New US tariffs to give air cargo a pre-peak boost?
Posted - September 30, 2019
The introduction of new U.S. tariffs on Chinese exports could finally put airfreight markets on an upward trajectory ahead of the traditional peak season later in Q4 as shippers rush to beat the deadline.
“We expect demand to pick back up leading into the Oct. 15 tariff deadline,” said Neel Jones Shah, executive vice president and head of airfreight at Flexport, adding that capacity ex-Asia is currently available on most primary lane segments, with backlogs minimal.
Predicting what happens during air cargo’s traditional peak season ahead of the holiday season later in the fourth quarter is more difficult. “While U.S. consumer spending is still strong, the impact on peak season and holiday shopping toward late November, early December isn’t clear yet,” he said.
“Currently, we lack visibility beyond the next two weeks, which is rare for this time of year.”
Indeed, forecasting where freight markets might move has proven unusually difficult throughout 2019, both at sea and in the skies. “Overall air cargo rates and demand haven’t been as robust as last year and it can best be described as choppy,” he said.
“Across the board we’ve seen that everyone is being cautious with airfreight planning. Unrest in Hong Kong, a potential no-deal Brexit and renewed Middle East hostilities all on top of the ongoing tariff war is making it much harder for carriers and shippers to plan accordingly.”
He is clear, however that shippers, as reported in FreightWaves
, should expect higher fuel bills to be passed on by carriers after crude oil prices spiked last week following drone attacks on Saudi Arabia.
“Airlines will be heavily impacted as oil prices increase,” he said. “In turn, they’ll likely be passed onto shippers.
“Right now it’s too early to tell how long lasting the recent oil price hike will be and is almost completely dependent on how quickly Saudi Arabian Oil Co. thinks it can return to full production.”
Flexport Asia was briefly banned from using Lufthansa Cargo flights earlier this month after an incident involving dangerous goods. The order was revoked last week after it was found that a shipper had incorrectly declared a shipment and Flexport had not been at fault.
“Flexport worked very closely with Lufthansa on their investigation into our dangerous goods procedures and training at our Hong Kong facilities,” said Shah. “This resulted in an exceptionally quick resolution and immediate lift of the embargo.”
U.S. and European importers are heavily reliant on critical and high-value cargoes uplifted at Asia’s primary hubs, including Hong Kong International Airport (HKIA). Disruptions due to protests at HKIA and reduced slots at some Chinese airports have added complexity to an already volatile 2019. Shah said the “choppy” demand evident globally was equally apparent in Asia.
“We saw a ‘mini peak’ at the end of August ahead of the Sept. 1 tariff deadline. Since then, things have cooled down,” he explained.
“What’s interesting is that this year we’re seeing a much slower return to normal from the mid-autumn festival in China where many flights were canceled over the weekend. Demand hasn’t returned to a steady state as quickly as in past years.
“The impact of even short holidays is a bit more pronounced this year.”
One bright spot has been Southeast Asia, where demand has been relatively stable as shippers shift production to escape the tariff war affecting exports from China.
“However, yields are still a challenge and many freighter carriers are still having a hard time making direct Vietnam flights work without stopping in another city before continuing on to a transfer hub,” he added.