Prepare for some rate increases from South America

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This topic contains 2 replies, has 2 voices, and was last updated by  WillieeArmellini 1 year, 11 months ago.

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  • #12274

    WillieeArmellini
    Keymaster

    Dear friends and Customers:
    We would like to make a general summary of our personal perception of what we think is the current situation of the airlines and the effect in our business.
    Economic Situation:
    As a result of the global increase of the value of the American dollar, South American Countries such as Colombia, Bolivia, Chile, Peru, Venezuela and Brazil have been affected when it comes to imports.
    Local prices on import products have increased at least 30% to 40%, affecting local consumers.
    This situation generated a decrease on southbound cargo and it is estimated that airlines are flying south with a 40% of empty space.
    Most airlines can’t keep covering the actual routes and have reduced frequencies.
    Rates:
    With the current market situation airlines are having very low cargo loads going to South America, The Southbound cargo rates have gone down by at least 50% in the last calendar year. (In Colombia from around $1.20 a year ago to around $0.60 now) the Brazilian situation is even worse, as they as a country generate the biggest south bound volumes, most of the flights bringing flowers from Ecuador and Colombia are generated in this country.
    With this current scenario, airlines are adjusting rates by increasing up to $0.10 cents per kilo on the north bound freight for flowers. If this situation persists it is possible that airlines will come up with further rate increases.
    Facts:
    LAN has reduced their capacity by 5 flights per week out of Bogota, decreasing their capacity for this origin, plus their ability to support growth in Medellin, as previously they would re direct Medellin surplus via Bogota.
    Avianca’s fleet is being utilized at its maximum capacity, leaving no space for them to offer additional space for any of the origins they cover. (Quito, Medellin, Bogota)
    Centurion (Transcaribbean in Quito) has increased the size of their fleet and type of airplane and even though with the current fuel situation the type of airplane they own are very cost efficient (less expensive lease for older airplanes, not fuel efficient, but with less expensive fuel their cost is very competitive) still with out south bound cargo no airline can compensate this efficiencies.
    Please plan ahead as much as possible, send us projections, avoid concentrating bigger volumes on any given day, spread over several days if possible and unfortunately, expect some delays. For coming holidays please consider using sea freight options, if so, let us know so we can plan ahead together.
    Please understand these comments are our personal interpretation of what we see happening, what the airlines share with us and what ever we can add from our own experience. Regards

    CARGO MASTER

    #12321

    Coollogistics
    Participant

    This is why Air Freight will continue to rise on flowers. Miami Herald today
    Trans-Pacific trade agreement signed last week between the United States and 11 other Pacific Rim countries will be another nail in the coffin of the populist governments of Brazil, Argentina, Venezuela and other countries that will be left even more isolated from the global economy — and poorer — than before.

    Once ratified by the countries that signed it, the agreement — officially known as Trans Pacific Partnership (TPP) and heralded as the biggest trade deal in history — is expected to cover 40 percent of the world economy. It’s likely to be a major boost to trade and investments among the United States, Japan, Australia, Singapore, Canada, Mexico, Peru, Chile and the remaining Pacific Basin signatory countries.

    But what has gone almost unnoticed is that it will further isolate the struggling economies of Brazil, Argentina, Venezuela and other countries on Latin America’s Atlantic coast, whose disastrous populist governments have refused to enter free trade deals with the world’s biggest economies.

    And what’s even sadder, this is not even a major topic of discussion in Brazil, Argentina or Venezuela, whose leaders live in an ideological bubble, oblivious to the fact that the commodity price boom their countries benefitted from in recent years was a stroke of luck that is not likely to be repeated anytime soon.

    While their governments pretend that everything is fine, Brazil, Argentina and Venezuela are facing an economic tsunami that may worsen their current crises.

    At last week’s annual meeting of the International Monetary Fund and the World Bank in Lima, Peru, the IMF projected that Venezuela’s economy will contract a whopping 10 percent this year, and that the country will suffer a 200 percent inflation rate this year, the world’s highest. Brazil’s economy will contract by 3 percent, and Argentina’s will remain flat at 0.4 percent this year, and contract by 0.7 percent next year, the IMF said.

    These populist governments, which are already weakened by corruption scandals, face bad news everywhere: China’s economy is slowing, world commodity prices have plummeted, nervous investors are fleeing from emerging countries, the U.S. dollar is gaining strength while their currencies get weaker, and the U.S. Federal Reserve may soon raise interest rates, which will make it more expensive for developing countries to borrow abroad and pay their debts.

    And now comes the Trans-Pacific deal, which will make international companies more likely to open up manufacturing plants in Latin America’s TPP-member countries than in non-member ones. Whereas investing in any TPP member country will alllow multinational corporations to export duty-free to the entire TPP market accounting for 40 percent of the world economy, investing in non-TPP members such as Argentina, Brazil or Venezuela will only allow them to export duty free to their Mercosur economic bloc, which accounts for only 5 percent of the world economy.

    In addition, the Trans Pacific deal will allow member countries to export to one another under common regulations. By comparison, non-members will have to adapt their exports to the individual import regulations of each of the 12 TPP member countries.

    All of this will lead to a formal partition of Latin America. There will be a Pacific bloc led by TPP member countries that will be linked to the world’s biggest trading bloc, and an Atlantic bloc led by Brazil, Argentina and Venezuela that will be linked to an economically troubled China. The division, which has already existed de facto, will now become official.

    My opinion: South America’s populist cycle may soon come to an end in several countries, as a result of new economic realities. Whether they like it or not, Brazil, Argentina, Venezuela and their ideological allies will have to desperately seek investments to face the perfect economic storm that is heading toward them.

    The Trans-Pacific agreement is just the latest reason why they should leave behind their unsustainable demagogic isolationist models, and seek new trade and investment agreements with the biggest world blocs as fast as they can.

    Read more here: http://www.miamiherald.com/news/local/news-columns-blogs/andres-oppenheimer/article38452695.html#storylink=cpy

    #12322

    WillieeArmellini
    Keymaster

    Thanks for posting this and I will try to get it up to the top of this forum

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