Air freight market 'evolving dramatically'

Air freight market 'evolving dramatically'

14 April 2020

Medical supplies, pharmaceuticals and perishables are keeping air cargo markets afloat, supporting freight rates and charter prices even as demand for many consumer products and manufacturing supplies nosedives due to economic shutdowns in many parts of the world. But the air freight market is also evolving rapidly and dramatically, with the demand and supply dynamics changing so fast that one of the biggest battles for freight forwarders is impressing upon customers the need to make quick decisions to secure capacity.

As reported in Lloyd’s Loading List, overall cargo volumes in March were almost a quarter lower than in March 2019. Yet the grounding of much of the world’s passenger fleet and consequent loss of bellyhold capacity has seen the cost of air cargo surge, even as airlines scramble to deploy passenger planes to provide supplementary freight capacity.

Charter rates for standard Boeing 777 and 747 freighters are understood to be at least double their usual price ranges for a standard charter from Asia to Europe. One source told Lloyd’s Loading List that bookings for specialist air cargo charter capacity such as Antonov aircraft were no longer available until May at the earliest.

Rates rise as coronavirus demand ‘overwhelms’

Air cargo rates meanwhile have soared, according to TAC Index. For example, all-in Shanghai to Europe rates have more than doubled in recent weeks, up from $2.24 per kilo on 17 February to $5.15 per kg on March 30. 

Anecdotal evidence suggests the scramble for capacity is prompting many to pay whatever rate is asked, pricing some shippers out of the market.

There is currently unprecedented demand for air freight ex-China due to 193 countries with the virus trying to get Personal Protective Equipment (PPE), ventilators, etc.,” said one forwarding source. “We are almost overwhelmed with volume.

A carrier source said meeting demand from everyone was “proving impossible”, even though huge new airbridges had now been established with regular freighter services linking Chinese airports including Xiamen, Shenzhen, Shanghai, Beijing Hangzhou and Beijing into most European and US hubs, as demand for critical products accelerated.

Personal Protective Equipment is driving the huge surge in air freight demand right now and we expect this to continue for the next few weeks as depleted inventories are replenished. After this crush of air freight, we expect PPE shipments to shift to premium ocean services in order to cut costs.”

Governments join the rush

Brandon Fried, Airforwarders Association executive director, told Lloyd’s Loading List that apart from medical supplies, members were also seeing soaring demand for perishable food shipments and the transport of essential pharmaceuticals, with most air cargo demand in some way or other “coronavirus driven”.

He added: “In addition to actual manufacturers shipping these essential goods for commercial customers, there has been an indication that governments are managing these shipments and thus creating the demand for them.”

Bookings have been strong from all companies connected to the healthcare industry “regardless of whether it is specifically earmarked to fight COVID-19. Other sectors that appear to be holding their own include retail shippers with strong e-commerce sales channels, as well as niche industries like exercise equipment.”

Passenger planes offer respite

The introduction of more cargo capacity by carriers in the form of passenger aircraft operated as cargo-only flights had helped address shortages. 

An industry source said ‘Forwarders are looking at using charters and we are very excited about many of the airlines converting the passenger aircraft,” he told Lloyd’s Loading List. “People are now putting cartons on seats – that’s been a welcome change.”

The air cargo sector was now evolving so dramatically that the biggest battle for forwarders was impressing upon customers the need to make quick decisions to secure capacity.

Book ahead or lose capacity

“We are mentioning this to everyone, and reinforcing this especially for medical companies, because whether they make PPE equipment or ventilators or other products, they have to understand the chain is changing not only by the day, but by the hour. So, it is so important for capacity to be planned out.

“For example, if you’re bringing medical devices in from Korea into Spain, Germany or the US, you have to book air freight up to seven days in advance. That is the antithesis of air freight, but that’s just the situation that we are in right now.” 

According to our source, while demand for many non-essential products has subsided, it has been replaced by demand for medical supplies which is “surging in multiple geographical locations and markets”.

He added: “Coupled with the fact that due to congestion at destination – for example, LAX or JFK – there are delays to be taken into consideration.

“Some of the rates are skyrocketing, some are down.  Some are much higher than people are accustomed to. So, they are hesitant to commit and if you don’t commit, you actually lose the space that was available. 

“It’s a tough situation. Speed is of the essence. Being informed is more important now than ever.”

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