A UTi bi-weekly publication, Volume 60 the transportation industry.
06 August 2012
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Air France-KLM’s cargo traffic declined 6.9 percent, year-over-year, during the second quarter of 2012, a decrease that is in line with the carrier’s 6.5 percent, year-over-year, plunge in freight volumes from January to June. To compensate for these declines, AF-KLM slashed capacity by 3 percent, year-over-year, during the second quarter.
From a six-month perspective, the carrier offered 2.5 percent less freight space in the first half of 2012 than in
January-to-June 2011. Unfortunately, AF-KLM’s capacity-reduction measures couldn’t offset the level of space utilization, with cargo load factor falling 2.8 percent, year-over-year, to 64.5 percent, during the first half of 2012. The carrier’s freight load factor totaled 64.1 percent during the second quarter, according to a press release.
Such declines contributed to AF-KLM Cargo’s operating loss of €62 million during the second quarter — a much steeper decline than the €14 million loss the freight carrier posted during the second quarter of 2011. Cargo revenue also slid in the second quarter, falling 4.4 percent, year-over-year, to €764 million. In a press release, AF-KLM blamed these declines on the “weak global trading environment” and staggering fuel prices.
Despite these challenges, the carrier’s passenger business performed particularly well during the second quarter, with traffic and capacity rising 2.4 percent and 0.3 percent, year-over-year, respectively. Still, AF-KLM’s net loss grew to €895 million during the second quarter from – €197 million in the second quarter of 2011. The carrier explained in the press release that this loss is partially attributable to the €368 charge it incurred from payments related to AF-KLM’s more than 5,000 planned job cuts.
Jean-Cyril Spinetta, chairman of AF-KLM’s board of directors, defended these cuts, calling them essential to profitability. “In an increasingly uncertain global economic environment, compounded by oil price and exchange-rate volatility, an improvement in our productivity and costs is even more necessary,” he said in a statement.
“Along with the board, I’m pleased that the majority of the group’s employees are understanding and supportive of this demanding recovery plan,” Spinetta continued.
(Source: Air Cargo World, 31 July 2012)
Air cargo markets remain relatively depressed, Association of Asia Pacific Airlines director general says
International air freight carried by Asian airlines rose 4 percent in June compared to a month earlier, but traffic fell 0.8 percent year-over-year, according to the Association of Asia Pacific Airlines.
Offered freight capacity declined 0.4 percent year-over-year last month, pushing the average international air cargo load factor up by 0.4 of a percentage point to
67.8 percent.
Andrew Herdman, AAPA director general, said air cargo markets still remained relatively depressed, with Asian airlines' international air cargo traffic down 4.3 percent for the first six months of the year, reflecting weak consumer confidence in major developed markets.
“Although passenger demand has held up well, weak air cargo demand has undermined overall revenue growth, whilst cost pressures from high fuel prices squeezed already thin margins,” he added.
“Oil prices have moderated from their recent highs, providing a measure of relief, but prospects for the second half of the year are still overshadowed by continuing uncertainty over the weak global economic outlook.”
(Source: Journal of Commerce, 30 July 2012)

June freight down 4.6 percent year-over-year; cargo revenue slides 4.9 percent
Germany’s Lufthansa Cargo carried 4.6 percent less freight in June than a year ago as it slashed capacity in line with weakening demand on its key Americas and Asia-Pacific routes.
Europe’s largest scheduled cargo airline transported 151,000 metric tons of freight in June, a marked improvement on the
144,000 tons in May that left traffic in the first half of the year down 9.2 percent from the 2011 period at 864,000 tons.
Cargo revenue dipped 4.9 percent as capacity was cut 6.3 percent, boosting the load factor by 1 percentage point to 69.5 percent.
The parent Lufthansa group, which includes SwissWorldCargo, reported cargo down 3.3 percent at 172,000 tons for a half year total of 987,000 tons, 7.8 percent less than in the same period in 2011.
Revenue declined 3.1 percent on 4.3 percent less capacity, which boosted the load factor by 0.8 points to 66.7 percent.
The Americas network saw traffic shrink 2.9 percent to 54,000 tons, a significant improvement on the 12.8 percent slump in May.
Asia-Pacific volume declined 6.3 percent to 46,000 tons, compared with a 12.8 percent slide in May.
Close rival Air France-KLM recorded a 1.4 percent drop in traffic on a 2.8 percent cut in capacity, which left the load factor down 0.9 points at 63.9 percent. This marked a turnaround from May when traffic slumped 8.8 percent from the previous year.
