What comes after the air freight capacity crunch?
With around half of all air freight capacity disappearing from the market in the wake of COVID-19, what direction will this critical segment of the supply chain take now?
Few airline passengers realised they were part of the global supply chain. They know now.
Passenger aircraft pre-Covid supplied 50% of global airfreight capacity in the ‘bellyhold” space under the passenger deck, nestling alongside baggage.
Airfreight, both passenger bellyhold and pure freighters, accounted for 35% of international trade by value and 1% by volume
Airfreight, both passenger bellyhold and pure freighters, accounted for 35% of international trade by value and 1% by volume, carrying high value, time sensitive cargo, including fresh fruits, vegetables, life-saving pharmaceuticals, automotive parts and smart phones.
Hactl is a cargo ground handler at Hong Kong, the world’s number one airfreight hub with 4.8m tonnes in 2019. Chief executive Wilson Kwong said that there are three principal reasons for the disruption in airfreight supply chains: “Firstly, the early lockdowns in parts of China and the extended New Year holiday led to cancellation of some [ocean freight container] vessels and some freighter aircraft operations, anticipating dramatic falls in demand. When China started producing again, capacity took some time to recover.
This removed some 45% of all airfreight capacity from the market
“Secondly, mounting restrictions on travel, and rapidly falling passenger demand, led to the cancellation of (at one time) 95% of all passenger flights globally. This removed some 45% of all airfreight capacity from the market.
“The third factor was the enormous volumes of PPE shipping globally since March. Even with a reduction in other kinds of airfreight traffic, this has overwhelmed the global air cargo industry.”
Rates on a rollercoaster
Kwong continues: “Freighters have been the main solution, and the sudden reversal of supply and demand led (we are told) to charter rates up to 300% of the norm.”
Airfreight rates, normally around $2 per kilo, reached $10 on some Asia-Europe trade lanes at the peak of demand but are now easing as the passenger cabins of some aircraft are ‘reconfigured’ to carry lightweight parcels on the seats and overhead bins or have the economy class seats stripped out to make more room.
The pandemic came after a downturn in airfreight demand from 2019 onwards prompting older, fuel thirsty freighter aircraft to be either scrapped or parked.
Glyn Hughes is global head of air cargo at IATA, the global airline industry’s standards-setting association.
Hughes explains how the airfreight industry went into action when passenger flights were grounded: “Freighters were flying at their maximum utilisation and other parked freighters were brought back into service.
“Coupled with the reducing price of fuel, some of the older aircraft could [then] become commercially viable.”
Making matters worse, governments did not have a coherent global response to the grounding of passenger aircraft and applied equally strict measures to freighters and their crew, initially hampering the vital PPE supply chain.
Adds Hughes: “This presented some significant challenges in putting the network in place considering that the travel restrictions were implemented, and the switching off of airspace also meant the cargo flights had to be specifically requested by governments in order to be allowed to fly.
“As an industry we had to request exemptions for flight crew not to be quarantined when they were returning home and not to be quarantined when they were arriving in overseas countries for overnight stays.”
Taking back off or taxiing to a standstill?
The airline industry has been through turbulent times before, including 9/11, the SARS and MERs epidemics and the financial crisis. It can adapt quickly.
Kwong of Hactl said that cargo-only passenger aircraft flights have “collectively improved the situation, but there are still backlogs on many routes”.
In the short-to-medium term, continuing large volumes of medical supplies and PPE will mask the loss of normal traffic. Longer term, we are likely to see a continuing shortage of bellyhold capacity, as recovery in air travel will take time
Hughes of IATA says that there are now over 120 airlines using reconfigured passenger aircraft, with around 1,600 such jets currently in service, versus 1,200 in the prior week.
With so much that up in the air currently, what is the outlook for the airfreight industry as we navigate the crisis?
“The key is how quickly the world considers that the pandemic is under control,” says Kwong“and so relaxes restrictions on working. But the damage to economies and employment has already been done, and consumer demand will be suppressed for some time.
“In the short-to-medium term, continuing large volumes of medical supplies and PPE will mask the loss of normal traffic. Longer term, we are likely to see a continuing shortage of bellyhold capacity, as recovery in air travel will take time.
“We anticipate a growth in the global freighter fleet that will help replace the lost capacity. By the time demand has recovered, capacity should be adequate: but the overcapacity that was so damaging to airfreight rates in recent years is hopefully now a thing of the past.”
For Hughes of IATA, the longer-term situation will see a continuation of globalisation but with manufacturers probably opting for multi-channel supply chains.
“Anything that involves border crossings, speed and efficiency is good for airfreight and the one good thing about airfreight is that it is agile, resourceful and premium. Airfreight will never be the cheapest form of transport but if you have a supply chain premised on just-in-time manufacturing and components coming in, then air cargo is your only choice.”
It is only through a number of varied supply chains that an organisation can have the most effective global solution
He adds: “Going forward, you will find something that we have been advocating for years, that manufacturers should look at blended supply chains. They should look at what is critical and needs airfreight, and what is less critical and can use ocean, rail or road.
“It is only through a number of varied supply chains that an organisation can have the most effective global solution.”
Hughes also believes that there needs to be greater collaboration between airlines, freight forwarders and shippers.
“The collaboration needs to be enhanced to an even greater degree so that when shippers are planning changes in supply chain and manufacturing, they communicate with a forwarder who can work with airlines to put solutions in place at an early stage.
He adds: “Over the next six months there will be a period of great fluidity. You will see a reduction in PPE demand and increased demand for raw materials and components as factories and other manufacturing resumes.
“And you then might see a downturn as the recession bites and people hold back on consumerism and consumption, perhaps to replenish savings used up during the lockdown.”
He believes there will then be a demand for goods that could not be bought when shops were closed: high-tech goods and smartphones as a “natural replenishment cycle”.
Hughes adds: “We will also see the slow resumption of passenger networks which will then help global connectivity and help take some of the pressure off. So again, it is a case of greater communication between shipper, freight forwarder and airlines to make sure capacity can be supplied.”
Reporting by Roger Hailey.