Price war keeps air cargo rates down as forwarders misjudge market
PESSIMISM is growing that a price war in air cargo is driving the market down beyond today's abysmal depths, reports New York's FreightWaves.
Logistics professionals had hoped for an upturn by now that would steadily build into the second half, but that hasn't happened.
Freight forwarders and, increasingly, cargo airlines have responded by chasing volumes without regard to cost, which observers say is accelerating a decline in rates, said the report.
Aggressive discounting, and carriers shelving older aircraft, suggest that more companies say demand won't improve in a world of excess capacity.
In fact, freight rates are lower than supply and demand fundamentals actually support because freight forwarders and carriers, eager to generate some cash from committed airlift, are undercutting each other on price to keep bookings and steal business, transport managers and analysts said.
"There's a bit of a rat race going on in securing volumes that are not growing, combined with the increase in capacity," said Xeneta air freight chief Niall van de Wouw,
"It makes for a toxic environment where we see irrational pricing both towards the shippers by the forwarders and forwarders from the airlines side," he said.
Many forwarders feel squeezed by high air freight rates locked in with airlines under contracted space allocations while their own customers push for multi-month contract renewals based on rates at the new market level, according to Xeneta's latest update.