Panalpina is once again warning of another peak season crunch, but this year the forwarding giant says airports in Asia-Pacific, “could be in for a surprise”, as trade tensions re-route cargo from China through Southeast Asian countries before being flown to their final destination.
This year’s warnings of the severe capacity shortages and rising freight rates as the impending peak season approaches have an added twist: Capacity constraints on the ground, as well. This year securing capacity will not be enough in the months ahead, the company warns.
“It’s not just about capacity this year, now we’re significantly increasing our focus on execution on the ground,” says Lucas Kuehner, Panalpina’s global head of Air Freight.
For the Asia Pacific region, Kuehner warns that airports in the region “could be in for a surprise”. The current global trade tensions could cause a shift of cargo flows, or even the manufacturing base in Asia-Pacific, he says.
“Products could be routed from China to countries like Malaysia, South Korea, Vietnam and the Philippines, relabelled and repacked, and then flown to their final destination from there, causing capacity crunches and putting a strain on airport infrastructure,” Kuehner warns.
Products could be routed from China to countries like Malaysia, South Korea, Vietnam and the Philippines, relabelled and repacked, and then flown to their final destination from there, causing capacity crunches and putting a strain on airport infrastructure.”– Lucas Kuehner, Panalpina’s global head of Air Freight.
“This year, we are not only in close contact with our customers and airlines, but we are also talking to ground handlers and truckers to look at possible bottlenecks. We are even drawing their attention to specific arrival dates and times for incoming cargo from different airlines so that they can prepare accordingly. This includes providing tonnages and special handling requirements,” concludes Lucas.
“All our preparations at this stage have one goal – to successfully use the capacity we have secured for our customers during peak season.” And in 2018, more than ever, that will depend on a clean execution on the ground, he says. “Capacity is king, but it alone is worth nothing if everything else falls apart.”
Panalpina highlighted the experience of last year where the company warned of the impending peak-season capacity, pre-procured extra flights to operate regular charters across the globe, and advised partners and customers to make changes in their preparations and RFQs so that they could meet their transportation needs.
As an indicator of the shear demand last year, the company closed the year having transported 995,900 tonnes of air freight, the highest volume in the company’s history.
This year, it has taken similar steps early on to secure air freight capacity for its customers. “We let them know of the negative impact of procurement being penny wise and dollar foolish as the later you commit, the more expensive it will get.
“The less you pay, the more likely your cargo will sit on the tarmac or in a transit warehouse waiting to be uplifted or picked up for onward distribution,” the company warns.
Air freight rates remain around 15-20 per cent higher (the increases vary by trade lane) than in 2017, with further increases in store as Q4 inches closer.
“And we are continuously reconfirming allocations and ensuring additional capacity across the world: Mexico, Brazil, and South Africa are only some of the hottest markets.”
“We’re informing airlines and their third-party handlers of our shippers’ requirements. Time to market is critical and you have to be able to execute, not promise and have the cargo stuck for three days in someone’s warehouse,” adds Kuehner.
All parties are interested in clean execution, Kuehner said, but this year it will take better alignment between shippers, freight forwarders, airlines, ground handlers, airports and trucking companies to ensure that it happens flawlessly, he adds.
Capacity constraints will cause delays and they could worsen if operations on the ground, i.e. trucking, warehousing, ground handling and customs clearance, can’t deal efficiently with the high cargo volumes. Problems on the ground such as terminals in Europe struggling with a surge in volumes are something likely to happen again in the fall.