Happy Labor Day USA!?

Today is one of my favorite American Holidays. A long three day weekend with nothing but backyard barbecue, good company and especially the return of college football to the air waves.  Life begins again in the South.   Unfortunately, once Tuesday gets here, it will be time once again to look at the tough times that will be immediately in front of those moving goods throughout the US and abroad.

This summer has been brutal for the logistics and transportation industry, as well as the passenger airlines. Fuel, the War and a weak dollar have challenged both carriers and shippers alike to think differently about how to move goods. Express carriers have seen increasing moves by customers to shift to either LTL or other slower modes of conveyance in order to stay within budgets. For multi-mode capable 3PL's and integrators, this has been a blessing on the heavy freight side of the business even as the parcel side has been challenged. Air cargo has been available, but capacity and rates have stayed a steady course headed upward. In fact in some industries, there's more cargo available than ever. The dollar is still weak and American products, especially in the infrastructure and technology sectors are in high demand.

Now that fall is here, many airlines are going to start withdrawing capacity from both the US domestic and in some cases, the international markets. This is going to put extreme pressure on air freight rates as capacity dries up, and is going to make passenger travel both more expensive and even more difficult than it is today. American, United and Northwest Airlines all have announced capacity reductions of up to 14 percent. Internationally, LAN and Polar Air Cargo both implemented substantial rate increases in August of between 25% and 50%.  Getting to Latin America is now extremely expensive.

Nippon Cargo Airlines ceased operations in JFK this past week and will now only serve Chicago from Asia. Gemini Cargo Airlines ceased operations all together. 

This Fall is going to be tough. Today, I'm going to enjoy a couple of beers and some barbecue and look forward to some football. Tomorrow its back to the grindstone.

Labor Day indeed.

Eric

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Comments

[LGH]

Withdrawing capacity . . .

Interesting to note that two major air cargo carriers, PO and NCA have abandoned their direct connection into and direct handling in overpriced JFK.

I would not be surprised if cost (exclusively) squeezed them out. The Port Authority of NYNJ is gouging.

Lets take into considering that a great deal of inbound material brought into JFK by freighters on the Asia to JFK route is in fact retail sproduct for the tri-state area (NY, NJ, CT).

PO has a two-pronged approach as an alternative to JFK. PO has been using a service handling company at JFK, and also making the ORD to JFK tri-state area connection by linehauls. Will NCA follow suit with a service company assist at JFK and a road feeder service between ORD and JFK? I can’t imagine NCA bailing out of the tri-state area completely.

By the way, is the ORD to JFK linehaul a two-day service? If so, it appears that PO and NCA simply have to keep the pipeline full so the service does not experience a gap. I just wonder how the road feeder service, ORD-JFK, has held up during the winter months?

[Brian French]

Eric - what a great blog you have.
And this is a great post. I've put it on our community site (with appropriate credit and link). Hope you don't mind.
Brian

[Shawn in Tokyo]

Hi Eric,

Thanks for the response. It will definitely be interesting to see how amenities evolve. I definitely get spoiled flying Asian carriers...

[Eric]

Shawn, sometimes it is a straight increase. For instance, the base book rates for FedEx, UPS and DHL are not the same. FedEx base rates are 2% higher than UPS and DHL, but their fuel surcharge is 2% cheaper. Over time, I look for airlines and carriers to build more margin into their base rates in order to try and keep some profit when and if oil prices turn around.

I think the airlines will NEVER give back amenities we used to get for free.

[Shawn in Tokyo]

I am wondering when a certain amount of fuel surcharges just become built into ticket prices. Do you know the regulations behind disclosing fuel surcharge information? How do we know a fuel surcharge is actually entirely fuel related and not a straight price increase? How are these set by the airlines? Just questions out of curiosity...:-)