Despite the huge fluctuations in the ocean market, air freight is still a more challenging market from a logistics management perspective, according to one leading 3PL.    Forwarders and logistics companies have been vocal in recent months about the huge costs associated with managing the peaks and troughs of container movements by sea, but GAC Regional Manager, Freight Sales, Peter Orange told FlyingTypers that the pricing system imposed by airlines was also a major issue for freight solutions providers.
    “Airfreight is harder to manage from the point of view that airlines are and remain export-driven and focused, with control at the point of pricing and capacity at the origin, whereas many markets are inbound consignee-controlled,” he said. “This anomaly means that we cannot negotiate with airlines at destination in a way that we wish to.
    “Shipping lines on the other hand are well-versed in this and have adapted quite well to the market situation today. Overall pricing has become more stable with surcharges now being rolled back into freight costs and ‘all-in’ pricing being offered again.
    “The ideal situation is for airlines to learn from shipping lines on how, and at which point, to control their pricing and capacity.”
    A number of forwarders/3PLs have reported pressure on air freight forwarding margins over the last 12 months due to falling oil prices and major customers engaging in aggressive tendering. Orange said the move by airlines towards ‘all-in’ pricing—following in the footsteps of their shipping peers—was helping stabilize the market.
    “All-in pricing is easier and in fact more transparent to manage,” he said. “The tenders and RFQs that we have been involved in over the past few years have demanded that we sometimes take, considerably sizeable commercial risks by offering ‘all-in’ pricing, or alternatively, fixed surcharges for fuel, etc.
    “Margins are always hard to come by in our business, and being able to consolidate business volumes on key trade lanes is the ideal way of maintaining margins.
    “Freight itself is a commoditized product, and GAC strives to offer additional value to the customer with services provided at origin and destination. Warehousing services, such as milk runs from suppliers’ and buyers’ consolidations, are being offered to customers as part of the solutions in their supply chains.”
    GAC recently expanded its logistics network in the U.S. with the opening of four new offices in Atlanta, Detroit, Chicago, and Los Angeles. As a mature and established market, Orange said the U.S. presented its own set of challenges. “We are building upon our existing foothold in the oil and gas sector, as well as global capabilities, to expand our reach in the automotive, FMCG, fashion, and pharmaceutical sectors,” he explained. “We also have the support of our existing clients who want to continue working with GAC.
    “We can also better control services and pricing with our own teams on the ground and set and establish relationships directly with carriers, which will give us more transparency on costs and services.  We offer new air and ocean freight services from the U.S. to Asia and Europe in particular.”
    According to Orange, the main challenge facing forwarders in the air freight market at present is a more stringent regulatory environment and compliance requirements. “GAC and our customers take a serious view on this and ensure such rules and regulations are being followed,” he said.
    “However, in some markets, there will always be players who are looking to take short cuts, and this affects the level playing field.
    “GAC has to walk away from certain business at times and whilst this means a loss of opportunity, it is the right way and it is the way we have chosen to operate our business, and it is also the way our customers want us to be.”
    Orange said that predicting where rates improvements and demand growth would come from in the air freight business, even in the short-term, was always a difficult task. “It is difficult to predict months ahead, not to mention years ahead, which is an even tougher call,” he explained. “The world is now changing at a rapid pace. A year ago, no one would have thought that oil would be at $50 a barrel, or predicted the effects of the price drop.
    “There will always be a demand for air freight, and as manufacturing becomes more high tech and companies are looking at lean manufacturing and reduced levels of inventory, air freight will play an even more important role.
    “Intra-Asia freight will become more and more important, as we see the development of the ASEAN and other free trade groups, including Trans Pacific Partnerships, getting off the ground. The member countries will naturally want to do more business with each other in the same way the European Union does today. It will take time, however: the EU took over 60 years to get to where they are today!”
Sky King