The Coronavirus pandemic has undoubtedly disrupted the airfreight industry and is still challenging it daily. China was the birthplace and epicenter of Covid-19 in February but is now coming out of it and is being called to supply urgent consignments of medical supplies and provide Personal Protective Equipment (PPE) for the whole world.
Airlines’ rates are unmercifully increasing daily, amidst an unprecedented global emergency. The worldwide demand for PPE has filled up what used to be normal airfreight space. The demand for capacity ex-China has made rates skyrocket to the point that only governments and humanitarian organizations can afford them. Airlines have unarguably had 3-4 “bad” years but have generated more revenue during the first two months of 2020, than in all of 2019. However, some people accuse them of lacking empathy.
As per statements of freight executives, airlines’ rates are unmercifully increasing daily, amidst an unprecedented global emergency situation. Some airlines and charter operations fail to understand the international need for essential freight and the humanitarian aspect of this demand.
Undoubtably, the costs of operations and expenses are very high, but cannot justify $150k per block hour. Under no circumstances does a flight operation from China to USA or EU cost $1.3 – 1.5 million for 13 block hours, or $1.8 million to South America, nor is it ethical to charge enormous costs to parties who are donating goods or trying to protect their medical force and ultimately save lives.
The tragic irony is that carriers seek financial support from the very same governments that pay them $150 k per block hour, while the airfreight price per kilo is higher than the current oil price per barrel. Governments (ministries of trade etc) all over the world, regulate the retail prices of PPE goods to a maximum level, while in Aviation they let carriers run rampant and are often accused of price fixing and profiteering. The response from the local and international air cargo associations is disappointing, while the air freight forwarders seem to have lost their voice and courage to fight against all odds.
The developed world is maybe capable of paying $1 million for 100 tons for crucial PPE goods, but poorer countries cannot afford that. Certain countries in Africa are using fabric-made masks for frontline medical workers as they cannot afford to pay the stratospheric costs for PPE to be used for only a few weeks.
Developed countries’ governments may support businesses such as freight forwarding, helping cargo agents to survive. But the future of cargo agents in countries where no significant financial federal support is given, is dark .
Some airlines are struggling to handle the disruption. It was reported that one airline was forced to hold up e-commerce parcels in their hub for 3 weeks, while unable to obtain the new clearances required. The forwarder was asked to terminate the shipment mid-way and was charged for storage even though the airline had clearly failed to complete the CCA. In addition, the confiscation of shipments with essential medical supplies in transit airports, a game played between governments evokes an atmosphere of alcohol prohibition mafia films.
Several cargo agents complain that IATA is “nowhere to be found” and “disappointingly hidden” amidst all the above-mentioned systematic profiteering and logistical chaos. In many regions IATA/CASS is accused by the cargo agents, of refusing to extend a grace payment period on freight payments for a few days during lockdown, for the sales reports of February and March. The forwarding industry claims that Covid-19 grace period is covered on the force majeure clause at the cargo agent’s handbook resolution 801, which activates an automated grace period on freight payments in disasters, such as a pandemic. The irony here is that the very same airlines delay payments to cargo agents, for aerospace and AOG airfreight shipments, for months.
Most airlines, using their existing flight operation rights, were able to convert their passenger cabins for cargo (P2F) and have provided the market with vital capacity, saving time waiting for approvals. Airlines owning B777 crew (passenger or cargo) started operating immediately after lockdowns, as B777-PAX can carry around 40 tons. Companies operating Airbus330s can carry approx. 240-250 CBM per flight in the converted passenger cabin. Some B747-200Fs have come to service. The rising air freight costs have even deployed the B747-200s out of retirement.
Meanwhile, cargo agents and ground handlers fight over a new Covid-19 terminal handling surcharge, and airports act as mediators on the daily conflicts and disputes between pax and cargo ground handlers on who is handling the new PAX P2F flights . In JNB airport just recently, clients retrieve freight 10 days after arrival split in three different ground handlers .
Under Chinese customs policy, PPE goods such as masks are not allowed to be exported or transshipped via Hong Kong. The Hong Kong Government and Chinese liaison offices in HK have been asked to review regulations to overcome this, but progress has been slow.
CAAC (China Civil Aviation) need 10-12 days to grant permission for freighters or passenger aircraft to perform cargo operations. Due to limited availability of freighters for urgent uplift in China, the rates have climbed up to $1.5million per one-way flight. If China had allowed PPE goods to be trucked just like other goods, this demand and rate-hike could have been controlled. Flying the shortest block hours and completing the balance of the journey by trucks when non time-critical, is the way to balance cost vs time.
Many Chinese companies started producing PPE as the ever-growing demand from USA and Europe reached supply limits. Foreign governments and Chinese authorities have rightly imposed strict quality checks by manufacturers, as there have been cases of bad quality products endangering frontline staff. Many shipments got stranded under the new Chinese regulations and forwarders had difficult times from week 15 onwards, as many companies had signed million-dollar contracts for freighters, and as Chinese customs had imposed origin CIQ processes to verify the products and ensure all PPE for frontline usage have proper quality and approvals. The last days, as per information from China, truckers had to line up for over 10 hours to hand over their cargo to CGO terminal in central China, and the photos of CAN and PVG airport with thousands of boxes laid down airside are staggering.
Raising Covid-19 related legal cases will influence the air freight demand.? Insurers are bracing themselves for billions of dollars of claims because of legal action over the coronavirus pandemic. Several cases will occur in the air cargo logistics community, with many carriers and forwarders cancelling their contracts under force majeure. Then again, the latest case in the US being a wrongful death lawsuit against Walmart for failing to protect 2 employees while at work, by not properly sanitizing premises and not supplying them with necessary PPE, has urged Walmart as well as other big private firms, to increase protective regulations and measures. If all private companies are required to provide their employees with masks and other basic personal hygiene products, air freight demand for these products will skyrocket.
The world will not be in a “lockdown” state forever. Companies and employees will have to resume work in a month or two. When people return to normal life, they will need masks and new hi-tech sanitize support products . Supply is most likely to come from all former “apparel producing countries” where production could ramp up very fast. China would capture most of this market and Bangladesh, Thailand and sub-Saharan countries could also benefit from the high demand.
Returning to “normal” life will spike up the retail demand and current inventory levels in the US and Europe are too low to meet that demand. The demand for “most essential” goods and clothing will rise first, while it will take longer for luxury goods demand to return to previous levels.
Most countries will not open the airports for normal business for fear of further virus outbreaks. Travel and summer passenger demand coming up is not expected to rise soon and many airlines have already issued official statements planning to keep flights parked at least until the winter schedule. Despite the lockdown being over, people will still keep restricting movements and go for online shopping, resulting to a rise in e-commerce demand in the US and Europe, however, courier and final mile logistic operators are not yet proven they can handle properly the additional volume, and the overall service offering to the final client is disappointing .
Airlines will take the lead but as more capacity returns to the market, stress on air freight demand and rates will decline. Air freight has all the potential to have a peak Q4 2020, however there are concerns that the airfreight procurement will not be as regulated and steady as in the past, and carriers will continue the ad-hoc price offering trend post C-19.
- This article is a summary of the latest NAP reports, different opinions from the industry, and articles by air cargo logistics executives in publications and social media. In light of the above it is meant to inform our members, in order to reflect on the current situation and trends, and the article is not an official statement or subject to verified information.