Notwithstanding a softening export drive out of China, the world’s largest provider of Boeing 747 freighters is bullish on the upcoming peak season. ACMI leasing firm Atlas Air is ramping up capacity in preparation for rising demand.
Besides getting ready to place another B747-400 freighter in ACMI service for DHL Express, the company is bringing a converted B747-400 cargo aircraft back into service. In addition, it is due to take delivery of another B747-8 freighter in November and intends to acquire two more B767s for conversion into all-cargo configuration before the end of this year.
In an earnings call to analysts, Atlas Air president and CEO Bill Flynn signalled promising demand for the upcoming peak season. According to him, forwarders have been looking to line up lift out of Asia.
“Customers are looking to secure capacity now for the peak,” Flynn said. “We have good commitments for charter capacity in the third and fourth quarters as we come into the peak.”
He added that Atlas Air management has recently had conversations with some major freight forwarders who are looking to secure lift for product launches of their clients.
The ACMI leasing outfit has had a strong first half of the year, with net income reaching US$55.2 million, more than double the US$27.1 million recorded for the first six months of 2014. A considerable factor in this was the trouble at US West Coast ports, which forced shippers and forwarders to divert traffic from ocean carriage to air, scrambling for lift in the process.
After the situation on the West Coast returned to normal, however, air freight demand predictably shrank, a development that has put yields under renewed pressure. According to statistics for June from the International Air Transport Association (IATA), the industry suffered a slowdown in air freight demand during that month. Perhaps even more ominously, having risen 5.3%, capacity expansion eclipsed demand, which went up 1.2%. This suggests further downward pressure on airline yields.
In the maritime sector, shipping lines’ hopes for peak season demand kicking in in July remained elusive. Instead, trans-Pacific rates hit their lowest level of the year in mid-July, and rates from Asia to Europe continued to head downwards, despite capacity reductions in that trade lane.
Some observers see mixed signals how the peak season is going to play out this year. One recent survey of shippers found 48% of respondents anticipating a more active peak season than last year, whereas 13% predicted a slower pace this year. The other 39% expect little difference between this year’s peak season and last year’s.
“The remainder of the year holds mixed signals. The general expectation is for an acceleration of economic growth, but business confidence and export orders look weak,” said IATA director general Tony Tyler.
Pundits and operators who expect a lively peak season ahead point to improving consumer confidence in the US amidst encouraging factors such as the strong greenback, low fuel prices, an improved housing market and steady retail sales figures.
On the other hand, US GDP growth has been lacklustre, and the inventory-to-sales ratio has been high recently.
When it comes to the Asia-Europe trade lane, the picture is decidedly gloomier. Having tabled a deficit of €16 million (US$17.6 million) for the first six months of 2015, Lufthansa Cargo recently lowered its 2015 earnings target, pointing to a slowdown in demand from China and overcapacity in the market.
Mark Sutch, general manager of cargo sales and marketing at Cathay Pacific, shares misgivings about the Asia-Europe market. Growing belly capacity has undermined yields and prompted some airlines to adopt a more aggressive stance in their pricing, he pointed out.
“We do not plan to increase our freighter capacity over the peak and shall remain at nine (weekly frequencies),” he said, adding that Cathay is using B777 aircraft on its passenger flights to Europe, which have good cargo capacity.
“Moving forward, I do feel that Europe will remain a challenge for pure freighter operators,” he said.
He is decidedly more upbeat on the trans-Pacific arena, albeit with reservations. “We are expecting a peak and are seeing the major forwarders we contract with all asking for increased space. The yields will not outperform those of last year but are projected to remain flat,” he said.
“We still plan to increase our transpac freighter frequency from 37 to 41-43 (weekly flights), depending on what we can squeeze from utilization,” he added.
By Ian Putzger
Air Freight Correspondent | Toronto