IAG, the merged British Airways-Iberia carrier, bucked the trend, with traffic up 0.6 percent and revenue 6.9 percent higher than a year ago, as a strong performance from the U.K. carrier outweighed a double-digit decline at its Spanish partner.
BA, a much larger cargo carrier, boosted freight revenue by 4.5 percent, while Iberia revenue was down 14.3 percent.
Unlike its rivals, IAG increased capacity, by 5.1 percent, from June 2011.
(Source: Journal of Commerce, 10 July 2012)
Consultant: 'slump in pricing is symptomatic of feeble demand and excess capacity'
Drewry’s monthly Airfreight Price Index, an average of rates across the westbound Asia-North America and westbound Asia-
Europe trades, has plummeted to its lowest level in almost three years.
The shipping consultants say the downward trend is being driven by the "deteriorating macroeconomic environment which has caused continued contraction in demand."
Airfreight traffic remained largely flat through 2011 and has been declining since, Drewry underlines. "It is dependent on high value, time-critical products which have suffered as cash-strapped Western consumers have tightened their belts as the economic outlook has darkened."
The Index’s reading reached 109.8 in March (November 2008 = 100), reflecting the peak in rates this year, as product launches, such as Apple’s new iPhone, boosted short term demand. But pricing has since dipped markedly.
Last month, the Index was down 18% on June 2011- reaching its lowest point since August 2009, when the world economy was in the grip of recession.
Drewry argues that the slump in pricing is symptomatic of feeble demand and excess capacity, the latter influenced heavily by the passenger market which has been pulling in the opposite direction to cargo demand.
However, it does acknowledge the reduction in maindeck capacity with the demise of several all-cargo airlines at the end of last year and the reining back of freighter space by the main flag carriers.
"Both Asia-North America and Asia-Europe trades have experienced similar degrees of rate erosion. There is some variation between specific airport-to-airport routes but the rate of pricing erosion has been fairly consistent across the two main trades,Drewry’s Research Manager, Freight Rate Benchmarking, Martin Dixon, told LloydsLoadingList.com
"We expect airfreight rates to remain weak for the remainder of the year but there will likely be some recovery in the fourth quarter with the onset of the peak season. How much of a rally will depend on the level of peak season demand relative to the available capacity, For the time being airfreight remains a buyer’s market," he added.
(Source: Lloyds Loading List, 26 July 2012)

Container freight spot rates will continue downward drift, says consultant, but contract shippers will be hit hard
A leading supply chain consultant says shippers who negotiated contracts with carriers at the end of 2011 - when the freight market was at its weakest - should prepare for a hefty increase in costs when contracts come up for renewal.
The warning from Drewry comes despite another weekly fall in a key measure of containerised freight spot rates on the
Shanghai-Rotterdam route: the World Container Index (WCI), which is assessed by the consultancy.
Another freight benchmark, the Shanghai Containerised Freight Index (SCFI), also fell last week pointing to an almost complete erosion of the 1 July round of General
Rate Increases (GRIs). More GRIs are planned for August.
But in its latest Logistics Executive Briefing to importers and exporters, to be published later this week, Drewry puts recent declines in spot rates into perspective, highlighting that the WCI’s latest benchmark rate from Shanghai to Rotterdam, dated 19 July, was almost three-and-a-half times the level it stood at in December
2011.
Rates have also rallied on Transpacific routes, though in a less pronounced fashion, the Briefing adds, with Drewry’s Hong Kong to Los Angeles benchmark rate, published in the Container Freight Rate Insight, surging over 66% by the third week of July since the start of the year.
"Further rate increases are planned for August on both Asia- Europe and Transpacific trades which will raise rates again, if only temporarily," says Martin Dixon,
Research Manager, Freight Rate Benchmarking at Drewry.
"Carriers are certainly facing headwinds in their attempts to maintain freight rate levels as demand growth weakens. They have already started to remove some capacity through the recently announced skipped sailings but they will be reluctant to pull whole service strings while the hope of a peak season still beckons. For these reasons, Drewry expects rates to drift lower through the remainder of the year."
But he says the bigger question is what these developments mean for contract rates, on which over half of all container shipments move.
"Importers and exporters must expect to pay higher freight rates when their contracts come up for renewal, whether later this year or next. Hardest hit will be those whose contracts were agreed at the end of last year when the market was at its weakest."
Drewry’s Container Forecaster anticipates average all-in East-West freight rates (across both contract and spot markets) increasing higher still next year by another
10%.
"This will take average East-West freight rates to within a whisker of 2008’s pre-recessionary levels when industry pricing last peaked. Shippers should prepare themselves accordingly to avoid any nasty shocks," warns Dixon.
