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Unchartered Waters: Surviving a treacherous charter market

Aug 11 2016
There’s an old adage in the airfreight business that says if you have to ship something by air, you’ve probably made some kind of mistake. Why else would shippers pay exorbitant air cargo rates instead of putting it in a truck or on the water?

This is especially true in the ad hoc air charter business, which is founded on the inability of shippers to prepare for every contingency. Early last year, for example, when the “perfect storm” of a labor crisis on the U.S. West Coast occurred just before the ramp up to the Chinese New Year and in the middle one of the largest airbag recalls in automotive history, the air charter business had a field day, as shippers scrambled for every available cubic meter of charter capacity, sometimes paying double the normal rate to get their goods to end users on time.

This year, however, the roller-coaster of the charter industry declined at an alarming rate. The charter business has been so dead in 2016 that one ad hoc charter company attending the Air Cargo 2016 conference in Phoenix in June said he hadn’t flown his largest aircraft, a DC-9, a single time in the first five months of the year, due to a lack of business.

“It’s definitely nothing like the year before,” said Mike Joseph, director of sales and marketing, at Michigan-based Kalitta Charters, which counts ad hoc charter as 65 to 70 percent of its business. “We’re way, way, way down – easily 40 to 50 percent down this year over last year.” In the previous three years, he said, charters were at “full throttle” until the market took a nosedive in 2016.

No real consensus has arisen about the cause for the current nosedive, but some charter providers say it’s a combination of better planning on the part of shippers, a lack of major natural disasters that would have caused supply chain disruptions, and the continued cratering of the oil-and-gas industry – the bread-and-butter market for charters.

“Buyers became a little bit savvier, and have been able to manager their flows,” said Mark Simone, general manager of AirNet II, an Ohio charter carrier affiliated with Kalitta. “Things are a little bit more strategic on the buyer’s end of the equation. The events they need to solve require more of an X-Acto knife than a samurai sword.”

Those companies that took a seat on the charter bandwagon are starting to feel the pinch now. “Everybody jumped in and was going to be ad hoc, because it was easy,” said Joseph of the boom years from 2013 to 2015. “But now, when you’ve got to get real cutthroat and competitive on your prices, it’s a different ballgame.”

By Randy Woods via Air Cargo World

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