Airlines struggle in economic environment, as forwarders won't commit to volumes
FREIGHT forwarders are cutting their block space agreements (BSA) with airlines for 2020, as they are reluctant to commit volume to carriers
FREIGHT forwarders are cutting their block space agreements (BSA) with airlines for 2020, as they are reluctant to commit volume to carriers.
Faced with falling demand and shaken by trade wars, Brexit and mounting economic uncertainty, Freight Investor Services (FIS) analyst Peter Stallion told JOC.com that forwarders are limiting their commitments to airlines and scaling back BSAs next year.
He warned that the erosion of long-term volume contracts was having serious consequences for airlines that relied on the safety net of volume on which to build budgets and forecasts, reported IHS Media.
'The lack of a predictable revenue stream at a sustainable price puts greater emphasis and risk on the use of the spot market to meet budget targets,' Mr Stallion said. 'All the while, the inherently volatile forward market remains impossible to predict, enhancing the already prevalent risk involved in physical capacity transactions.
'What is clear is a dramatic shift in the pricing of long-term contracts, with prices being dumped to secure necessary volumes, particularly those carriers with a mix of freighters and passenger aircraft,' he added.
While freighters will only fly when full or if the payload is at a profitable level, passenger aircraft must stick to schedules, losing vital belly cargo revenue in times of weak demand.
'The low current market price, and the debacle of this year, lowers the negotiable rate airlines can charge forwarders for their contracts,' Mr Stallion said. This was being exacerbated by shippers themselves unwilling to commit volume to forwarders and preferring to look at spot rates.
The International Air Cargo Association (TIACA) chairman Steven Polmans predicted the weak market will extend to the second half of 2020.
'The first six months of 2020 will be difficult before we see an improvement in demand in the second six months,' he said at TIACA's annual summit. 'There is still the question of what happens after Brexit, what will happen with the trade wars, the Middle East, and the oil price.'