Control at the peak: Freight forwarders rely on dedicated capacity for peak season operations

As the airfreight industry enters its second peak season of the COVID-19 pandemic, freight forwarders are discovering that the course charted for the 2020 holiday season is lending little illumination to the 2021 terrain. “Demand for 2021 is significantly stronger and more robust versus 2019 and 2020,” Andreas Von Pohl, senior vice president of air freight for DHL Global Forwarding Americas, told Air Cargo World. “However, capacity is still lacking behind and the resulting gap between surging demand and lack of capacity is a challenge for the airfreight market” Other freight forwarders are even more blunt in their assessment of the airfreight market as the busy holiday season approaches while normal supply chains, typically well-prepared for holiday shoppers, are in crisis. “2021 is as bad as we can have,” Stephane Soulagnat, airfreight procurement manager at Bollore Logistics, told Air Cargo World. “There is a super high demand for cargo space. We have like 10% more capacity as of today [compared to 2020],” but demand typically associated with the ramp-up to peak season had already materialized by late July, “when we are supposed to be feeling it now.” Or, as DSV’s Vice President and head of global airfreight procurement Mads Ravn put it, “We expect the peak season to go absolutely bonkers.” With little time left for last-minute capacity additions, successful planning earlier this year will determine which freight forwarders and shippers are prepared for a “bonkers” peak season, and which will find themselves paying staggering rates for spot or charter capacity. Chart(er)ing a course The most reliable approach to securing airfreight capacity in general, and certainly during the peak, has been through the charter networks built up by the largest freight forwarders. Many 3PLs not among the Power 25 ranking of the largest airfreight forwarders have also contracted for charter flights on certain routes, if not to the scale of the largest charter networks. The largest airfreight forwarder by overall tonnage, DHL Supply Chain and Global Forwarding, has focused on expanding its dedicated flight operations, Von Pohl told Air Cargo World . “We at DGF have continued to invest in our dedicated flight operations,” Von Pohl said. “To supplement the lack of commercial capacity we have introduced additional, dedicated flights in trade lanes that our customers needed help on such as Vietnam to the U.S. and Europe.” Among the forwarders and logistics companies arranging charter networks to guarantee capacity for their customers are: 3 airfreight forwarder DSV established its Globetrotter charter network in September, connecting Asia, Europe and the Americas with stops including Liege (LGG), Istanbul (IST), Chicago Rockford (RFD) and as of October, Shanghai Pudong (PVG) ; 13 forwarder Kerry Logistics began its own-controlled operations through its Kerry Freight Controlled Network in September, connecting Hong Kong (HKG) to Huntsville, Ala., (HSV), with plans to eventually add more connections to its new HSV hub; 15 forwarder CEVA Logistics launched its Skycapacity program in April, with fully chartered freighters and passenger freighters connecting the Americas, Europe and Asia, and in July added a weekly route between Seoul (ICN) and Chicago (ORD) via Wuxi (WUX) in Eastern China; 20 Geodis, which secured an A330-300P2F for five years , to be operated by Titan Airways as an expansion of France-based Geodis’ AirDirect and Air Charter services; and Teleport, the logistics subsidiary of Malaysian carrier AirAsia, which is set to begin own-controlled freighter operations with a 737-800F operated by K-Mile Air. These arrangements were made well in advance of peak season demand emerging — fortunately, as the charter agreements formed earlier this year are no longer available for late capacity shoppers. “They’re not available because there isn’t anything available, everything is sold out,” DSV’s Ravn told Air Cargo World recently. “We are seeing rate levels now as anticipated [for full 747 charters], already a few weeks ago hitting $2 million on the trans-Pacific [lane] coming out of Vietnam, coming out of Singapore. I haven’t seen that out of China yet, but I think it will hit $2 million in October.” The early shipper gets the worm This year’s peak season will demonstrate the benefits of early preparation and planning for capacity needs amid the pandemic’s transportation difficulties. DHL Global Forwarding’s advice to its shipper customers for the peak is “the early bird catches the worm,” Von Pohl told Air Cargo World . “We do believe that customers may need to commit to longer terms with their service providers in order to assure stability and predictability in their supply chain, including a review of their traditional transit times versus what can be achieved under the current market conditions,” Von Pohl said. “It is very much an environment in which longer-term partnerships — both between shippers and forwarders, and forwarders and carriers — pays off.” “Most of our more experienced customers have secured ‘peak capacity’ early and therefore are protected,” Von Pohl said. “However, while they have secured capacity the transit times are still being impacted and are in general extended versus pre-COVID times.” The longer transit times are being impacted by operations at both origin, as with the recent problems at major Chinese hubs including PVG , and destination, with congestion having