DC Velocity - January 2010

newswor thy

air-cargo crunch likely
to last into spring

AFTER A DISASTROUS FIRST HALF OF
2009, the outlook for international air
freight became increasingly brighter as the
year wore on.

But for many participants—especially the users of air-freight service—the sweetness of improving demand trends is being tempered by the bitter realities of tightening capacity and rapidly escalating rates.

As the global economic downturn hit with ferocity through June, carriers were
parking aircraft and slashing rates in a desperate effort to cut costs and fill what
space was still left. Now, with the supply chain experiencing tight inventory lev-
els and a better economic outlook in view, the worm has turned.
DHL Global Forwarding, the world’s biggest air-freight forwarder, said in
mid-December it was working to secure additional capacity from commercial
carriers to avoid capacity constraints on the North Asia-Europe trade lanes in
the first quarter of 2010.
DHL confirmed what most observers and players already knew: that a demand
spike in November and December resulted in a significant backlog of goods,
thus driving spot-market rates steeply higher.
And lest anyone thinks this is a holiday season phenomenon, DHL said cur-
rent conditions are likely to persist at least into the early spring. DHL said con-
tinued robust demand, combined with carriers’ reluctance to bear the high cost
of reactivating grounded aircraft, would keep rates high.

“While the demand for air-freight space traditionally decreases after the year-end holiday, causing freight rates to drop significantly, the current capacity outlook and latest customer forecasts for the first quarter of 2010 indicate a continuation of air-freight capacity constraints on the North Asia-to-Europe trade lanes,” DHL said in a statement.

Air-freight demand is running high out of China, Hong Kong, Korea, and
Taiwan, with the next peak expected to occur before the Lunar New Year in
February as market players anticipate factory closings in China before the holi-
days, DHL said.
Shippers scramble for space

The current situation is a far cry from a year ago, when desperate carriers would go so far as to rebate base freight charges and keep only the fuel and other surcharges—a tactic that Jack Lampinski, managing director-Americas for Swiss World Cargo, called “totally nuts.” Lampinski spoke in early November at the 8th Annual Northeast Cargo Symposium of the Coalition of New England Companies for Trade (CONECT).

When rates reached unsustainably low levels in early 2009, some carriers cut
back flights and took aircraft out of service. In retrospect, however, carriers on the
trans-Pacific and Asia-to-Europe routes appeared to have acted overzealously.
One attendee at the CONECT conference, a regional manager for a p. 14

Con-way Truckload, the full-truckload subsidiary of Con-way Inc., will launch intermodal service in 2010 when it partners with a major East Coast railroad and a large shipper on an as-yet-undisclosed traffic lane along the Eastern Seaboard.

Herb Schmidt, Con-way Truckload’s president, would not identify the railroad or the shipper. He told DC VELOCITY that negotiations were well under way and that the service’s launch this year is essentially a foregone conclusion.

Schmidt said Con-way Truckload was approached in early 2009 by the same shipper to develop an intermodal project similar to what is now being negotiated. His company declined at the time to pursue the project, however.

Should the agreement now being
negotiated mirror what had been
discussed in early 2009, Con-way
would commit 100 trailers a day to
the railroad, Schmidt said. While he
acknowledged those volume levels
might seem insignificant in compari-
son to what truckers like J.B. Hunt
Transport Services and Schneider
National Inc. tender to their rail part-
ners, he said that “it’s 100 more a
day than we are doing right now.”
In addition, Schmidt said Con-way
Truckload is in the process of equip-
ping 2,000 of its trailers with so-
called lift pads affixed to the corners
of trailers to make it easier for cranes
to lift equipment to and from railcars
without damaging the units. “We will
have 2,000 rail-capable trailers in
place by the end of 2010,” he said.

In the third quarter, Con-way Truckload reported revenues of $95.7 million after the elimination of $50.6 million in so-called inter-company revenues.