Steep rate hikes for air cargo transportation services during the past three years have hampered shippers’ buying power, but a research company forecasts prices to decelerate in the three years to 2016.
Air cargo transport services have a buyer power score of 3 out of 5, where a higher score represents greater buyer power, according to a new report on procuring air cargo transport services by IBISWorld.
“Air transportation is used for time-sensitive and high-value goods that are shipped over long distances,” said IBISWorld business research analyst Hayden Shipp. “Air cargo constitutes just 2.0% of all tonnage transported, but comprises more than one-third of the total value of international trade.”
The high value of air transport is due to a sharp hike in demand in the early part of the last three years as well as to rising fuel costs.
It is exacerbated by steep barriers to entry for new carriers, the high market share of dominant players, and nonnegotiable fuel surcharges.
“Shippers’ negotiation power is therefore limited by the lack of satisfactory substitutes for air cargo transportation for shipping certain goods,” the Australia-based research firm said.
However, it predicts a slowdown in the price hikes for airfreight over the next three years, “although price growth will still exceed fuel cost increases during the period, elevating carriers’ low profit margins.”
The deceleration will be prompted by slowing fuel price raises as well as the continued encroachment of ocean carriers into air carriers’ business.
“Slowed fuel price growth and higher profit margins in the forecast period will give carriers more room to discount as they attempt to win back shippers,” said Shipp.
Also, major shippers with high volumes and consistent shipping needs will continue to benefit from long-term contracts during the forecast period, the report said. Major vendors include AMR Corporation, Delta Air Lines Inc., FedEx Corporation, United Continental Holding, United Parcel Service Inc., and US Airways Group Inc.