High prices, long flight times, volatile capacity… this is air cargo 2022

THE SPECTRE of a shortage of critical commodities in Europe and beyond is looming large on the economic horizon as the latest severe COVID lockdowns imposed in China are resulting in local labour shortages that are now disrupting manufacturing outputs and threatening air cargo exports from the region, freight experts are reporting to aircargoeye.com editor Thelma Etim.

German freight forwarder Michael Wax, the chief executive and co-founder of Forto — which operates an online platform that streamlines air cargo processes including bookings, documentation administration, as well as tracking and tracing — exclusively warns: “The recent spike in COVID-19 cases in China and the resultant congestion around its ports will have a domino effect on supply chains around the world. But it will take time — six weeks or longer — for this shockwave to reach European markets,” he states.

After the two-year global air transport capacity crunch brought about by the pandemic, the biggest problem now for most forwarding businesses operating to and from the region is not to do with international carriers, but a lack of manufacturing production. “Lockdowns mean labour isn’t available to keep factories running, or to move goods to China’s ports. Currently, many [retail] suppliers have well-stocked warehouses in the European Union, which will help to cushion the effect on consumers for the time being. But if these lockdowns continue, we may start to see reduced product availability in the coming months,” the forwarder warns.

The broader impact of this problem also reflects on the customer’s choice of the primary mode of transportation. “The bottleneck is not the ships; ports and shipping are, currently, generally functioning, whereas the airfreight sector is now however seeing a larger volume of cancellations,” he says. “To mitigate the impact of this, we’re advising our [airfreight] customers to allow for greater transit times and to invest more time in planning. Now more than ever, it remains important to be flexible and make the most of real-time insights to inform supply chain strategies.”

Berlin-headquartered Forto, which operates a number of offices in Germany and Asia, including at Shanghai, Ningbo, Shenzhen, Singapore, Hong Kong in China, and Vietnam’s Ho Chi Minh City, serves some 2,500 major manufacturers and e-commerce businesses. To-date, the company has raised investment funds of more than US$600million with A P Moeller Holding among the investors. The German forwarder has recently appointed Jochen Freese, formerly chief commercial and marketing officer at CEVA Logistics, as its new executive vice-president of procurement and business development.

Wax’s market predictions mirror those of multimodal forwarder Scan Global Logistics which has warned that, based on its own experiences, airfreight prices to and from the China region will increase further as a direct consequence of re-routings of air cargo services away from Shanghai’s Pudong Airport, air and surface services from which are now being redirected to other hubs.

The latest China lockdown is adding to the chaotic fall-out already being caused by Russia’s invasion of Ukraine. Specialist cargo airlines and combination carriers are witnessing a slump in volumes on re-routed Europe-to-Asia key trade lanes because of expensively longer flight times and greater fuel burn. Some have cancelled flights altogether.

Eurocontrol, a pan-European, civil-military organisation dedicated to monitoring European aviation, has been closely studying the flight disruptions brought about by Russia’s overflight bans. The body examined the changes in flight schedules between mid-February before the Russian invasion, and mid-March, and selected Lithuania and Hungary as two examples to illustrate what is happening to affected carriers.

According to its report, Lithuania has already lost nearly 200 overflights per day — that’s down by 46 per cent. “More than half of this reduction — 110 flights per day — is because flows to and from Russia, particularly from Germany, France and the UK, have stopped. Poland, Latvia and many others have also had fewer over-flights for the same reason,” it advises.

“Flights between Turkey and Russia continue, but [these are] reduced by about 30 per cent. However, Lithuania has gained about 18 flights per day on this flow, since they are [able to keep] further west to avoid Belarus. This limited increase is more than offset by reductions in overflights to and from Asia, also because Belarus is closed,” it adds.

