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Dog food and semiconductors compete for tight air cargo space

THE rising expectations of customers for rapid delivery have resulted in companies scrambling for cargo space leading to soaring airfreight rates.

Companies are shipping more items by plane to meet customers' rising expectations for rapid delivery, prompting a scramble for cargo space that has sent airfreight rates soaring and pushed Amazon.com Inc and others into the airline business.

Global airfreight traffic climbed almost 9 per cent year over year in November, the start of the peak shipping season, and rates for airfreight were up 17 per cent annually for the month, the biggest price increase since the aftermath of the financial crisis, according to cargo data provider WorldACD, The Wall Street Journal reported.

The cause is twofold: As online shoppers come to expect faster home delivery of everything from smartphones to paper towels, passenger jets and dedicated cargo planes are picking up more kinds of cargo traditionally carried by container ships, trains and trucks. At the same time, strong global economic growth also is spurring demand for goods long ferried by air, such as automotive and manufacturing parts.

To meet the rising demand, Amazon is starting its own airline and some air-cargo operators are searching for older, idle jets to convert into freighters.

"You're literally begging and pleading to get on airplanes, leveraging any contact you can," said Neel Jones Shah, global head of airfreight for Flexport Inc, a San Francisco-based firm that helps customers arrange freight shipments online.

However, some analysts caution the pace of growth may slow in 2018, when year-over-year comparisons will be tougher given the market improvements over the past year. Still, growth "will be probably in the 4 per cent to 5 per cent range, because the outlook for industrial activity and trade in 2018 is pretty strong," said Tom Crabtree, regional director of airline market analysis for Boeing Co's commercial airplanes unit.

Demand for new smartphones from Apple Inc and Samsung Electronics Co last year pushed up airfreight costs. Elevated semiconductor shipments, an airfreight mainstay, also have been gobbling up cargo space. And increasingly, manufacturers are loading toys, clothing and other products onto planes to meet shorter delivery windows and leaner retail inventories.

Air-cargo executives expect the crush to increase their industry's share of global shipments beyond its current level of about 2 per cent. Already, air cargo represents about one-third of global goods shipments by value, because pricier, time-sensitive items such as fresh flowers and consumer electronics tend to be sent by air.

Chief executive of air-cargo specialist Air Transport Services Group Inc (ATSG), which flies cargo for DHL Express and Amazon.com Inc, Joe Hete, said: "We expect more profitable growth in 2018 and beyond as airfreight claims a bigger share of overall cargo volume to achieve ever faster e-commerce deliveries."