Quarterly Air Cargo Update: Confidence on a Steady Climb | Logistics Management

Raising rates
While air cargo volumes have increased, margins remain depressed for many air cargo middlemen, says Brandon Fried, executive director of the AirForwarders Association (AfA).

“Most of our members are looking forward to opportunities in which profitability may improve,” says Fried. “One influencing factor to consider is the growth of capacity we’ve seen over the past couple of years, keeping pricing at lower levels. This increase in space is attributable to the large amount of new and efficient wide-body aircraft, each with generous belly space flying the popular trade lanes.”

Another significant factor inhibiting this growth, says Friedman, is that in many cases there may be lower shipper pricing agreements that no longer reflect today’s market conditions. “Once these contracts expire, prices and margin should improve overall,” he adds. “However, new transport pricing agreements alone will not assure increased profitability, and this is why forwarders must be searching for more operational efficiencies that only technology can provide. People still play a crucial role in our business, but technology will help them work smarter, says Fried.”

Indeed, air cargo rates are seeing upward momentum, according to the “2017 Market Update” report recently issued by San Francisco-based freight forwarding and Customs brokerage services provider Flexport.

Looking at the global air cargo market, the report stressed that there is no “slack season” for air cargo this year, especially from Asia to North America—a trade lane that is now the strongest it has been in the last seven years. “A generational shift is coming to the air cargo industry,” says Flexport founder and CEO Ryan Petersen, who notes that airlines are poised to bring freight consolidation in-house.

“By optimizing for weight and volume at the plane level through dynamic real-time pricing, air cargo carriers will increase both their per-plane cargo yields and profit margins,” say Petersen. He observes that up until recently, air cargo consolidation has been dominated by specialists and middlemen with a simple business model—buy space from airlines and sell it at a markup to shippers.

“Today, the consolidators can improve margins by consolidating multiple shipper’s cargo in a single order, charging shippers with dense cargo by weight, and those with voluminous cargo by size,” says Petersen. The result of this volumetric mixing is called “free margin,” which he maintains are the two favorite words of every master consolidator.

“By embracing master consolidators and the third-party consolidation market, airlines have outsourced their risk, but they’ve also outsourced their margins,” adds Petersen. “The advent of real-time dynamic pricing for airfreight sold through digital marketplaces will allow airlines to aggregate cargo at the plane-level instead of the pallet-level.”

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