30 November 2018
Air Freight Trends and Future Pricing
In today’s market, there is a high importance on air freight. When people think of air freight, they may think of companies such as UPS, FedEx, DHL etc. Moving goods by using an aircraft is an efficient way and one way that companies choose to move their goods. There are several reasons why customers and customers choose this method. Many shippers use air freight to increase speed and reliability. Air freight is the fastest way possible to move goods from location to location. However, with air freight, there are many factors that play into the trends and future pricing.
Air freight is intended to get goods across the world or country quickly to reach customers quickly and safely. All kinds of companies use air freight delivery method. Retailers, automotive industry, pharmaceutical companies etc. use this to their advantage to help move their merchandise to where it needs to be. High-value and high-demand manufacturers typically use air freight to move products to stores or warehouses across the country and or world. This is effective because air is usually a faster method to meet the demands of popular products or also products that are needed as well. Air is chosen because of the speed and rail would take longer. Truck delivery method wouldn’t take as long as rail, but at the same time it cannot match the speed of air travel delivery.
Businesses typically prefer using air rather than rail or truck for a few reasons. First because of the quick transportation it provides. It is also easier to predict more accurate departure and arrival times. With truck and rail, there is higher chance of delay whether it is weather related, construction, traffic or accidents etc. By having a more accurate schedule, this allows their transportation process to be more efficient. Not only efficient in air transportation, but more efficient than other methods as well. More importantly there is a heightened level of security when it comes to the cargo/merchandise that is being moved. Common freight insurance covers liability for goods that is lost or damaged.
There is a somewhat wide variety of options for moving goods by air. First some of the stock can be moved by passenger planes and or private charter planes. Companies will then identify their needs and select a method. The method they select will be one that they deem most efficient and cost appropriate. Cost is one of the more important factors for moving freight via air. If the company is spending too much money on the cost of moving goods, then they should look into alternative methods for moving freight.
. Commercial planes usually serve for smaller shipments. This is more convenient for their spending because in this situation, commercial flights are flying out constantly and to all destinations throughout the world. However, the only issue with this is space. The capacity on a commercial flight is already limited due to the luggage from the passengers and companies can only place a certain amount of freight on a plane like this. Obviously since there are passengers on the aircraft, there are some restrictions that companies must be cognizant of. Some restrictions include size, weight, airline being used and the destination of the goods, whether it is domestically or internationally.
The use of a cargo aircraft to ship merchandise across the country or globe is a more common method that is used as transportation technique. Cargo aircrafts are convenient because they cater to all sizes of freight that can be shipped. It is basically a passenger airplane from the specs perspective, however it is just filled with freight rather than a combination of passengers and goods. They are also common because since there are no passengers on board, there is fewer restrictions. This means they can move pretty much all kinds of freight which can be small or heavy merchandise.
Lastly companies may use air charter service if they are trying to expedite the shipping process. In a lot of cases if companies are aiming to meet tight deadlines will use this method. This method has its advantages as well. The main advantage it carries is businesses can customize the plane to meet their needs and requirements to place the maximum amount of freight on the plane. Also in some cases this is the promptest way to move items from location to location. Finally, in certain situations there may be an instance where this is used as a last minute urgent shipment option.
With all this information being said, it is all used and tied into pricing and evaluating future trends. To evaluate and predict future trends, businesses develop their teams in order to study past trends in this field and are able to plan accordingly based on the information they find. This is an extremely important aspect and part of their business that must be conducted well for it to work well. If a business is successful in doing so, then they can use the money they save and put it towards other areas that need it. This is obviously a logical way for companies to save money both short-term and also long-term.
