delivery schedules accordingly to avoid the high cost of air freight.
“Many shippers are beefing up stock because the cost of carrying inventory is cheaper than the cost of air freight,” remarks Mr. Parrott.
To cut costs, many forwarders are now booking cargo as sea freight and using ground transportation for domestic deliveries.
“Some are utilizing more innovative air-sea schemes to make up for time differences,” Mr. Fried adds. “Forwarders are even starting to look at ground transportation as a viable option for shipping valuable goods that are usually transported by air.”
Perhaps a sign of tenuous times is the recent move by more and more shippers to bid their business to take advantage of current air cargo rates to build a hedge against what they see could be an uncertain future.
“Many have commoditized their approach to buying transportation services, putting price ahead of all concerns for managing their supply chain,” Mr. Zablocki observes.
While this practice may be understandable in today’s economy, Mr. Zablocki states that he’s concerned about its effect on airlines that are struggling to stay solvent. “The industry could be looking at challenges ahead with capacity reductions,” he says.
Air freight forwarders have already spun their wheels to quickly reinventing their business and become masters at supply chain management. Some, like Pilot Freight Services — once known as Pilot Air Freight, now offer customized programs and solutions that streamline its customers’ operations, and improve efficiencies and responsiveness across their entire supply chain. That means combining efficient transport services with warehouse space, strong vendor relationships, and advanced IT systems.
A.N. Deringer offers value added services to customer, and bundles freight forwarding services with its customs house brokerage and distribution services.
“We look for ways to provide more service and reduce their total logistics costs,” Mr. Parrott says. “Our Custom House brokerage product is our lead product. We try to amplify that with all of our services.”
Mr. Fried points out that smaller forwarders also have found ways to survive in today’s tough market conditions by thinking outside of the box to exploit areas that are underserved by the big players.
One example, he says, is the trade show business. “It’s an area that companies like FedEx and UPS don’t like,” he remarks. “They might like the freight business, but not waiting around the trade show floor and providing the degree of service this business requires. It also does not fit into their hub and spoke network.”
Perhaps when the dust settles and the Great Global Recession is banned to the history books, the industry will find a forwarders market that is quite different. After all, out of the ashes the Phoenix must rise, and with it comes new opportunities. Forwarders have always known they must innovate or perish.