The overflight summary shows that connections from Helsinki are most affected by the ban, with additional flight-time penalties of between 1400km (to Singapore) and nearly 4000km (to Seoul). “To put that in context, 1400km adds 1.25 hours to the flight and 4000km adds seven hours on a round-trip between Helsinki and Seoul. Helsinki to Seoul used to be about 8.5 hours, but it is now 12 hours. So, the extra seven hours on a round-trip is nearly [equal to] the original one-way segment,” the report notes.

Further south, and geographically more distant from the closed airspace, Copenhagen, for example, is facing additional flight times of around 1500km to Singapore and Shanghai. By contrast, Beijing is served by local operator Air China Cargo which is still permitted to access Siberian air routes, so is suffering no additional track miles. “[Even though] Frankfurt is sufficiently far south that there is no additional flying to reach destinations in India and south-east Asia, for Lufthansa however, Beijing is now about 1200km further [than before]. But Air China is barely affected,” the study points out.

Throughout all of this, Europe’s airports have also been suffering from the impact of the airspace bans and the Chinese COVID restrictions. On 13 March Frankfurt airport (FRA) revealed that its cargo throughput, including airfreight and airmail shipments, decreased by 13.1 per cent year-on-year to 181,214 tonnes in comparison with pre-pandemic March 2019 figures.

“Factors contributing to this decline included China’s ongoing COVID-related lockdowns, as well as reduced airspace capacity following airspace closures due to the war in Ukraine,” a statement from the airport confirms.

Amidst this latest series of lockdowns, Air Charter Service (ACS), still managed to arrange more than 65 charter flights carrying 3,000 tonnes of virus testing medical equipment from China to Australia, carried out over a six-week period between March and April. Each flight uplifted more than one million COVID-19 test kits.

Although the charter company utilised several airports in China — where the kits are manufactured — the majority of the flights operated out of Shenzhen utilising A330–200s, A330–300s and A340–300s, and were managed by ACS’s Australian and Singapore cargo teams.

Due to the global shortage of freighter capacity, the charter broker sourced passenger aircraft alternatives — aircraft which had already had passenger seats removed — allowing a higher volume and payloads of up to 50 tonnes on some flights, it explains.

Dan Morgan-Evans, global director of cargo at ACS, reveals: “[The severe restrictions] are definitely affecting operations but not all over China, so we are able to shift flights to other [unaffected] airports. This is the advantage of chartering — we are able to be flexible and dynamic in our response to situations on the ground,” he discloses.

“We have such strong personal relationships with our partner carriers that they have been incredibly accommodating and worked with us to continue many operations. It has been hard work and 24/7 — but we have got used to this around the world over the past two years!”

It is no surprise that, with all of this market turmoil, pricing analyst Baltic Air Freight Index (BAI) is warning that air cargo prices will remain “highly volatile” for the foreseeable future. “Long-term demand risks continue to mount,” says Bruce Chan, vice-president of the transportation and logistics sector at investment banking company Stifel. “Inflation is [already] weighing on economic growth on a global scale. Global energy prices are rising to threaten discretionary spending, and worldwide food shortages may result from disruptions to Ukrainian grain and Russian fertiliser supplies,” he adds.

“So, whilst we can see the structural reasons why air cargo supply will remain tight for the duration of this year, and potentially 2023 and beyond, significant demand uncertainty may produce volatile swings. Our thesis remains largely the same: armed conflict in Ukraine will, by limiting capacity, continue to put upwards pressure on air cargo pricing in the near term,” Chan stresses.

“On a multi-year scale, current pricing is still multiples of pre-pandemic levels: 2.5 times higher on Shanghai to Europe, 2.7 times higher on Shanghai to North America, two times higher on Hong Kong to Europe, and 2.3 times higher on Hong Kong to North America.”

Originally published at https://aircargoeye.com on April 13, 2022.

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I am the editor of air cargo industry news website aircargoeye.com, an alternative news and comment outlet for the global airfreight business.

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Thelma Etim

Thelma Etim

I am the editor of air cargo industry news website aircargoeye.com, an alternative news and comment outlet for the global airfreight business.