Coronavirus begins to sicken air cargo sector, experts say

A woman on flight wears a germ mask.

NASHVILLE, Tenn. – The deadly coronavirus that has shuttered several Chinese cities could provide a triple punch to an airfreight industry already in recession for 13 months, even though the more obvious risk is to passenger airlines.

The crisis is already forcing airfreight shipments to be held up, according to industry representatives at an air cargo conference here.

Travel between China and the rest of the world could soon come to a virtual stop, with airlines suspending flights if mass quarantines in China don’t stem the spread of the virus. On Tuesday, United Airlines (NASDAQ: UAL) said it will suspend some flights to China beginning on Saturday because of a “significant” drop in demand.

There have been 106 deaths and more than 4,500 confirmed cases of the coronavirus. Sixteen international locations, including in the U.S., have identified cases of this new virus. Wuhan, where the virus started, and 13 other cities in Hubei Province are under lockdown and other cities across the country are taking measures to limit exposure. 

On Monday, the U.S. Centers of Disease Control and Prevention raised its travel warning to Level 3 for the entire country and urged U.S. citizens to avoid all nonessential travel to China. Meanwhile, Hong Kong is restricting travel from mainland China. The warning was preceded by a State Department advisory that Americans reconsider travel to China.

Major international airports, notably Shanghai, Beijing and Hong Kong, remain open, but that could change as the health crisis worsens. Airlines may opt before that to suspend routes to protect crews and their bottom lines as travel demand to China dries up.

The widebody jets used on long-haul flights carry a significant amount of freight below deck and if passenger flights are indefinitely scratched a huge amount of capacity that shippers depend on goes away. Cargo supervisors at the conference didn’t want to speculate about what upper management at their airlines might decide.

But one industry official, who asked not to be identified because of ties to multiple carriers, said such a scenario is possible and that there is no guarantee all-cargo planes could pick up any of the slack because pilots may refuse to fly into the virus zone. 

There were about 50 passenger flights per day from China to the U.S. during the 12 months ending in July, the latest period for which data is available, according to U.S. Department of Transportation data compiled by Airlines for America (A4). At the time there were 17 inbound cargo flights and nine cargo flights to China from the U.S. United Airlines operates 24 daily flights to China, more than any other U.S. carrier.

That said, there may not even be cargo exports to put on planes. Factories could close their doors under government orders, to avoid liability or simply because employees can’t, or won’t, go to work. In Tangshan, a major steel producing city, officials have ordered buses to stop operating, Bloomberg reported, which would make it difficult for most workers to get to their jobs.

All factories are closed for the time being after the Chinese government announced that the Lunar New Year holiday period would be extended another three days until Sunday. Factories in the manufacturing hub of Suzhou, in eastern China, have been closed through Feb. 8. Shanghai, Zhejiang Province and Guangdong Province have announced all enterprises will remain closed until Feb. 9. 

The extended closures mean more lost days in which all-cargo operators and other airfreight companies won’t have goods to move, although once things return to normal there could be a surge in bookings for freighter aircraft to relieve pent-up demand for industrial and retail goods.

The lack of available workers is also a problem for the logistics sector. Miami-based charter company Skylease Air Cargo has suspended its Boeing 747-400 flights hauling lobsters and other seafood from Halifax Stanfield International Airport to China, Glen Boone, director of cargo and real estate development for the airport authority told FreightWaves on the sidelines of Air Cargo 2020. The event is organized by trade associations representing freight forwarders, road feeder services and airports.

“The logistical network in China is all bottled up. You don’t have ground handlers, customs clearance and obviously trucking,” he said. “Perishable products like lobster – you can’t move it if you can’t move it fast. If the logistical chain on either side is stopped you can’t send a perishable product.”

Lobsters can be out of water for about 40 hours before needing to get to a holding tank or a shower system. China purchases 50% of Nova Scotia’s lobster harvest.

The lack of available logistics infrastructure is beginning to put the brakes on all types of freight shipments, Boone added.

Another cargo effect of the coronavirus on airlines and shippers is that supply chains could be cut off from materials needed to run factories in other countries and that global economic growth will be impacted, reducing demand for airfreight services writ large.

On Tuesday, the CDC increased the number of airports where it is conducting screening of passengers arriving from China to 20 from five. The higher number of screening locations decreases the need to reroute planes. 

If funneling flights through screening hubs expands to cover other Chinese cities, then airlines and logistics companies will have to figure out how to recover their freight and get it to the original destinations, said Elizabeth Merritt, A4A’s managing director of cargo services, during a panel discussion. Companies also will need to quickly find other sources for components and finished goods if their Chinese suppliers are unable to deliver.

Airlines likely will pull widebody aircraft out of the Asia market and try to redeploy them in other markets, the airline industry official said.

The combined impact of the coronavirus and the protests in Hong Kong, which have dampened air travel to a popular tourist and business destination, could be especially damaging for Hong Kong-based carrier Cathay Pacific, the airline expert said. The decline in tourism is already crimping some cargo capacity on passenger airlines, as previously reported.

The coronavirus is drawing comparisons to the severe acute respiratory syndrome (SARS), which killed 774 and sickened nearly 8,100 in 2003. At the height of the outbreak, Asia Pacific travel fell 35% from precrisis levels, according to the International Air Transport Association, and it took months to recover. Overall, airlines in the region lost 8% of their annual traffic and $6 billion in revenues.

Airline stocks had gained ground halfway through the trading session Tuesday after U.S. majors tumbled between 5.3% and 9.3% the day before.