Peak season craziness, West Coast port disruptions add to concerns over airfreight capacity shortfalls

Airfreight users, who had been dealing most of the year with a tightening market for capacity, are now also coping with what could be a late-peak season crush for airfreight services as disruptions at West Coast ports are pushing some businesses to shift their goods from ocean to air.

Tensions between the International Longshoremen & Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) over negotiations for a new collective bargaining agreement have been increasing over the past few weeks, and according to PMA, led to ILWU-orchestrated slowdowns at the ports of Los Angeles, Long Beach, Seattle, and Tacoma. On Tuesday, the slowdowns spread to the Port of Oakland, where dockworkers temporarily shut down a terminal operated by SSA Marine, a Seattle-based stevedoring, marine terminal operations, and intermodal management firm. Mike Zampa, a spokesman for the Port of Oakland, said late yesterday that workers have returned to their jobs and normal operations have resumed.

ILWU has declined comment on the PMA allegations of slowdowns, and both sides have spent most of the month hurling insults at one another. The 13,600 ILWU members have been working without a contract since the prior six-year pact expired on July 1, and until recently, the 29 West Coast ports covered under the agreement have operated normally.

The dispute has forced some businesses to shift goods that would normally move by ocean to higher-priced air to ensure they enter U.S. commerce before the holiday shopping season begins. Ann Inc. (formerly Ann Taylor), a women's specialty apparel retailer, will be hit by a double-whammy when it reports its fiscal third-quarter results later this month. The company said in a mid-quarter update Nov. 6 that sales in the first half of the period were hurt by shipment delays due to labor-related uncertainty at the ports. A shift to air freight mitigated the delivery issues, but at a cost of $8 million in air shipping expenses, it said. Airfreight users, even if they've negotiated capacity agreements with airlines, are still subject to peak-season surcharges if they want rush freight moved.

For airfreight forwarders, the turmoil at the ports throws another log on what has been a yearlong fire revolving around a general tightening of international air capacity, especially in the eastbound trans-Pacific market. Carrier rates have been driven up for much of the year by a pickup in demand, ongoing concerns over West Coast port congestion separate from the labor issue, the simultaneous launches of two Apple Inc. iPhones, and a secular decline in the production and delivery of all-cargo aircraft. "There are [marketplace] expectations that will compound the situation in the coming days, but we have seen the airlines with large backlogs before the port slowdown hit," said Rich Zablocki, vice president, North American air freight, for Dutch forwarder and third-party logistics provider Ceva Logistics.

In early October, DHL Global Forwarding, the world's largest air freight forwarder, launched a capacity management program designed to secure all-cargo lift on key trade lanes from Asia to North America and into Latin America, as well as on certain Asia-to-Europe routes. The forwarder is negotiating so-called blocked-space agreements with airlines that will guarantee capacity for a certain amount of time in return for a specified amount of freight. Rates are generally kept constant for the duration of the agreements.

Mathieu Floreani, CEO Americas for DHL Global Forwarding, said the move is in response to mounting customer and company concerns over the availability of all-cargo equipment in the years ahead. The capacity situation is dire on certain trade lanes, though it doesn't affect the global market, Floreani said in an October interview. Many of his customers, even those that don't require main-deck lift and can manage with using below-deck aircraft space, have expressed worries over all-cargo space and the rates they'll be forced to pay for it, he said.

Floreani declined comment on the amount of space the forwarder is attempting to procure. He said an agreement's duration would depend on the trade lane involved. However, he expects most compacts to extend only beyond the end of 2015.

Demand for air freighters, especially newbuilds, is likely to diminish over the next two decades as a shift to regionalized or local sourcing and production, a migration to lower-cost seafreight on certain lanes, and an abundance of passenger aircraft with lower-holds priced as an inexpensive byproduct of passenger services make costly freighter purchases less appealing. In its biennial global air cargo forecast released last month, Boeing Co. projects 840 new freighters to be delivered worldwide through 2033. In its prior report two years ago, the aircraft maker forecast 935 new freighters to be delivered from 2012 through 2031.

Boeing also scaled back its forecast for total freighter deliveries, which include aircraft converted from passenger configuration. In this year's forecast, it forecast deliveries of 2,170 freighters through 2033. Two years ago, it projected 2,754 freighter deliveries through 2031.

Global airfreight activity in September grew by 5.2 percent from the 2013 period, the International Air Transport Association (IATA), the global airline trade group, said earlier this month. Most world markets showed strong growth, IATA said. The exceptions were Europe, which reported a year-over-year decline, and Latin America, which posted flat results.

In its 2014 forecast, Boeing projected a 4.7-percent annualized growth rate worldwide through 2033, which would result in a doubling of global cargo activity by then.