Peak shipping season for air cargo heats up to full boil

A white cargo jumbo jet with empty pallets on the ground on sunny day. The side of the plane says Cargolux.

The peak of the peak season is in full swing for international airfreight. For buyers, that means higher costs and delays finding available slots for air and ocean shipments, while transportation and logistics providers reap bigger profits per load.

The Southeast Asia and China export markets are especially hot and could boil into December. Spot rates out of China to North America started climbing again early this month as air capacity tightened and are approaching $6 per kilogram, according to the TAC Index. Trans-Pacific eastbound rates from Asia are even stronger, at $8 per kilo to the West Coast and $9 per kilo to the East Coast. The spread between the two markets has increased from $2 to almost $4 per kilo in the past couple of weeks but is expected to quickly narrow as airfreight volumes from China grow.

Both markets are characterized by extremely high demand and the lack of space in widebody passenger jets, most of which are grounded because the coronavirus has scared people from flying. Trade is strong for several reasons, including companies rebuilding inventory depleted during earlier COVID shutdowns, traditional retail stockpiling for the holidays, huge growth in e-commerce orders and shippers moving out orders ahead of factory shutdowns for the Golden Week holiday in China.

Technology companies have also started to ship smaller product launches, such as the iWatch and iPad, but pushed back the release of other devices. Apple’s one-month delay in releasing the iPhone 12 compresses the time frame for getting it to market by early December, which will put extreme pressure on capacity and drive up rates next month, third-party logistics provider Flexport said in a customer update. 

The capacity crunch would be even greater were it not for reduced forecasts for the Sony PlayStation 5 after production issues with its core processing chip. Sony, which announced a Nov. 12 North American and Japan debut for the gaming system, is expected to ship about 35% fewer consoles than predicted. 

The airfreight sector is also capturing some shipments from the ocean mode, where vessels are full, containers are in short supply and rates hit new records despite Chinese warnings that carriers should refrain from more price taking. On the trans-Pacific eastbound, shippers are paying more than $4,000 per forty-foot equivalent unit to the U.S. West Coast and a staggering $5,200 per box to the East Coast. Carriers aren’t accepting bookings for the rest of the month and recommend 21 days advance booking to get on a vessel. 

Air rates from Hong Kong dipped slightly due to an influx of charter capacity in the past week. German logistics companies DB Schenker and Dachser, for example, ordered up Boeing 747 freighters for dedicated regular carriage for China and Hong Kong. DSV Panalpina, headquartered in Denmark, on Wednesday said it will add a 747 freighter to its existing Shanghai-to-Luxembourg route and a new weekly service between Hong Kong and Luxembourg that can also carry 400 tons of cargo. Both flights will be operated by El Al through its new joint venture with CargoJetX, spokesperson Maiken Riise Andersen said. And Unique Logistics took control of two Cathay Pacific passenger freighters for 12 weeks to move fashion goods between Hong Kong and Pittsburgh

CargoJetX has purchased two 747-400 freighters for the joint venture and El Al will manage and sell the cargo space to freight forwarders. Flying the planes has been outsourced to Longtail Aviation International, a Bermuda-based executive jet operator that recently entered the air cargo market and received U.S. permission to operate a leased 747 freighter. Air Cargo News first reported the partnership between El Al and CargoJetX.

Separately, El Al said Monday it will resume cargo flights to Shanghai, Mumbai and Hong Kong from Liege, Belgium, and Frankfurt, Germany, returning via New York. 

Meanwhile, France-based logistics operator Geodis announced a permanent schedule for its air charter services into early 2021, with weekly direct flights between Shanghai and Amsterdam. So far this year, Geodis has utilized more than 400 controlled flights across Asia, Europe and North and South America and spent more than 70 million euros ($81.7 million).

Customers taking advantage of the China-Europe service include a European auto manufacturer that is equipping its plant in China with subassembly parts as well as Chinese electronics firm Lenovo, which makes laptops, smartphones, workstations, computer services and internet-enabled devices.

San Francisco-based Flexport reported that the Australia-New Zealand market is heavily congested, with cargo rates three times normal for this time of year. Air cargo is also more expensive in Latin America, where capacity is tight, especially for larger shipments that may endure long transit times and get split between flights. U.S. carriers plan to reintroduce limited capacity into several key markets in the coming weeks, but rates are still expected to remain well above historical levels, the freight forwarder said in its report. 

