Peak Season Back In Primetime

Cold War Conservative Prime Minister of Great Britain (1957-63) Harold Macmillan delivered a speech, which became known as “Winds of Change,” to the South Africa Parliament on February 3,1960.
     He acknowledged the coming decolonization of Africa as the British Empire was falling apart there.
     “The wind of change is blowing through this continent. Whether we like it or not, this growth of national consciousness is a political fact,” Macmillan said. The British Prime Minister also once famously concluded, “A week is a long time in politics.” Well, a year is a long time in air freight.

     The last time FlyingTypers caught up with Jeff McCorstin, president of UPS Global Freight Forwarding in Asia Pacific, he was downbeat on air freight due to excess supply and sluggish demand. Fast forward a year and the veteran Big Brown executive is far more upbeat, thanks to the economic resurgence in Europe and the U.S., and more sensible capacity management strategies by carriers.
     Last year the straight-talking McCorstin predicted demand would only expand by 0.9 percent in 2013 after contracting in both 2011 and 2012, but the view in Q3 2014 is altogether more optimistic.
     “In 2011, 2012, and 2013 there was hardly any growth,” he said. “But in 2014 we are seeing much stronger performance, and cargo volumes are up about 4.6 percent globally,” he said.
     He forecasts that 2014 will be the first year since 2009 that the air freight business will see a proper peak season.
     “I would say last year we had a mini peak, but this year we expect a proper peak season,” he explained.
     “Over 2008-13, I think overall demand growth for air cargo came in at about 1 percent, but this year we’ll have a peak. As a strategic logistics provider, we’re already talking to our customers and preferred airline partners to ensure we have the right capacity. We can also access UPS’ own integrated network.”
     According to McCorstin, the improvement in air freight markets is occurring despite the ongoing ‘miniaturization’ of cargo, the use of Cloud IT systems, and the near- and re-shoring strategies of some manufacturers—all factors which stifle demand for air freight. Indeed, he believes the modal shift away from air towards ocean, and from Asia to Europe also moving to rail, is continuing. “Even within air freight products there has been a strong shift to deferred or consolidated services,” he added.
     Rather, the recovery in demand is down to manufacturers boosting output in Asia in response to improving demand from Europe and the U.S. “A healthier global economy is driving air cargo demand,” he said. “UPS experienced pretty robust second quarter revenue and volume growth across our Supply Chain, Freight, International Package and Distribution businesses. UPS Supply Chain and Freight also saw double-digit operating profit growth. We expect this growth to continue.”
     However, while UPS Forwarding’s Q2 results noted strong improvements, market pricing on key Asia to U.S. lanes continued to put pressure on rates for the international air freight industry.
     McCorstin expects better alignment between supply and demand to start improving margins for cargo airlines in the future. He cites the reduction of freighter capacity by carriers in the face of excess bellyhold space and the demise of some freighter operators as evidence that the market will self-correct.
     “More medium and small freight operators have left the market,” he said. “The larger passenger and freighter operators have also parked capacity so airlines are helping balance supply and demand by not moving freighters uneconomically.
     “There is a lot more wide-bodied capacity coming and I think these will increasingly be used to meet the needs of the freight market and there will be less reliance on freighters.”
Sky King

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