By: Peter Raven, Editor-In-Chief for CargoNOW
Many of us were expecting freight rates to drop when COVID-19 started to spread. In the case of air freight, this seems to be incorrect.
Many airlines are grounding aircraft as demand is falling heavily. The latest IATA figures for January report a 5.9% year-on-year fall in cargo tonne kilometres in China, leading to a 3.3% fall for the global market overall. IATA says that these numbers are even higher in China and elsewhere like South Korea and Italy, due to the effects of the coronavirus. Other figures indicate the situation is worse, with volumes falling by double-digit percentages in January alone.
Due to the grounding of passenger aircraft which translates into reduced belly capacity for cargo, prices for air freight have leapt up as a result. In particular, prices around Asia Pacific and China have been very volatile, with suggestions of 50% or 100% price increases over the past few weeks with some reports that we are seeing a six-fold increase in rates. Sources such as TAC Index report wild swings in rates, very different to the sorts of market profile usually seen in the first quarter of the year.
The reason for this seems clear. Airlines have reduced their passenger services substantially in the face of collapsing demand. The latest IATA briefing suggests that passenger numbers have fallen by 90% in China whilst even in Singapore they have fallen by 30%. This drastic drop will soon be experienced in North America and Europe as the virus spreads and consequently, there is or will be a shortage of belly capacity on numerous routes.
Supply chains out of China have also not come back fully online even as of this week. Many industrial customers are facing problems with suppliers in China who have either reduced production or cannot transport components to their customers. These industrial customers are now trying to arrange emergency shipments and relying disproportionately on air freight.
The combination of falling belly capacity and a sudden demand for emergency shipments has created a spike in prices and it would appear that charter freighter operators are well placed to benefit in the short run until demand evens out and people start exploring more cost-effective solutions like ocean freight and even sea-air or air-sea solutions.
Challenging times but also fraught with opportunity if the prudent Logistician and savvy businessman seizes on the right solution.