Go-go cargo

All signs point to continued growth in airfreight volumes for the remainder of the year, Brian Pearce, chief economist at the International Air Transport Association, said during a recent press briefing.

Business confidence in most major economies is back to where it was before the coronavirus crisis, and manufacturers, a big driver of air shipments, are especially bullish. Their renewed confidence closely aligns with sharp year-over-year growth in export orders, he said.

While passenger business is likely derailed for several years by health considerations, cargo is following a typical recessionary recovery cycle in which “companies turn to air as their preferred mode of transport to get inventory and components to production facilities as quickly as possible to supply recovering demand,” Pearce said.

And, he added, air cargo has increased its share of world trade in the past couple of months.

In normal times, air cargo moves about a third of international trade by value — $6 trillion to $7 trillion — even though it represents about 1% of total volumes.

Volume increases coupled with the slow return of passenger fleets will likely keep load factors and yields high, Pearce predicted. Passenger networks normally carry more than 50% of the world’s air cargo.

Air cargo volumes have steadily improved since April. Air cargo demand fell 13% in July versus 2019, largely due to the lack of available belly space on passenger aircraft. About 90% of international traffic is still grounded, although airlines are slowly adding incremental capacity for some big-city pairs. Austrian Airlines, for example, announced Thursday it is restarting a weekly flight between Vienna and Shanghai with a Boeing 767 twin-aisle airplane.

The air cargo market shows huge variation by region. While volumes on trans-Pacific routes to North America are actually higher than this time last year, they fell 30% in the North Atlantic region. Pearce attributed part of the difference to strength in U.S. trade with China, which was down in July versus 2019 by less than 1% compared to trade with Germany, which fell 13%. But, he said, the primary reason for the disparity in volumes has to do with the capacity shortage and the deployment of cargo aircraft. 

More freighters reside in Asia while Europe remains constrained by the lack of a viable passenger option. In Asia, 90% of cargo is carried on all-cargo aircraft. Before the coronavirus crisis, 75% of outbound Pacific traffic was on freighters compared to less than 50% in the trans-Atlantic and the U.S.-Europe share of freighters has dropped considerably since March.  

Intra-Asia routes heavily depend on passenger flights too, with less than 30% of air shipments flying on pure freighters before the pandemic. 

“Freighter fleets are being maxed out with “record highs for hours of freighter aircraft in the air,” Pearce said. Even with the influx of more freighters and some 2,300 passenger planes temporarily put to use for dedicated cargo operations, global cargo capacity is still 30% to 40% below last year, depending on the trade lane.

And the resurgence of the coronavirus in European countries, such as Spain and the U.K., is leading to new travel restrictions that could further constrain air shipping activity, which depends on the resumption of passenger service.

World ACD, an aggregator of airfreight market data, recently reported that the number of passenger flights has increased 18% since June, while the number of freighter flights has only increased 2%. 

New data from the Association of Asia Pacific Airlines underscores the reliance of air cargo on passenger traffic for intra-Asia trade. Airlines in the region carried only 1 million international passengers in August, or just 3% of the 34 million passengers carried in the same month last year, with available capacity at less than 10%. That contributed to a 19.3% drop in freight-ton-kilometers as cargo capacity fell by a third despite strong freighter activity.

The tight supply and high demand has pushed cargo yields much higher than normal, motivating passenger airlines to turn to cargo-only flights. But the extra revenue, in most cases, is a drop in the bucket in an environment in which their main business has virtually disappeared.

World ACD data showed that airline revenues increased 37% in August behind rates that were 65% higher than in 2019 even though volume declined 17.2%. Clive Data Services tallied a 17% cargo decline last month too. Both companies use different methodology than IATA to determine volumes. Preliminary figures for the first half of September indicate that volume remains 17% below last year’s level, with yields flat at $2.83, according to World ACD.

Since March, the number of shipments and volumetric weight, or weight equivalent, have dropped 36% and 22%, respectively, while revenues are up 34%. Yields have jumped 73% to $3.06.

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.


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