Air-freight services recovering slower than expected, says Beroe
Source: PR Newswire
Raleigh, NC, Dec 07 - The demand for air freight services is lower due to a combination of factors such as the Russia-Ukraine crisis, China's zero COVID policy, high inflation rate, and the looming threat of recession. The industrial, automotive, and agricultural industries are expected to drive the demand in North America and Europe, while in Asia, the electronics segment would be a key driver, followed by the consumer products, such as garments and apparel.?
These reasons combined have forced air freight operators to rethink their pricing models. Operators are responding to the demand and supply structure of the freight market by cutting down on freight rates, optimizing routes and flights, restructuring the pricing models, adjusting load capacity, etc.
The net supply still noticed a growth in single digits in the past months and is expected to grow at a meagre 0.04% in the following months leading to the year-end. The demand, however, is expected to grow marginally by 0.8%.
This crisis, along with the lockdown in the Chinese economy during the pandemic, impacted procurement across a wide range of industries.
The rising inflation rate also saw around a 40% increase in jet fuel prices with declining export orders. All these factors combined have led to softer demand in the past months.
While most countries are recovering from post-COVID trauma, the fear of recession looms over the world. These factors have led to a noticeable slowdown in global trade, softening the air cargo market. Moreover, a labor shortage is becoming prominent throughout Western Europe and America.
But the cargo capacity has increased with the addition of new charters and freight services while the labor shortage is becoming a severe challenge. The global market size (in volume ) was around 58.58 Million Tons in 2021. North America and Western Europe were the high-maturity markets, followed by India, China, MEA, New Zealand, Eastern Europe, Brazil, and South Africa as the medium-market maturity regions.
The rising inflation is also severely impacting the air freight industry as consumers will become conservative in their spending habits. Increasing demand for high-tech products, retail, and food items will offer relief. But manufacturing activities in several advanced economies will take a hit.
Some cargo operators based out of the EU and MEA are changing their pricing models to reflect the fluctuating jet fuel prices. However, the overall freight prices have more or less remained similar. Other operators are even restricting their pricing models to charge their customers by comparing actual and dimensional weights to compensate for the low-density and lightweight packages.
This new method will compensate for the packages with large sizes and lower weights that lead to freight loss for the operators.
The cost of operation for freight can be segmented into fuel, handling and landing, labor, depreciation, other operating expenses, truck and truck handling, maintenance, repair, and other miscellaneous expenses. The air freight market analysis concludes that the freight market is primarily dependent on these factors.
Most airline cargo operators are trying to mitigate the circumstances by innovating their pricing models and operational structures. However, an increase in freight prices is highly unlikely. The industry is in the damage control model. However, it might notice some temporary price spikes in the peak season.
Additionally, the labor shortage at all the major airports will impact the overall flights causing backlogs and flight cancellations. Both China and Russia are in turmoil which is impacting the entire industry. There is a labor shortage, airspace restrictions due to various clashes leading to flight cancellations, and fluctuations in demand.
While the industry is moving into the rebuilding mode from the survival mode, there is uncertainty in the market. The mix of positive and negative indicators is causing unfavorable price fluctuations forcing the cargo freight operators to find innovative solutions to tackle this challenge.
Currently, Airfreight demand is slow as per seasonality and is expected to increase in Q4 2022. However, factors like slowing global trade, the decline in manufacturing activity, inflation, and high inventory are likely to dampen the freight volume growth.
The global demand has fallen by 5.1% in July 2022 year to date. However, a 5.8% demand growth is expected in America, 3.7% growth in Europe, and 10.35% in the Middle East and Africa.
Air Freight rates are not likely to spike in the short term and are likely to experience marginal increases during the peak season. This calls for comprehensive supplier analysis to ensure the uninterrupted operation of the supply chain. Referring to the swot analysis air cargo industry is a recommended practice that has gained exponential importance in the post-pandemic world.
DHL is a prominent supplier in the industry based out of Germany. According to the reports, it's noticed a 29.4% fall in air freight volume with a 43.2% increase in revenue during the covid era of 2021. It's worth noting that 49% of this revenue is generated from Europe.
Kuehne and Nagel, along with other major suppliers, have noticed significant growth in revenue, including DSV and DB Schenker. Moreover, the Maersk takeover of LF logistics means possibilities in the global air cargo market despite the slowdown caused due to COVID-related restrictions in Shanghai Region, the Russia-Ukraine war crisis, and the global economic slowdown.
Beroe is a global SaaS-based procurement intelligence and analytics provider. We deliver intelligence, data, and insights that enable companies to make smarter sourcing decisions – leading to lower costs, reduced risk, and greater profits. Beroe has been a trusted source of intelligence for more than 15 years and presently partners with 10,000 companies worldwide, including 400 of the Fortune 500 companies.
Learn more about Beroe - https://www.beroeinc.com/
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