One of the consistent trends nowadays is flexible warehousing. Warehouses today aren’t what people may imagine them to be. When an individual thinks of a warehouse, he or she may think of a significant amount of workers scrambling around in a warehouse running around and sorting goods that are about to leave the warehouse/distribution center. Today a warehouse is typically planned from a logistics standpoint to maximize efficiency. There a high number of robotic equipment placed strategically to fulfill its purpose. Looking ahead, it is heavily speculated that in the future companies may do what Amazon is doing with Toys R Us. This means renting out or buying warehouses and using them as their distribution centers for retail supply chain, automotive industry etc. More and more companies are practicing this and it seems to be a good idea so far. Another example of this is Amazon buying Whole Foods and adjusting their supply chain and warehousing operations in order to cater to their customer base.
As cliché as it sounds, the internet is also a trend that is continuing to grow and companies are taking advantage of this trend by expanding upon it. The internet is picking up enough traction and companies are linking the technological aspect with radio frequency identification and GPS. This makes tracking easier for the companies and with this, they can predict more exact arrival times. Companies can use this radio technology to adjust frequencies from their headquarters. For example, a company can use this developed technology and track and adjust temperature in products in the truck. Air freight is currently adjusting to this trend with the development and the expansion of GPS. By doing this, the company does not have to worry about the driver adjusting it, rather allow him to focus on getting the merchandise to the destination on time. It is projected that a future trend could be companies developing the necessary technology to track the theft of packages from a customer’s doorstep and or theft of merchandise from trucks. More and more companies are considering the idea of placing tracers in trailers or vans in case goods become stolen.
Another trend that plays into the role of air freight logistics is the use of drones. Drones can be used in relation with air carriers to deliver items to places such as homes, hospitals etc. However, these drones are not toy drones that are sold in stores. These are bigger pieces of machinery that are capable of moving somewhat heavy freight miles and miles away. If businesses are able to use this successfully and to their advantage, then they can expect to see increased profits. If customers are able to use this feature where they can receive merchandise straight to their doors, then they will more than likely choose this option. Businesses know that customers want everything they order as soon as possible, and they can plan accordingly for this. This can relieve air freight in a way as well. If an item is forgotten which happens frequently, or in the automotive industry if a replacement part or extra part is needed, maybe a drone can deliver the piece that is needed. If corporations are fortunate enough to be able to partake in this and using drones, then you can expect that will in the near future.
Obviously technology is growing at a rapid pace and companies know this. Artificial intelligence is used for anticipating and predicting future buying habits from companies and wholesalers. With this, shippers can have a better estimate and mindset of which products will be in demand and sell well at a particular time. Analyzing the big data correctly that they gather can help maximize their profitability. This can be done with e-commerce and then air carriers can make money by constantly sending freight out.
Bogen Chi wrote regarding future trends for this year in 2018 bringing up one key point that “Peak seasons will add more pressure on available capacity. At certain times of the year—for instance, Chinese New Year and produce and holiday shipping seasons—there is more freight flowing than capacity to handle it. Expect these predictable capacity crunches to exacerbate scarcer space availability. It’s never too soon to explore your options. In 2018, you still have many ways you can ship by air through a large freight forwarder. There are charters, NFO/hand carry, express, standard consolidation, and deferred services. Generally speaking, the longer the lead time you can allow between pickup and delivery to customers, the more able you will be to find available space and contain your costs.” (Chi). This is an interesting aspect that businesses must be aware of and plan effectively for. If they do not have a team that is capable of planning ahead, then they will not succeed. Being prepared for these types of trends and occurrences is crucial for them to succeed.
Anticipating future pricing with air freight can be tricky. Cost inflation has become an immense concern. Some experts have had trouble with this in the past with the rates expected were too inconsistent, with some being too high and too low. One of the main aspects is when freight forwarders can manage and know their own exposure, thus acquire favorable pricing. With freight pricing, there are also several unknown and hard to predict factors. Last year’s bumper, restrictions on capacity etc. E-commerce could benefit and have high numbers again because the capacity is capped at a favorable number.
