Apple’s announced release of its new iPhone 5 yesterday, as well as the introduction of the new Kindle Fire and other tablets – including the possibility of a “mini-iPad” – are expected to strengthen demand for air freight capacity and push rates higher.
The air freight market “is very poor right now to begin with, in the sense that there is way too much capacity,” said Kim Ekstrom, senior vice president of Shipco Transport, a Hoboken, N.J.-based non-vessel-operating common carrier. “But a surge, an influx of cargo such as the iPhone, the market cannot cope with, so most likely rates will go up.
“Like everything else, it is a yield-controlled market, the highest revenue flies. So the rate last week of $3 a kilo is probably going to be $4, $5 next week,” he said, noting his firm does not do business with Apple.
Kevin Sterling, an air freight and logistics analyst with the bank BB&T, noted in March when the latest generation iPad was launched, global air freight spot rates jumped 20 percent in one week and he has heard anecdotally spot rates jumped from $3.80 to $4.20 in the past week.
Sterling said with the large number of launches of new products this fall “shippers will probably be able to find capacity, but it is going to cost them a little more than a month ago.”
Since March, he noted there has been a reduction in air freight capacity in the Asia-Pacific lanes on lower freight demand and UPS, for example, parked 10 percent if its international capacity.
“Here is the difference—in March we really only had the new iPad. September and October, we have the iPhone 5, the Kindle, the mini iPad –to me there are many more new products on the horizon this fall. I would not be surprised to see rates rise above where they were in March.”
DHL, UPS, and FedEx are all rumored to carry some of the iPhone traffic. Neither FedEx or UPS would comment.
Sterling said Apple’s business “tends to fit the integrator’s model, because they control their own capacity, have flexibility and scale, which is all what Apple wants, versus a freight forwarder who doesn’t control his own capacity and is reliant on somebody else.
“Three or four years ago we never had these tech launches, these tech surges,” he said. “Now everyone is doing a product launch and it is creating this interesting dynamic in air freight industry because it is causing these surges in air freight volumes and therefore rates. I think the new normal is you have to be prepared for these surges.”
While the upsurge in business may be good news for the air freight industry, it could limit choices for shippers trying to get merchandise to the United States if there is a port strike or lockout at U.S. ports. The International Longshoremen’s Association is negotiating a contract to replace one that expires at the end of the month, while the International Longshore and Warehouse Union Office Clerical Unit has worked without a contract for two years, and has been in talks with employers in Los Angeles/Long Beach for weeks.
Betsy Ducat, a senior director in the key account program at logistics services provider Damco USA, noted many of its apparel customers have not employed an air freight strategy to reduce costs, but the firm has been working with them this year to “put rates in place and perhaps move some shipments ahead of time so that there would be some capacity available and it is not a situation where they are left without any options whatsoever.”
Mark Michaels, chief commercial officer for Damco USA, said the air freight market, especially in Asia, had been at all-time lows this summer with volumes in July being sharply lower than the same period a year earlier.
But the possibility of a longshoremen’s strike at the end of this month caused one of Damco’s customers that is planning to ship tablets this fall to secure 30 freighter charters in advance.
“They haven’t been big in the air cargo up until now,” he said. “But they are not willing to get elbowed by somebody who is. They are unwilling to accept their product not being here.” – Chris Dupin
iPhone 5 expected to soak up air freight capacity
