Air Freight Prices in the New Normal
The congestion caused by a recent outbreak in Southern China has been expected to impact air freight in summer. Yet, despite predictions that the chaos at major ports would cause a modal shift from sea to air, the volume of converted orders has only slightly increased. Experts are not really sure why this is happening but it can be high air freight rates that are causing drop in demand.
Reasons for High Rates
About ¾ of freight capacity was removed in 2020 due to a significant reduction in travel. Demand for personal protective equipment skyrocketed, resulting in record high shipping costs for cargo transported by air.
Additionally, demand for air freight is normally cyclical and depends on export order volume, business restocking cycle, and the state of the global economy. In 2019, the industry experienced a decline caused by international trade disputes and a subsequent economic decline. Prices began to increase in 2020 and reached record-high levels in May due to the ongoing coronavirus pandemic. Since March significant changes in the air freight market resulted in air price spikes and reduced capacity. The global economy experienced a decline due to lockdowns around the world. The airline industry was hard hit, especially passenger travel, with airlines grounding planes and thus limiting freight capacity. Commercial flight volume dropped by over 70 percent from March to April 2020.
In an attempt to cope with changes in demand and supply, air carriers converted planes to cargo-only services by reducing the number of seats or securing small shipments onto seats.
Impact of the Outbreak in China
Experts point out that it is hard to tell whether there will be additional demand due to the sea port congestion in China. Multiple factors play a role, including seasonal demand fluctuations and the fact that air carriers are already refitting their fleet for passenger services as countries began lifting some of the restrictions. The state of the global economy improving and global vaccine distribution by air freight are also driving demand and shipping prices. The fact that e-commerce traffic has increased dramatically also drives demand, with up to 80 percent of shipments transported by air. The congestion at major Chinese ports could impact freight rates to some extent but few goods are so important to be urgently shipped by air when it comes to large volumes.
Passenger Services Resuming
The European Union Safety Aviation Agency has been reluctant to permit cargo onboard due to safety concerns. The agency granted the exemption only until the end of 2021 and is currently examining the need to extend the exemption in light of safety reasons.
As it is unclear whether an extension will be granted, the number of passenger services has gone up in summer, with international freight forwarding businesses using them to ship cargo. This is also good news for air carriers as freighter services require a lot of manpower, which makes them labor-intensive. Cargo should be shipped to airports 5 – 6 hours earlier because of the greater loading times, placing significant pressure on both resources and operations.