British business will be hit with a wave of price rises for parcels and freight before Christmas that is likely to continue into the new year.
FedEx, UPS and DHL have warned of their intention to increase rates in what is seen as efforts to restore profit margins ravaged by the recession.
Lufthansa, the world’s largest air cargo carrier, wrote to customers in August to signal a 25 per cent worldwide increase. Air France-KLM is lifting its charges by a fifth and British Airways also has said that its rates would go up.
Parcel groups are seeing signs of demand returning, giving them the confidence to ask higher prices. On Friday, DHL gave a benign forecast for the peak end-of-year trading season. Hermann Ude, chief executive of DHL’s forwarding and freight business, said that he expected a normal peak season and predicted that the company’s prices would increase by at least 20 per cent, depending on the route.
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His comments echoed the optimism of UPS, which said last week that it would increase rates in 2010, alongside an expected increase in freight volumes. Scott Davis, chief executive of UPS, said that he expected buoyant holiday traffic: “We talked to our customers in recent months, mainly our retail and technology customers, and many of them are quite bullish on this Christmas season.”
In September, FedEx announced a 5.9 per cent rate increase for its American customers even as the group revealed a 53 per cent slump in quarterly profits. In spite of the profits crunch, Fred Smith, FedEx’s chief executive, predicted a sharp recovery in its business.
Higher air-freight and shipping charges will be a blow to manufacturers and to retailers as they seek to build up inventory and take advantage of what many hope will be a strong Christmas and new year trading season.
Many businesses will be unable to pass on the cost of higher shipping charges but freight-forwarding companies are likely to be aggressive in passing on the higher rates levied by airlines and shipping groups.
Maersk Line, the Danish container shipping company, announced a price increase on Asian and Middle Eastern routes even as it forecast a $1 billion (£600 million) loss for the year, the first annual loss for the shipping group in six decades.
Shipping and airline groups have made drastic cuts in capacity to cope with the downturn by grounding aircraft and decommissioning older vessels. According to figures from the IATA, the air transport association, cargo capacity is down by about 10 per cent over the past year but traffic in September rose by 12 per cent over the market’s nadir in December. Load factors on cargo aircraft were back to pre-crisis levels of 50 per cent, but the association said that volumes were still 17 per cent off the peak and, with each aircraft flying fewer hours because of weaker demand, non-fuel costs were becoming more of a burden.
A key motivation for price increases is the need by airlines and freight forwarders to move quickly to restore average freight rates to compensate for the loss of revenue from lower fuel surcharges. During the dramatic escalation in the oil price last year, companies imposed fuel surcharges on their customers, but these fell away as the oil price retreated in the early part of this year. As airlines struggle to repair their businesses, any fall in cash flow is a dangerous leakage that must be stemmed.
BA’s recent quarter figures showed an 8 per cent fall in cargo tonnage per kilometre against the same period in 2008 but revenues declined by 31 per cent. “The whole industry recognises that it is not sustainable,” a BA spokesman said.