Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
No sector of transportation has been immune to the effects of the global economic downturn. But
perhaps no industry has taken it on the chin with greater ferocity than has air freight.
The worldwide collapse of air traffic, which began late last year and has extended into 2009, is
unprecedented in the industry's 60-plus years of existence. December 2008 volumes reported by the
International Air Transport Association (IATA) fell by 22.3 percent over December 2007.
Year-over-year volumes dropped by more than 20 percent in each of the next four months before
showing a slight improvement in May and June, when they declined 17.4 percent and 16.5 percent,
respectively.
The consensus is that the market has stabilized at current levels. But that is little solace for
an industry long accustomed to annual growth in the high single digits to low double digits. And
while things may improve somewhat as the year progresses, there isn't much hope for a recovery
before 2010.
Earlier this year, IATA predicted 2009 volume declines of 13 percent, and in June, the group
revised its forecast downward to 17 percent. That may be a little optimistic: Swiss freight
forwarding giant Panalpina predicts a 19-percent year-over-year contraction, noting that its
forecast includes data from freighter operators that aren't included in IATA's tabulations.
Stiff headwinds
It doesn't take a Harvard M.B.A. to understand what's going on. The recession has been global in
scope, and air freight's primary value is in connecting global supply chains. Companies are not only
shipping less, but many also now have a viable alternative to air in the form of
less-than-containerload (LCL) ocean services that are cheaper, faster, and more reliable than
ever before. Today, companies ranging from parcel carriers UPS and DHL to traditional truckers
like Con-way, Old Dominion Freight Lines, and Averitt Express are playing in the LCL market or
plan to soon enter the fray.
What's more, last summer's massive spike in oil prices forced businesses to re-examine their
offshore production strategies and the just-in-time inventory management model that relied on air
to rush goods to market over long distances. And ever-increasing security regulations have layered
additional costs onto an already premium-priced service.
While there may be multiple reasons for the weakness in air freight, there appears to be just
one remedy: a global economic rebound. But opinion is divided on whether an economic upturn could
turn the industry's fortunes around.
The Boeing Co., for instance, remains confident in air freight's long-term prospects, projecting
that global air-cargo traffic will grow by 5.4 percent a year over the next 20 years. "The air
cargo industry is supported by sound fundamentals—the imperative for speed, consumer product
innovation, and global industrial interdependence are key drivers—and new air trade routes
will expand service coverage," said Randy Tinseth, vice president, marketing of Boeing's commercial
airplanes unit, in a statement.
Others beg to differ. As they see it, a global economic recovery will not alter the structural
changes taking place that will work against air-freight's growth.
For one thing, lower production costs spurred by globalization and improved information
technology have led to reductions in the average value of many commodities. "The impact of
generalized price deflation will continue to depress the rate of air cargo growth," said Brian P.
Clancy, managing director of Arlington, Va.-based consultancy MergeGlobal Inc., in a report.
Price deflation typically forces managers to cut transportation costs to stay competitive. As the
most expensive transport mode, air is at a disadvantage to lower-cost alternatives like ocean on
international trade lanes, and to truck and intermodal services in the domestic U.S. trades.
"Our customers are asking why they should pay five times more for air freight than for ocean just
to save 10 days," says Julian Keeling, a 35-year industry veteran and founder of Los Angeles-based
Consolidators International. Consolidators' business was built around negotiating cargo space
aboard aircraft for small to mid-sized freight forwarders. Today, ocean shipping is the
fastest-growing part of Consolidators' business, Keeling says. Those bookings represent 12 percent
of its traffic, more than double the levels at the start of 2009.
Another factor slowing the growth of air freight is the proliferation of sophisticated
forecasting tools that allow businesses to order, ship, warehouse, and distribute with longer lead
times while still meeting their customers' fulfillment requirements. Through better inventory
planning, companies can now divert more shipments to sea freight and use air only for the most
urgent deliveries.
Consider the example of Pacific Sunwear, a maker of trendy apparel geared to the teenage and
young adult markets. The company typically used air freight to ensure that the latest styles were
always in front of its fickle and impatient customer base. However, it has cut its air shipping by
35 percent, according to Alex Albertini, director of logistics and trade compliance.
"We are only moving by air those products that we have a guaranteed sale for without a markdown,"
Albertini told attendees at the eyefortransport third-party logistics summit in June.
A third factor is the mix of fuel-price volatility, tougher security laws, and a general fear of
supply chain disruptions that is pushing businesses to consider nearshoring—a regionalization
of manufacturing and distribution. As the distance shrinks between the various supply chain points,
air freight's value proposition becomes less relevant.