major impacts on drop-off and recovery times at Los Angeles (LAX), ORD and New York’s JFK Airport, Bollore’s Soulagnat told Air Cargo World . Avoiding the issues is a more difficult process than simply selecting another gateway. “It’s hard to avoid those large hubs like Chicago, which is right now the most sensible one in the U.S.,” Soulagnat said. “LAX is in bad shape, JFK has always been bad, but this just makes it worse. It’s hard to avoid those hubs because that’s where the freighter capacity goes.” “Even for a freighter, if you want to charter an aircraft, you’re going to be limited to a few options because we both have the capacity shortage of aircraft, and we also have the manpower issue that all those airports are suffering,” Soulagnat said. “We’re in close contact with Delta [Air Lines] — I’m sitting here in Atlanta — and they’ve been running around to hire hundreds and hundreds of workers.” A few freighters may still be available for last-minute charters, but securing those will come at a steep price, according to DSV’s Ravn. “There are a very, very few we’re talking about where you can count on both of your hands operators who are trying to keep some equipment available, basically to get top dollar for it,” Ravn said. “They are asking in that area of the $2 million. So those high-tech companies, they’ve already chartered theirs. I’m sure if Apple is going to launch their iPhone 13, they already contracted it without us knowing, that’s how it usually works. We know for a fact that some of the other competitors to Apple, they contracted months ago on a yearly basis. So they are well set already, and also on prices that are half, if not a third, of what the market is dictating right now.” It's a spot market But what of those shippers and freight forwarders who did not charter early capacity, couldn’t secure sufficient block space agreements to meet peak demand, and aren’t prepared to lay out millions for the few remaining charters? Some, like Bollore, were able to secure BSAs, but the capacity scheduled carriers are allocating to BSAs has dropped off sharply from pre-pandemic levels as carriers capitalize on the high rates dominating the spot market. “In April this year we managed to secure some small BSAs from those lanes, which have luckily not been cancelled,” Bollore’s Soulagnat said. “Those are flying from CGO [Zhengzhou Xinzheng International Airport], so we do tell our customers that we do have capacity, but we need their help with their suppliers to plan ahead. If they tell us, ‘I need space tomorrow,’ we’re going to tell them, ‘Well, you are out of luck.’ But if they tell us ‘In three weeks we think we’re going to have something,’ right now we’re working with two to four weeks’ delay to get something moving. So if we have a heads up, we can actually make it close to the ready date, but we need a good forecast as far as production.” Unfortunately, the capacity and demand balance will only worsen before it improves, forwarders and industry observers predict. The current sellers’ market is largely dominated by the spot market. “The market has been a spot market because until the passenger capacity comes back into the market, we’ll be in the same industry configuration as we have been for the last 18 months,” Soulagnat said. “That’s going to be the way to free up that capacity market. Now what we do and what others do I’m pretty sure, are keeping in touch and close contact on a weekly basis with airlines. We’re asking, okay, what’s the trend? When are you bringing back aircraft? What are the lanes that seem to be reopening? The latest comments from the U.S. president on reopening the borders with Europe is going to help tremendously.” That observation is borne out by operational data for September, as well. Clive Data Services receives information monthly from participating carriers on cargo movements in freighters and widebody passenger aircraft and reported a major uptick in cargo moving on the spot market. “The amount of weight moved on the spot market was nearly negligible pre-COVID, but these volumes are now 40% to 45% of total weight,” said Niall van de Wouw, Clive’s managing director, during a Q4 media call on market trends . “This is more work for forwarders, airlines and shippers, because they have to negotiate these rates much more frequently.” Carriers are allocating much more capacity to spot rates than previously, with one airline earlier this year reportedly voiding all its capacity commitments out of its three major European hubs, van de Wouw noted. Clive is also hopeful that the return of passenger capacity on trans-Atlantic trade lanes will eventually help alleviate the operational difficulties and high spot rates but expects the situation to worsen before it improves as passengers’ slow return to air travel will support only a gradual ramp up in flights. Some carriers are already working to bolster their capacity where they can, including Cathay Pacific, Soulagnat noted, but are hampered by operational restrictions in Asia. “Everyone — we know our competition has done it as well — has tried to reroute from PVG to other local airports like CGO, which is a large freighter hub, but there’s so much, those secondary airports, even if they’re still large can’t absorb them,” Soulagnat said. “We are hoping to have a positive trend coming in Q1 or Q2 of next year — nothing before that. Right now, we, like everyone, are bracing for the worst. That’s going to be the next two, three months.”

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