According to a wide variety of companies, the factors they consider when trying to predict future pricing and which pricing option works best for them varies. Some of the factors are some basic statistical functions such as the average, mode, median. Also in addition with those they take monthly industry growth, average monthly inflation rate, average cargo supply during last two quarters, and the demand over x amount of days or months. This is the recipe and equation that businesses go off to make predictions. If they can combine a number of factors or all the factors, then they should receive an accurate prediction of pricing and which works best for them in the future.
Anticipating the future prices for air freight is something that has been conducted for a long period. The pricing data for air freight is received from the carriers monthly showing prices for the first week of the month. To calculate a net price for a carrier moving the freight, commissions, discounts, security, insurance, surcharges, fuel are all taken into consideration. Analysts have seen the prices increase throughout the years on an inconsistent basis. They attribute this to the cost of moving goods in a quick manner, and heavy shipments and freight emissions. The speculation by many professionals in this industry are expecting the prices to increase yet remain consistent for a hopefully a short period of time.
UPS is always looking for more ways to increase sales and revenue. At this point in the year, they are using more planes to move more freight and utilizing more facilities and warehouses as part of their holiday plan. UPS air freight rates depend on the U.S domestic rates, the export rates by the United States, fuel prices and security also. UPS uses a fuel price index (FPI) that they use in addition with the average type of kerosene by the gallon needed for the jets used to move the freight. On their fuel surcharge sheet, it includes the country and destination, currency used, rates, applied which includes whether it is chargeable or applied, the minimum required and lastly the date. All of these factors is how UPS calculates their pricing and is their primary guide moving forward.
Another main air freight carrier that is commonly used is FedEx. FedEx uses a similar pricing method how UPS does. They use a sheet online that narrows it down between domestic or internationally, which is then followed by which kind of air method you would like to use. In addition to this, they have a guide that they follow that shows the origin and destination, method and pricing. Moving freight commercially uses those same factors in addition with type of aircraft needed to move the goods and fuel. Their shipping rates have continued to up as of late. FedEx is on the same page as UPS as their analysts are saying that pricing will probably continue to increase at a steady pace mainly because of insurance and the receiver(s) would like merchandise in a timely manner.
The average price of FedEx stock is continuing to rise. Since 2011 there is a significant difference from then until late 2018. Their five-year forecast is projected to be around 455.83 USD. That is a big jump from the one year projection which is at 264.610 USD. FedEx credits their own business plan being executed properly as the main reason their earnings grow. The overall consensus recommendation is to buy now while it is low so the stockholder could sell when higher to make a profit.
UPS stock has steady growth and is a firm dividend. When comparing the two, UPS and FedEx have both matched up similarly for sales and net income. However UPS earnings before taxes and interest are higher than the numbers of FedEx. UPS looks at their business as not how much they ship, instead they look at each opportunity as how can the profit from each shipment and how much? The price of their stock has increased on an inconsistent origin dating all the way back from 1999 to now in 2018. Both carriers draw similar buy-and-hold shareholders.
UPS is regularly traded at a premium to FedEx over the past twelve to sixteen months. However contrary to what stockholders say, FedEx has outperformed UPS in the last year. In February of 2018, UPS plunged while FedEx dipped. Because of this, investors are more likely to pay a premium for FedEx stock. Even though UPS does well financially and is growing steadily, FedEx still seems to be the safer buy for stockholders.
Overall there are many trends that companies can look at and examine to plan for the future. Being able to accurately predict future trends is extremely important. It is important so companies can plan accordingly and effectively and know what they are going to face in the foreseeable future. If they can do this and stay ahead of the competition, then they are ahead of the game at the same time. Monitoring pricing for passenger planes and commercial aircrafts is also equally as important. If they are able to see favorable prices, then they should not hesitate and capitalize on the opportunity if possible. Lastly, being aware of the factors that play into stock evaluation is very important as well. If an individual is on top of the factors that play into stocks, then the overall prediction process and choosing which stock is right should be in their favor.
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