IT gadget flood expected to increase air cargo rates 20pc as volume soars

AIR cargo rates are expected to rise more than 20 per cent as new smartphones and tablets from Apple, Google Inc (GOOG), Microsoft Corp and Amazon.com (AMZN) Inc flood the market, benefiting the likes of FedEx and Atlas Air Worldwide Holdings.

A Bloomberg reported that air freight rates rose by 20 per cent after Apple's new iPad was launched in March, according to Kevin Sterling, a transport analyst at BB&T Capital Markets.

"This is a new dynamic for the air-freight industry," Mr Sterling said. "There's been tech launches periodically, but there's so much hype around so many products at one time."

The gadget convergence is said to be a bright spot for air freight companies in the run-up to the traditionally strong holiday shipping season, which this year has been overshadowed by weak US job growth and slowing demand out of Europe and China.

It is anticipated that shipments of iPhones and tablet computers may reach 9.1 million kilogrammes, according to Satish Jindel, president of SJ Consulting Group in Sewickley, Pennsylvania.

Mr Jindel believes the competition for air freight space amid the massive gadget launch may push up average air freight rates to US$5 per kilogramme in September. Back in March when the iPad was released the average rate was $4.44 per kilogramme, according to Drewry Shipping Consultants Ltd. July's rate, the latest available, was $3.82.

"We have kind of a perfect storm of new product launches," said Jim Corridore, a Standard & Poor's equity analyst in New York who covers transport companies and estimates that a rate increase may last through October. "They're all going to want to be expedited."

Analysts say DHL may be a primary carrier for Apple, which said the iPhone5 would be available on September 21. Apple is also expected to debut a smaller, cheaper iPad tablet by the end of the year.

Google started shipping its Nexus 7 tablet in July, and Microsoft's (MSFT) tablet computer, the Surface, goes on sale on October 26.

Amazon.com has four different sets of Kindle reader and tablet devices on sale this year. Larger models of the Fire are available starting November 20, while the Kindle Paperwhite e-book reader goes on sale on October 1.

EVA Airways and Cathay Pacific Airways are expected to be among the biggest beneficiaries in Asia because of the size of their cargo fleets, ZheWei Sim and Mark Webb of HSBC Holdings Plc said in a note to clients.

The advantage for air cargo shippers may be heightened by capacity cuts made as global demand weakened this year. Atlanta-based UPS reduced its Asian air network by 10 per cent, and would face a lag bringing capacity back online. FedEx said in June that it retired 24 freighters to reduce capacity in its US domestic express segment and cope with sagging volumes.

"With capacity down and demand appearing like it's going to be fairly strong, rates will be very strong," said Helane Becker, a transport analyst with Dahlman Rose & Co, New York.

On a less optimistic note, many air freight companies have secured contracts with high-profile shippers, preventing them from taking full advantage of any rate increases, Mr Jindel added.

However, Atlas (AAWW) Air has more flexibility to raise prices than either UPS or FedEx because it offers services on a charter basis as well as long-term contracts.