Soaring fuel prices reduces demand for air freight

Despite trade volumes rising, the increase in fuel costs is causing a decline in demand for air cargo transport. Research company IBISWorld has published findings that show rate and surcharge hikes have encouraged a large number of shippers to escalate their use of surface transport modes, including container ships and truck vehicles. It has been reported that suffering the most are those with goods which are time sensitive and need to be transported by air.

The high demand for air cargo transportation is also hindering the potential for buying power, according to IBISWorld. This means that leading participants, including FedEx, UPS and DHL, are currently operating with only moderate levels of competition.

Companies, who act as freight integrators which offer a door-to-door service, are able to apply higher mark-ups than other major forms of carrier, including passenger airlines with cargo operations. IBISWorld claims that freight integrators are resistant to the high level of price-based competition that arises between passenger airlines with cargo operations, this being a weaker market segment where buyers have greater power.