(Source: Lloyd’s Loading List, 25 July 2012)
Bleak job prospects may idle increasing numbers of container ships, Alphaliner says
Increasing numbers of container ships are facing long-term unemployment amid bleak job prospects in a bearish charter market, according to Alphaliner.
Fifty-seven of the 218 currently unemployed container ships have been idle for more than six months, of which 20, with an aggregate capacity of 21,000 20-foot-equivalent units, have been jobless for more than a year, the container market analyst said.
Ocean carriers control 18 of the idled ships, while 39 belong to non-operating owners.
While some of the older vessels are likely to head for the scrap yard, numerous younger ships under the age of 15 face an uncertain future with increasingly bleak employment prospects as the NOO fleet is expected to continue growing through the end of 2012.
A large number of the long-term unemployed ships belong to financially troubled carriers, such as Bangladesh’s HRC Shipping, which currently has six units between
456 TEUs and 700 TEUs capacity idle for between one and three years.
Two 1,600-TEU vessels built in 2000-01 owned by Indonesia’s Djakarta Lloyd have been idle for the past two years. Vietnamese carrier Vinashin also has several longterm jobless ships.
(Source: Journal of Commerce, 31 July 2012)

Japanese carrier cites rate recovery, cost cutting
NYK said its first quarter losses on container shipping narrowed, and the diversified Japanese carrier said it expects the unit to show a profit for the full fiscal year. The company’s liner shipping operating loss narrowed to 1.6 billion yen ($20 million) from $105 million a year earlier. Liner revenue rose 6.3 percent to $1.4 billion.
NYK said it is pinning its expectations for a container shipping profit on peak-season surcharges this summer and continued cost cutting, including slow steaming and the use of vessel-sharing alliances. For its fiscal first quarter ended June 30, NYK reported a group-wide net loss of $16.5 million, compared with a loss of $89 million a year ago, as revenue rose 6.5 percent to just under $6 billion.
Group-wide operating profit was $85 million, compared with a group-wide loss of $130 million a year earlier. Recurring income totaled $60 million, compared with a loss of $126 million a year earlier. NYK said its bulk shipping unit was profitable, as car carrier shipments are recovering from 2011’s earthquake in Japan and floods in Thailand, and the supply-demand balance has improved. NYK’s logistics unit posted higher profit on lower revenue.
The company made no change to its previous forecast of $625 million in group-wide operating profit and $500 million in profit on continuing operations during its fiscal year. The revenue forecast was trimmed 1.5 percent to $12.25 billion.
(Source: Journal of Commerce, 31 July 2012)
The largest container-shipping company in the world is reportedly losing $217 per forty-foot container transiting between
Melbourne, Australia and Qingdao, China.
"Current rates are not able to cover our costs and we cannot sustain continual losses," said Gerard Morrison, director of sales for Maersk Line at an industry conference in Melbourne. Morrison said the global shipping industry averaged a rate of return of 2 percent in 2011 – one fifth of its 10 percent goal.
(Source: Cargo Business News, 31 July 2012)
The U.S. Chamber of Commerce and U.S.-Japan Business Council (USJBC) has announced the integration of the two organizations.
“This is a win-win for our organizations and for the businesses we represent,” said Thomas J. Donohue, president and CEO of the
U.S. Chamber. “By bringing together the USJBC’s expertise on Japan and the Chamber’s strong platform and programs in
Washington and Asia, we can maximize the value to U.S. companies with interests in Japan and the region.”
(Source: http://www.uschamber.com/press/releases/2012/july/us-chamber-and-us-japan-business-council-announce-integration )
CBP has created a pocket guide with links to the latest information on their Trade Transformation initiatives. Trade Transformation represents CBP’s approach to carrying out CBP’s dual missions of security and facilitation within a 21st Century trading environment. These initiatives address key efficiency areas, including:
• Driving down transaction costs to the Trade;
• Creating efficiencies that result in expedited clearance and review processes; and
• Aligning security and trade targeting and enforcement efforts around an “all-threats” agenda.
(Source: http://www.cbp.gov/xp/cgov/trade/trade_transformation/pocketguide/ )
A proposal for a Quick Reaction Mechanism (QRM), that would enable Member States to respond more swiftly and efficiently to VAT fraud, was adopted by the Commission. Under the QRM, a Member State faced with a serious case of sudden and massive VAT fraud would be able to implement certain emergency measures, in a way which they are currently not allowed to under VAT legislation.
(Source: http://europa.eu/rapid/pressReleasesAction.do?reference=IP/12/868&format=HTML&aged=0&language=EN&guiLanguage=en )

Port Tracker expects growth to pick up following lackluster July
Retailers continue to plan for increased imports this fall despite discouraging news recently regarding consumer confidence, employment numbers and retail sales.
