AS OF LATELY, THE AIR FREIGHT MARKET HAS INCREASED TREMENDOUSLY IN PRICES AND ARE SUFFERING FROM A LACK OF SPACE. WHAT IS THE MAIN REASON FOR THAT AND WHEN DID IT START?

Loïc BENATTAR: "Everybody remembers the 2009 space crisis. Since then, air market has been slowing down. At the beginning, however, the market was quite low in terms of freight and space in airlines was abundant. This drove airlines to reduce and even disengage from cargo capacities on their planes, especially in the routes to Europe, in order to have more space dedicated to cargo departing from China to the United States or from Europe to other destinations that are providing higher revenue (Africa, South America...)

 

2016 was a surprising year due to a boom in the market lasting 6 months; from September 2016 to Mars 2017. This was the peak season and it was "back" on the market. This year, the market was remarkably dynamic even in the traditional low season: we still had problems with the lack of space and prices that wouldn’t go down. We could immediately see the difference between freight forwarders that were partnering with airlines years before, the peak season in order to secure spaces, and companies that were buying on the market, on the spot. While both sides survived, it is becoming clear that the companies who partnered with airlines had an advantage over others since prices, from March 2017 to end of 2018, have kept  rising and space has continually decreased."

WHY IS THERE SUCH A LACK OF SPACE LATELY?

LB: "The lack of space is mainly due to 4 reasons in my view. Like I said: the lack of space is due to the great increase of demands in freight and due to the disengagement from airlines in cargo transportation in their planes. We can take the example of Air France KLM who is more driving its strategy on passenger's market. They moved their KLM flights that were initially supposed to be combined (passenger and cargo) to flights uniquely for passengers (PAX), and consequently reduced their quantity of capacity for cargo from Hong Kong, Shanghai and Beijing.  Other airlines faced problems in the beginning with low demands, but are now are fully booked on the American market, over $5-6/kilo with constant demand, the American market also put up charter plans during the peak season to compensate the fact that airlines and cargo companies are overbooked. The whole concept of the peak season is high demands, lower amounts of offers, and that generally stall.

 

Secondly, it’s important to note that peak season is usually happening by the winter season. Why? That’s because people tend to fly less during that season, meaning less flights in general or even smaller planes. Consequently, there is less capacity for cargo on almost all passenger airlines. The passenger market is opposite to the freight market, meaning that the freight market only starts to have more demands and need bigger amount of space in the month of September when airlines will have space available only before the winter season. This then creates a distorsion in the offer.

 

When it comes to demand, there is also an important evolution. This demand principally comes from the United States and Europe and has changed over time. Before demand was generally based on economical purposes, when as of today, people tend to ask for their merchandise to arrive on time and more importantly, fast. This impacts the market since this increases the amount of demand of air transport. Nowadays, demand mostly consist of the technological industry: high tech companies need their devices and accessories delivered fast and in big quantities. For instance, companies like Apple, Samsung or HP, prepare charter plans et take up the majority of the cargo capacity in the peak season (Christmas season). Additionally, from traditional products, new products on the market will influence the space for cargo remaining on the market since these companies are willing to spend a lot more money to have a guarantee of space in direct flights. Sometimes, however, the rocket-high prices on the market don’t affect that much companies. For example, iPhone will cost around $1000 each and weight around 400g per unit (box included). With $6/kilo, you can imagine there is little to no impact on the price of the product. It’s for that reason that companies like Apple buy space at a high price, in order to make sure that their products are selling on time.

 

Finally, cross-border e-commerce has been developed: products are prepared in China and are either delivered directly to individuals or on Amazon’s platforms."

SINCE YOU MENTION IT: FOR YOU, HOW DOES AMAZON IMPACT THE MARKET?

LB: "Amazon plays an interesting part in the transformation of our market. Before, we traditionally sent the stock by containers to Europe or the United States, that was then either dispatched to shops, different ecommerce platforms or to the final consumer. Now, the market is moving to a new model: orders are prepared from the origin (China), which are then sent in small packages directly to Europe or to the United States with custom brokerage systems that simplifies customs duty and VAT (Value Added Taxes). I would also like to add that this system also allows a  maximum amount of import per day and per household. No need to have companies based in Europe or in the U.S. anymore, to be able to deliver individuals.

Today we have ecommerce platforms like Amazon, that give the ability for Chinese sellers to offer their products directly to consumers with shipping fees included in the price, which can be  considerably less expensive than the VAT and customs fees. This gives consumers direct access to the Asian factories via ecommerce platforms and truly revolutionized the market: no need to have stock or to send by containers. The majority of these orders are sent by planes. Furthermore, these very small packages aren’t affected by the raise in price since they are so light, thus won't have sensitvie impact on the final price. Most also try to stay within the requirement of ecommerce companies: we know how Amazon, for instance, can be quite strict about their policy that the stock must arrive at Amazon warehouses since they are picky about quality and delivery.

 

This year, we estimate during the peak season, that 20%-25% of the cargo aboard belonged to ecommerce products. In 2018, I think that more than 30% of freight transport during that year will be relative to cross-border ecommerce."

WHAT ARE OTHER TRANSPORT ALTERNATIVES?

LB: "There is always the alternative of rail and maritime transport. In the United States containers can arrive from China to Los Angeles in 15 days, and merchandise are then dispatched. As for Europe, sea freight will generally take about 30 days. The train may go faster and take 7-10 days less to arrive at least. However, those solutions are pricey. You can also transport goods via Sea-Air that is increasingly popular for its economical aspect and will even take less time. This solution works for the cross-border ecommerce market and is popular from Korea, Singapore, and Dubai. We noticed as well that this solution increased by 50% this year compared to 2016, so I can easily see this mode of transport expand in 2018."

HOW DID BANSARD MANAGE IN THIS PEAK SEASON ?

LB: "Bansard International is an active player in the air freight market from China to Europe, specifically in France. We work with both local and international companies and take pride in our sense of commitment. We mad a bet with airlines and partnered with them in the lowest point of the market, when there wasn’t much demand. It’s because of these partnerships that today we are one of the leaders on the China-France market. What is important in this industry is the commitment when companies have their low points and vice-versa. It’s thanks to that that we were able to develop and obtain spots in this difficult season at golden prices. This peak season was also a way for us to prove to our customers and partners our fidelity by delivering on time despite the crisis. We can now also differentiate unreliable and opportunistic partners and from committed and reliable ones. "

WHAT ARE BANSARD'S FUTURE OBJECTIVES TOWARD THE AIR FREIGHT MARKET?

LB: "Our first objective in the air transport market is to continue our politic of partnership and to remain dedicated and committed to both airlines and to our clients. We don’t take our commitments lightly and sometime, we prefer not to work with some companies with others if we sense risk. Because of our loyal reputation, we grew of 30% in 2017.

 

Our second goal is to become a stakeholder in the cross-border market between China and Europe. Bansard is one of the few companies able to have customs clearance of small parcels to Europe and master the management of the supply chain from A to Z: presence at the origin, air transport contracts, customs clearance license for small parcels, and even last mile contracts to allow clients to choose tailored services like our door-to-door delivery. This entire cross-border system is designed by our IT system that is able to track the orders, and is renowned for being reliable, fast and very competitive on the market. Because 15% of our deals are cross-borders, we can expect that it will increase to 25% from 2018to 2019.

 

We have been a precursor on cross border ecommerce and on our door-to-door service throughout Europe. In 2018, we plan to launch this solution in America."

Bansard International, expert in air freight forwarding since 1935 and leading company in air freight forwarding from China to Europe.