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Issue 31, July 17, 2008
Introduction of Air Freight Peak Season Rate Increase
Asia Pacific to Americas
We at DHL Global Forwarding (DGF) are committed to offering the best possible service to our customers the whole year. In the Asia Pacific export-driven market, we are further challenged by the yearly descend of a distinctive Peak Season, which usually happen during the last few months of the year. Being the market leader, we have gone out to the market place to source and secure additional capacity from our airline partners in order to minimize the impact of limited capacity against greater demands. For our customers, we will offer a whole spectrum of the widest and largest uplift opportunities available through our wide network of seamless airfreight operations.
While we are experiencing a modest drop in economic activity, our primary concern in 2008 will be the limited access to additional capacity. In the current economic environment, we are witnessing airlines repositioning aircrafts technically, shorter operating routes, introducing variable scheduling frequency, as well as grounding older aircrafts. The immediate outcome will be the potential limited access to additional capacity during the latter half of the year, when demand for capacity far exceeds available capacity.
Despite some fuel efficiency gains by operating newer aircrafts, airlines are facing a massive challenge in the increase of fuel expenses for 2008. The cost of fuel is forcing the retirement of older aircraft and pushing the decision to purchase new freighter aircraft, fly more belly cargo or shift capacity to more fuel-efficient aircraft. – Source Air Cargo World, May 2008.
This is the largest single cost component and the excessive cost of jet fuel to operate the flights and this has lead to continued airline cost increases. Today, the cost of fuel represent slightly more than 50% of total operating costs for the carriers when compared to just 2 years ago, the same fuel cost was approximately 22 percent only. Beginning of this year, we had witnessed the steep 70% rise in crude oil prices to average US$98/b and recently the oil price had already risen above the US$130/b to new record levels. – Source IATA Economics, April 2008.
Export Growth and Air Cargo Capacity
The 2008 outlook for growth appears to be on track (Schedule A). It has been primarily driven by exports to both Europe and Americas out of the major peak season markets of China and Hong Kong. Historically, this will take place in the second half of the year.
During this period - heavy backlogs build up due to demand for capacity exceeding supply. DHL Global Forwarding ensures that as much available capacity as possible is blocked for our customers to ensure smooth operations to our clients and to minimize Cost impact and Service reliability. However, this commitment to secure capacity requires higher costs as space comes at a premium.
Growing Imbalance in Trade
The Asia Pacific economies have been heavy export-lead markets resulting in an ever increasing demand for eastbound freighter capacity. The westbound traffic on the returning leg is trailing far behind with unutilized capacity. Therefore, the import volumes required to cover the round-trip operating cost is just not there consequently driving up the Asia outbound rates. The Trans–Pacific trade has developed a strong imbalance over the past years (Schedule B). The imbalance will only worsen in the future. Therefore, as import yields decline, export rates inevitably must rise to finance the increased cost of operation.
Consequences: Increase in Tonnage Demand and Market Rates
Please see chart (Schedule C) which clearly shows the upward trend in cost and demand during the past four and one half years, particularly during the peak season periods highlighted below.
Airfreight will continue to grow as businesses exploit economies of scale and cost rationalization in their supply chains, while seeking to expand their consumer base. The surge and over-demand for ocean freight has resulted in substantial increases in shipping line rates which will cause a spillover effect to airfreight. DHL Global Forwarding foresees a strong peak season in 2008. This is reflected accordingly in our Peak Season Rate Increases (PSRI) for 2008.
Peak Season Rate Increase
As a result of these market forces which require us to take on higher costs to ensure and secure your supply chains during this peak season – DHL Global Forwarding are forced to pass on the additional costs incurred from the airlines, in the form of a peak season rate increase as a freight accessorial charge (PSI) on the HAWB, as per the schedule table (Schedule D).
Kindly allow us to assure you that we are focused on minimizing the full impact of the Peak Season with regards to both service level and costs. At the same time, we are committed to actively monitor the Peak Season activity and provide prompt updates. Should you have any questions, please contact your local sales representative for more information.
Kind regards,
Ole Ringheim
Senior Vice President Airfreight
Asia Pacific
Amadou Diallo
Chief Executive Officer
South Asia Pacific
Kelvin Leung
Chief Executive Officer
North Asia Pacific