“Whether consumers are going to have the confidence to spend during the next few months depends on what happens with employment, but retailers are being cautiously optimistic,” Jonathan Gold, vice president for supply chain and customs policy at the National Retail Federation, stated in the July Global Port Tracker.
The Global Port Tracker, which is published monthly by the NRF and Hackett Associates, estimates that U.S. containerized imports in June were 4.7 percent higher than in June 2011. The publication projects that imports in July will be up 1.6 percent, August imports will increase 6.2 percent, September imports will be up 6.8 percent, October imports will increase 12.6 percent and November imports will be up 2 percent over the same months last year.
“Economists and commentators are talking the economy down,” said Ben Hackett, founder of Hackett Associates. “Despite the mixed signals, we remain optimistic that consumers will remain in the market,” he said. Imports normally build each year during the summer and fall months as retailers bring back-to-school merchandise and then holiday goods into the country. Retailers this year are projecting a traditional peak-shipping season, which means imports during the August through October period should be noticeably higher than imports in the first half of the year.
Global Port Tracker reported that imports in the first half of 2012 were up 2.6 percent over the same period last year. However, retail sales are expected to pick up, and Global Port Tracker is calling for retail sales to increase 3.4 percent in 2012 over last year. The projection of a 12.6 percent increase in imports in October stands out because it is being compared to lower-than-usual imports in October 2011, Global Port Tracker stated.
(Source: Journal of Commerce, 10 July 2012)
Hupac and DB Schenker report drop in freight traffic in same week as Eurotunnel unveils double-digit cargo decline
Half-yearly results just announced for two of Europe’s biggest rail freight operators offer further evidence that cargo volumes on the continent are on the decline.
DB Schenker has reported that rail freight for the first half of 2012 declined by 2.6% year-on-year, which equates to 5.5 million fewer tonnes carried at 202.3 million tonnes. In volume terms there was a drop of 4.9% to 54 billion tonne kilometers (tkm).
The German operator’s freight forwarding division, DB Schenker Logistics, did, however, record a marginal gain of 0.5% in the number of shipments in European land transport, to a total of 47.8 million shipments. The ocean freight business in particular posted a substantial gain of 10.6%, although air freight volumes fell 7.9%.
Overall, DB’s group revenues increased 3.3% to €19.5 billion during the first half of 2012, driven by passenger growth in Germany. The company posted a 16.6% increase in operating profit to € 1.3 billion which CEO Rüdiger Grube described as ‘very successful‘. Swiss road-rail combi operator Hupac, meanwhile, endured an
11.7% fall in traffic to 332,000 consignments over the same half-year period. The latest numbers for Hupac are still some way short of the 375,000 consignments the operator moved in the first half of 2008.
A spokesman said: “One of the reasons was the economic downturn that has curbed the exchange of goods throughout Europe since the end of 2011, reducing market demand for transport services but much of the negative traffic development was due to the numerous service interruptions on the network, particularly on the Gotthard line.”
Lloyd’s Loading List.com also reported this week (click here to read) that Europorte, the reail freight division of cross-Channel tunnel operator, Eurotunnel, saw a double-digit percentage drop in rail freight using the crossing. Chairman and CEO Jacques Gounon blamed a new security fee levied by the French rail network operator but added that import-export activity in the UK had fallen.
(Source: Lloyd’s Loading List, 26 July 2012)
Prices inch up 1.3 cents to $3.796, but are still down 16.1 cents from a year ago
Diesel prices in the U.S. rose for the fourth straight week, climbing 1.3 cents in the week ending July 30 as oil prices slipped. The average cost per gallon of diesel, $3.796, is down 16.1 cents from a year ago, according to the U.S. Energy
Information Administration.
Diesel prices rose across the country except in the Gulf Coast and the West Coast excluding California. The Midwest saw the largest price gain, with the cost per gallon of diesel rising 3.3 cents to $3.782. Diesel remains under $4 a gallon on average in all regions.
Crude oil for September delivery fell 35 cents to $89.78 a barrel on the New York Mercantile Exchange. Trading is expected to be more erratic than usual this week as investors weigh the results of the Federal Open Market Committee and European Bank meetings, and new U.S. job figures, according to the Wall Street Journal.
(Source: Journal of Commerce, 30 July 2012)
The UTi Global Trade Update articles are compiled from a number of public sources that, to the best of our knowledge, are true and correct. It is our intent to present only accurate information. However, in the event any information contained herein is erroneous, UTi Worldwide, Inc., and its affiliates accept no liability or responsibility.