Forwarders and shippers are seeking to secure longer-term contracts in the air cargo sector
3 weeks ago
Forwarders and shippers are seeking to secure longer-term contracts in the air cargo sector
Freight forwarders and shippers are increasingly advocating for extended air cargo contracts to shield themselves from potential rate hikes driven by supply chain disruptions.
According to a mid-year market analysis by Xeneta, contracts lasting more than six months accounted for 54% of the market in Q2 2024, a significant rise from 30% during the same period in the previous year.
In contrast, spot deals (one-month contracts) represented just 10% of the market in the second quarter, down from 12% in 2023. Meanwhile, three-month contracts held 18% of the market share compared to 23% last year, and six-month deals accounted for 18%, down from 35%.
The shift towards longer-term agreements began last year, but the reasons behind it have since changed, according to Xeneta’s report.
While the longer-term contracts signed last year likely reflect a more stable market environment, those agreed upon more recently are driven by the sudden surge in e-commerce demand and the Red Sea crisis impacting ocean freight.
“Contrary to the notion of a stable market, freight buyers are keen to lock in their rates for the Q4 peak season before market conditions worsen, amid concerns about tightening capacity,” Xeneta stated.
The report also identified four potential risks that could further disrupt air cargo supply chains this year: geopolitical tensions, cyber threats/IT vulnerabilities, natural disasters, and unforeseen events.
“Political instability in the Middle East and Ukraine, coupled with potential strikes on the US East and Gulf Coasts, may drive up cargo rates during the year-end peak season. On the other hand, a potential drop in consumer demand could apply downward pressure on rates,” the report noted.
Additionally, the possibility of Donald Trump returning to the presidency and the resulting rise in protectionist policies could trigger “a surge in demand from China ahead of new tariffs.”
“However, in the mid-term, this would likely dampen air cargo demand along the affected routes until new trade flows are established,” the report continued.
Regarding IT vulnerabilities, Xeneta highlighted the recent Crowdstrike IT outage's impact on aviation and the increasing frequency of cyberattacks on large organizations.
For natural disasters, the report cited the flash floods in Dubai and the drought affecting the Panama Canal as examples of how these events can disrupt supply chains.
As for unforeseen events, Xeneta warned that the next "black swan" event could be imminent, especially given the current precarious geopolitical climate.
Source: AirCargoNews