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LSCMS Blog

Blog for updates and happenings in logistics in the Asia-Pacific region

November 23, 2013

Headwinds Impacting the Airfreight Sector

Turbulence at all altitudes in the air freight sector!

Notwithstanding the turbulence generated by the vagaries of economic cycles and the resulting ups-and-downs of trade flows – demand for air cargo has declined in 5 of the last 12 years – the air freight market is experiencing a series of headwinds resulting in some underlying structural challenges that are impacting the sector as a whole:

 Regional supply chains reducing transportation miles

The world has moved beyond the globalization in which the western markets were the key drivers of the global economy.  The centre of economic gravity has shifted eastwards.  We are now in The Asia Era.

This is leading to some regionalisation of supply chains which involves more short-haul and less long-haul. The largest – and fastest growing – trade flows are intra-Asia, where cargo transportation distances are much shorter than Asia-Europe or Asia-USA, thereby impacting total cargo air miles.

Reducing value differential over shorter distances

Furthermore, the shorter the distance then the smaller the relative speed-advantage of air freight versus other modes of transport – for transpacific cargo flows the differential is measured in weeks eg 4-5 days by air freight versus 3-4 weeks by ocean freight. With the shorter distances involved in much of the intra-Asia trade, substantially lower cost alternative modes of transport may take only a few days longer than the substantially more expensive air freight eg 5-7 days by road or water versus 2-3 days by air freight.

Oil price fuels increase in operational costs

Rising fuel prices have been a factor in air cargo traffic slowdowns, diverting air cargo to lower cost alternative modes of transport – road, rail and maritime – which are less sensitive to fuel costs. The airlines have seen the price of jet fuel triple during the past 8 years, and prices are likely to remain volatile as the threat of supply disruptions persists. For the airline sector, fuel now typically represents the single largest cost component, representing almost 40% of total operational costs.

We will have to wait and see whether there are sunshine and clear skies ahead for the air freight sector.

Mark Millar provides value for clients with independent and informed perspectives on their supply chain strategies in Asia. His series of ‘Asia Supply Chain Insights’ presentations, consultations, seminars and corporate briefings help companies to improve business operations, plan more effectively, and increase the efficiency of their global supply chain ecosystems. Clients have engaged Mark as Speaker, MC, Moderator or Conference Chairman at more than 300 events in 20 countries. The Global Institute of Logistics recognised him as “One of the most Progressive People in World Logistics”. mark@markmillar.com

 

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November 6, 2013

Yusen Logistics sales rise 23 percent but profit drops 79 percent

Filed under: Economics,Newsletter — admin @ 6:52 am

Japanese freight forwarder Yusen Logistics, formerly NYK Logistics, posted a 79 per cent first half fiscal profit drop to JPY282 million (US$2.8 million), drawn on revenues of JPY199.450 billion, up 23 per cent. The move appears to indicate that Yusen is sacrificing margin to raise market share. This would be a familiar move employed by many Logistics intermediaries and would generally be followed by a period of customer or market segmentation to cull not-so-profitable customers.

This modus operandi is not necessarily a bad thing as it could benefit both Yusen and it’s customers. For Yusen the benefit would of course be the potential rise in overall revenue and profitability in the medium term as the the net result of the above modus operandi is usually increased sales and margins. For clients of Yusen, it presents a short to medium term opportunity to leverage better rates. It will be interesting to see if this perspective holds true. Market watchers will also notice that other Japanese companies such ANA and JAL appear to be adopting a similar albeit more conservative approach.

Yusen’s first half results showed a gap in 2012 profit, up 24.5 per cent to JPY1.538 billion. The decline in the same period 2013 was attributed to the absence of extraordinary gains.

The logistics unit of NYK Line’s April to September figures reflected sea cargo volume growth but a decline in air freight volume, which “remained stuck in the doldrums”, said a company statement.

Domestic consumption in Japan and the United States showed recovery while the European economy remained uncertain. China and some other Asian countries also slowed down its growth.

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