Dell Inc., long a proponent of the intercontinental inventory and shipping model, is "looking
harder at regionalizing our sourcing than we have in the past," said John Lebowitz, director, global
trade management, during a panel discussion following the release of the annual "State of Logistics
Report" in June. Lebowitz added that his company is "doing a much better job" of managing its
manufacturing, inventory, and production flows to take advantage of modes other than air. "We are
definitely looking at diversifying our transportation options," he said.
Will air freight fully recover?
Many fret about globalization and its impact on intercontinental supply chains. But the air-freight
business has proved itself to be a resilient animal, and it's a safe bet that businesses that
continue to scour the globe for low-cost sourcing options will still turn to air to whisk their
goods to far-flung markets.
Some air-freight markets, of course, will do better than others. Traffic in the intra-Asia
region, where production and consumption are expected to remain strong for years to come, will
grow by 8.1 percent annually through 2027, according to Boeing's biennial cargo forecast. That
will significantly outpace the predicted 5.4 percent baseline global growth rate.
Clancy of MergeGlobal says air-freight demand will gradually recover as companies replenish d
epleted inventory and the continued compression of product life cycles drives demand for fast
delivery. He doesn't see the global market returning to 2007 levels—the last full
pre-recession year—until 2012. IATA Chief Economist Brian Pearce, too, says that even if
traffic rebounds along with the global economy, it will take several years to return to the
industry's historical growth rates.
Keeling, though, believes air freight is in "permanent decline." He contends that the
improvement in speed and reliability of competing ocean services will raise the bar to heights that
the air sector can't fly over.
"At one time, if you booked a shipment by ocean originating in St. Louis and bound for
Wellington, New Zealand, the importer would budget 90 days for the cargo to reach its customer,"
he says. "Now you have daily ship calls from Shanghai to Los Angeles, and the all-water transit
times are 12 days. How does air compete with that?"
The number of container ships waiting outside U.S. East and Gulf Coast ports has swelled from just three vessels on Sunday to 54 on Thursday as a dockworker strike has swiftly halted bustling container traffic at some of the nation’s business facilities, according to analysis by Everstream Analytics.
As of Thursday morning, the two ports with the biggest traffic jams are Savannah (15 ships) and New York (14), followed by single-digit numbers at Mobile, Charleston, Houston, Philadelphia, Norfolk, Baltimore, and Miami, Everstream said.
The impact of that clogged flow of goods will depend on how long the strike lasts, analysts with Moody’s said. The firm’s Moody’s Analytics division estimates the strike will cause a daily hit to the U.S. economy of at least $500 million in the coming days. But that impact will jump to $2 billion per day if the strike persists for several weeks.
The immediate cost of the strike can be seen in rising surcharges and rerouting delays, which can be absorbed by most enterprise-scale companies but hit small and medium-sized businesses particularly hard, a report from Container xChange says.
“The timing of this strike is especially challenging as we are in our traditional peak season. While many pulled forward shipments earlier this year to mitigate risks, stockpiled inventories will only cushion businesses for so long. If the strike continues for an extended period, we could see significant strain on container availability and shipping schedules,” Christian Roeloffs, cofounder and CEO of Container xChange, said in a release.
“For small and medium-sized container traders, this could result in skyrocketing logistics costs and delays, making it harder to secure containers. The longer the disruption lasts, the more difficult it will be for these businesses to keep pace with market demands,” Roeloffs said.
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
National nonprofit Wreaths Across America (WAA) kicked off its 2024 season this week with a call for volunteers. The group, which honors U.S. military veterans through a range of civic outreach programs, is seeking trucking companies and professional drivers to help deliver wreaths to cemeteries across the country for its annual wreath-laying ceremony, December 14.
“Wreaths Across America relies on the transportation industry to move the mission. The Honor Fleet, composed of dedicated carriers, professional drivers, and other transportation partners, guarantees the delivery of millions of sponsored veterans’ wreaths to their destination each year,” Courtney George, WAA’s director of trucking and industry relations, said in a statement Tuesday. “Transportation partners benefit from driver retention and recruitment, employee engagement, positive brand exposure, and the opportunity to give back to their community’s veterans and military families.”
WAA delivers wreaths to more than 4,500 locations nationwide, and as of this week had added more than 20 loads to be delivered this season. The wreaths are donated by sponsors from across the country, delivered by truckers, and laid at the graves of veterans by WAA volunteers.
Wreaths Across America
Transportation companies interested in joining the Honor Fleet can visit the WAA website to find an open lane or contact the WAA transportation team at trucking@wreathsacrossamerica.org for more information.