High volumes, slow capacity recovery, elevated rates and service disruptions are set to continue well into next year, according to a senior executive at group’s Global Forwarding unit.
The air freight market’s current characteristics of high volumes, slow capacity recovery, elevated rates and service disruptions are to set to continue well into next year, amid prevailing uncertainty surrounding the Covid-19 pandemic and its impact on global trade, according to a senior executive at DHL Global Forwarding.
Providing a market update and overview at a recent company webinar, Indraneel Chatterjee of the unit’s Global Airfreight Product Development department, said demand is expected to remain “robust” with the inventory to sales ratio of the Purchasing Managers Index indicating buoyant activity in the coming months while on the macro-economic front, global GDP forecasts point to solid growth.
“The surge is not restricted to any particular (business) sector and so with manufacturers busy with inventory restocking we may continue to see demand at such high levels,” he said.
Covid-related restrictions
Turning to the recovery in cargo capacity, Chatterjee noted that air passenger traffic, measured by revenue passenger kilometres, had fallen by nearly 66% in 2020, the sharpest decline in aviation history.
“Capacity has slowly picked up and we are witnessing year on year, as well as month on month improvements. But it still remains severely restricted, especially if you consider the continuously robust demand there is for airfreight.”
The prospect of further Covid-19 lockdowns, pandemic-related restrictions at airports, such as those currently in place outbound from Asia, and also a resurgence in coronavirus cases in Europe, mean a return to normality is still some way off yet, he underlined.
“There are trade lanes where we are seeing a resumption in flights; but on a global level, the stringent quarantine measures and the slow pace of vaccination, are delaying passenger travel and in turn affecting (cargo) capacity recovery.”
In the European Union, which has one of the highest vaccination rates among the continents, there had been a 48% increase in commercial flights against last year. But compared against 2019, commercial flights were still down by nearly 30%.
“Emerging variants of the virus and the slow pace of vaccination roll-outs in many countries are delaying the normalisation of travel regulations and will continue to affect international passenger travel and the recovery of belly (cargo) capacity,” Chatterjee continued. “We currently estimate that a return in passenger traffic to pre-Covid levels will not happen before 2024.”
On the ‘maindeck’ side, however, there has been significant growth in freighter capacity, Chatterjee observed, and this is expected to continue. “Some passenger airlines have also announced additional freighters to their fleet, for example Air Canada and Air Belgium, and more airlines could do the same.”
‘Aggressive’ yield management
Focusing on rates, Chatterjee said these are likely to remain at elevated levels compared to 2019, “as overall capacity growth is expected to lag demand. The freight load factor, which is an indicator of how tight the demand-supply balances are, is at a record high globally, and that’s why the airlines will continue to manage yields aggressively and make extra capacity available only at a premium.”
He referred to analysis which illustrated that average September 2021 rates were 108% higher when compared with September 2019. Rates were highest from Asia to the Americas and to Europe, Middle East and Africa. Middle East-Africa outbound rates were also high.
“For October, I would estimate the increase has remained in the same range (as September) especially given the Covid-related restrictions (on) Asia outbound and the demand surge amid the capacity constraints.”
‘Delicate market balance’
Chatterjee went on to highlight the issue of service disruptions, “something that we have continued to see this year, are seeing now, and may also see in the near future”, adding: “The market right now is hanging on a very delicate balance and these rising Covid cases, the emergence of variants of viruses, the staffing issues at airports, the delayed return of furloughed pilots, overwhelmed airport operations, all of this is adding pressure to the market.
“Major cargo airports like Shanghai, Los Angeles, Miami, Dubai, just to name a few, have experienced backlogs and congestion at different times of the year and some even continue to experience them. Incidents like China Airlines’ quarantining more than 300 crew members, leading to flight disruptions or cancellations, could well be repeated. There is a risk that the kind of disruption alluded to could happen again at very short notice,” he warned.
Efficient forecasting remains key for shippers in the current market and being transparent with their forwarding partners, in order to make best use of the available capacity and enhance the prospect of securing space for shipments, Chatterjee concluded.
Source: Lloyd’s
