Sunday, September 16, 2012

Airfreight demand may increase thanks to potential port strike and the high tech industry

The timing of the potential US East/Gulf coast ports strike and the launch of various high tech gadgets from Apple, Samsung, Amazon, Microsoft and others, make for interesting times for those shippers, forwarders and transportation providers operating in the US market. Capacity concerns are rising as rates are expected to increase.

According to news sources, on September 21, the new iPhone 5 is expected to ship to the US, UK, Canada, France, Germany, Australia, Japan, Hong Kong and Singapore. Another round of shipments will occur on September 28th.  In its earnings call with analysts, Uti Worldwide noted there are over 70 air charters already committed for “some of the high-tech activity”. Many industry commentators expect DHL and Atlas Air to benefit the most from these movements.

Combine these high tech launches with a potential port strike come Oct. 1 and headaches are ensured for shippers, forwarders and transportation providers as many work on alternative freight movement plans. The majority of these plans appear to include diverting cargo to US, Mexican and Canadian West Coast ports. However, surcharges that ocean carriers plan to implement in case of a strike, concerns of capacity, the amount of tonnage expected and quite possibly a labor “slow-down” at the US West Coast ports in support of the striking ports may create such a backlog and added costs that many shippers are reviewing other options including airfreight.

This airfreight option, however, presents another problem for shippers. Because of the current global economic situation, may air cargo providers have reduced capacity.  UPS reduced its Asian air network by 10% while FedEx retired 24 jet freighters to reduce capacity in its U.S. domestic express segment and cope with sagging volumes.

Still, a potential port strike and high-tech launch presents good news for air cargo providers. According to BB&T Capital, the average airfreight rate is expected to increase to around $5.00 per kilogram. Drewry Shipping Consultants Ltd. noted the average airfreight rate per kilogram in March when Apple’s iPad was released was $4.44.

This may all come to naught as it appears shippers may be stockpiling inventory in advance. As ports begin to report August TEUs, the East Coast ports of Savannah and those in Virginia reported double-digit growth while West Coast ports Los Angeles reported declines and Long Beach reported only a modest increase. Still, if a strike is to occur - and this is still a big if, particularly as talks are set to resume this week - it may be difficult for shippers to utilize airfreight if need be.