Rise in maindeck and belly space in the past few weeks has narrowed the gap between some contracted rate levels in the pre-COVID-19 period and current prices – and led to congestion.
The increase in global air cargo capacity – maindeck and belly – in the past few weeks, mainly to accommodate booming demand for shipments of personal protective equipment (PPE) to combat the coronavirus, has produced a swift knock-on effect on freight rates, according to German market intelligence specialist Tim Consult.
“On many, many routes, the gap between the contracted rate levels in the pre-COVID-19 period and the current situation is not that big anymore,” said Christoph Bruns, head of global air cargo, at a recent webcast on the latest air cargo trends organised by the German company.
“Of course, the extent of it may differ on specific trade lanes – region to region, and country to country. But overall, the recent rises in cargo capacity have led to a softening of rates, generally speaking. How long this will be the case remains to be seen. Countries relaxing the lockdowns could lead to a resurgence in demand, for example,” he said.
However, air freight rates and demand from China to key markets such as the US and Europe rates are reported to be still at a high level.
In its latest COVID-19 operational update, reviewed on 8 May, freight forwarding and logistics group Agility noted a significant week-on-week increase in global widebody belly capacity, largely as a result of a growing number of passenger aircraft being converted to all-cargo mode cargo while there was also double-digit growth in maindeck space compared to 2019 levels.
Congestion challenges
One immediate concern, Bruns noted – and a direct result of the improvement on the cargo capacity front – was that the industry now faced the challenge of congestion at some airport warehouses “in certain regions all over the world, especially at hub gateways”, because of the high volumes of cargo.
“This is related to the lockdowns in certain countries where industrial activity is limited and supply chains have been disrupted, making significant backlogs in cargo inevitable,” he noted. “Airlines report that they could be flying more cargo if the warehouses at airports weren’t congested.”
He said that while some European airports are congested, they are not the hardest-hit, pointing rather to airports in Asia and Africa.
Stephan Haltmayer, CEO of Frankfurt-based SME freight forwarder Quick Cargo Services (QCS), told Lloyd’s Loading List that there was “big congestion” at Europe’s premier gateway for air cargo, Frankfurt.
“There are reports of truck waiting times of up to 10 hours,” he reported. “Clearance is delayed because many charter flights have to be unloaded by hand. On top of that, some handling companies have staff on shorter working hours.”
He said the air cargo market’s primary focus over the past several weeks has been on the shipment of protective masks, with a number of forwarders setting up their own charter services to satisfy demand.
“However, while a large amount of masks will be shipped by air in the next couple of days, we expect this business to slow down as demand for urgent supplies is covered and we are likely to see a lot of these shipments (of masks) coming in by ocean, reducing the need for air charters,” Haltmayer predicted.
At a company level, he said April had been a weak month for QCS, with bookings down about 25% – most of the decline being accounted for by air exports.
“Air imports were stable and a lot of our business has been in protection masks from China,” he said. “The generally high rates meant margins were good. China-Europe rates are still at a high level.
“However, the fact of the matter is, with the exception of the masks, business is still weak and I presume this will continue to be so in May. With the lockdowns in India and some transatlantic countries, we are so far seeing less business when compared to May last year.”
As for the eastbound air trade, from Europe to China, Haltmayer commented: “Our regular customers are all still shipping. Volumes are down a bit, but there’s still a fair amount of business to China. We are able to fulfil our blocked space agreements.
“Overall, our sea freight activity is more stable than that for air freight.”
Looking further down the line, Tim Consult’s Bruns said that the air cargo industry would be a very watchful of how airlines adapt to the air travel market post-COVID-19.
“As a number of countries come out of lockdown, questions will be asked about how ready people will be to fly again and what passenger demand will look like in the future. This is something of central concern to cargo players, given that roughly half of shipments are carried in the bellies of passenger planes.
“Airlines are losing huge amounts of money every day currently because of a lack of passenger traffic and it will be interesting to see whether what has become a fight for survival will mean them adopting new business models, focusing on changes in the size and composition of their fleets.”
Source: Lloyd´s
