Air cargo firms feel the pressure from plunge in freight prices

Tue Jul 5, 2016 11:20am EDT
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By Victoria Bryan

BERLIN (Reuters) - Following a sharp fall in freight prices air cargo companies are set to trim their fleets and jobs further to battle overcapacity while looking for new partnerships and products to carry, industry executives and analysts say.

Global trade volumes fell for the first time since 2009 by 1.7 percent between the final quarter of 2015 and the first quarter of 2016 and the International Air Transport Association has lowered its growth forecast for air freight demand in 2016 to 2.1 percent from 3 percent.

And while the impact of Britain's Brexit vote on the UK air freight market remains uncertain, prices for air freight generally are down about 15-20 percent compared with last year due to capacity outstripping demand by a factor of three.

"It's a landslide," Lufthansa Cargo (LHAG.DE: Quote) CEO Peter Gerber said on Tuesday. "With prices falling so quickly, we have to cut costs."

Freight carriers are also seeking new types of business, or focusing on higher-margin areas, such as delivering pharmaceuticals.

Lufthansa Cargo for example says it is looking at dealing with customers directly, rather than via the freight forwarders that currently account for up to 95 percent of its business.

And it has been in talks with online retailers such as Alibaba (BABA.N: Quote) and (AMZN.O: Quote), which have been reviewing their logistics chains to ensure goods can be sent to customers more quickly and reliably, although nothing has been agreed.

Seeking more control over its deliveries, Amazon in March signed a deal to lease 20 Boeing (BA.N: Quote) freighter aircraft to handle more of its own deliveries in the United States.   Continued...

A bird is seen near the turbine of a McDonnell-Douglas MD-11 jet of Lufthansa Cargo AG flying above the tarmac of the Yemelyanovo International Airport, on its way to Frankfurt from Beijing and Seoul, outside the Siberian city of Krasnoyarsk August 15, 2015.   REUTERS/Ilya Naymushin/File Photo