In addition to adding the phrase “supply chain” to the average person’s vocabulary, the COVID-19 pandemic has also introduced uncertainty into just about every freight mode available.
With global travel declining significantly over the last few months, the resulting drop in passenger flights has particularly affected air freight. The Bureau of Transportation Statistics reported the largest year-over-year decrease on record in airline passenger traffic in March: a decline of 51.5%.
Because the pandemic is still an evolving situation, the same is true of the air freight market. Our experts are seeing daily shifts in rates and capacity, leading to a volatile market that’s been hard to predict. In this article, we’ll give you the latest updates on the situation to give you some insight into the factors at play.
That being said, the bottom line is this: Because the air freight situation is shifting quickly, stay in close touch with your freight forwarder if you rely on this mode of transportation. We’ll also give you some tips for navigating the market.
First, let’s take a look at some of the factors currently affecting air freight.
#1: Current Capacity Is Low
Before the pandemic, about 50% of air cargo traveled on passenger flights. As a result, when airlines canceled large numbers of passenger flights, air cargo capacity shrank immediately.
April numbers point to a 41.7% year-over-year decline in available capacity, as measured in available cargo tonne-km (ACTKs). May saw a slight increase in capacity, at only a 34.7% YOY decrease. Accenture’s Seabury Consulting puts the current deficit around 25%, which tracks with what our air freight experts are seeing.
In order to make up for the lost capacity from canceled passenger flights, many airlines have been getting creative with their equipment. Some have run cargo-only passenger flights, while others have actually removed seats from their passenger craft to make more room for cargo in the cabin.
While that’s been a useful short-term fix, it presents several challenges for airlines:
- Removing seats is a time-consuming process that requires significant labor.
- Loading cargo in the cabin takes longer than loading cargo in the belly of the plane, especially if crews have to navigate seats in the cabin.
- Moving cargo through cabin doors means size limitations on freight.
Because of the extra time and labor required, loading cargo in the cabin isn’t a practical long-term solution. While air freight rates were at their peak (more on that in a moment), it was economically feasible for the airlines. However, as rates drop, carriers are expected to abandon these practices since they simply won’t be profitable.
In addition to canceled passenger flights, there’s a second factor that’s been contributing to the air freight capacity crunch.
#2: The PPE Effect
As the pandemic began to spread globally, governments around the world scrambled to find personal protective equipment for their citizens. The PPE race had an unusual effect on the air freight market, squeezing capacity and bumping up rates. After all, many of these government clients were willing to pay whatever it took to get their supplies shipped as fast as possible. Additionally, many carriers were willing to bump non-essential supplies in favor of moving these essential goods.
In fact, the demand for air cargo moving PPE was so significant that, in April, Virgin Atlantic started using 787 passenger planes to run three flights a week between London and Shanghai to deliver PPE and medical supplies for the UK’s National Health System staff. German logistics company DB Schenker also launched a dedicated service of their own between Shanghai and Munich for customers looking to import medical equipment.
Although we’ve seen the demand for PPE shipments start to decline slightly, it remains to be seen what could happen if we see more global spikes in COVID-19 infection rates.
#3: Rates Are Up
For all the reasons we’ve cited above—capacity crunches and price-insensitive customers moving essential supplies—air cargo rates have risen significantly this year. One forecast suggests that air cargo revenues will hit $111 billion this year, a record 25% of total airline industry revenue.
Although we’ve seen rates begin to decline in the last few weeks, we expect them to remain volatile as they react to changing global circumstances. For example, the EU ban on American travelers has already impacted passenger routes, creating capacity challenges for air cargo traveling between the EU and the U.S.
So, given all that’s going on if you’re a business who relies on air freight within your supply chain, what can you do? We’ve got a couple of tips for you.
Leveraging Air Freight Within Your Supply Chain
To help you deal with the volatility in this freight mode—and make the right decisions for your business over the next few months—our freight experts have four recommendations for you:
- Give yourself extra time. Air freight simply isn’t working like clockwork at this point, so expect delays. Factor in a few extra days for your air freight shipments to arrive. With recent events, such as 14 Hawaiian Airlines flight attendants testing positive for COVID-19 after a recent training session, airlines may find themselves with staff shortages. Expect longer timelines and plan accordingly.
- Expect rates to fluctuate. Our team has been seeing changes nearly daily in air freight rates. Whereas you might have been able to sit on a quote for a few days (or even a few weeks!) in the past, that’s just not true today. Today’s rate isn’t guaranteed for tomorrow, so keep that in mind as you plan your budget.
- Consider ocean freight. Depending on your needs, you may be able to do some extra planning, switch modes to ocean freight, and save some money. That being said, ocean freight has had its own scheduling issues, so work with your forwarder to put together a plan to keep your supply chain on track.
- Keep in close contact with your forwarder. If there’s a theme to this update, this is it. The experts who work with air freight every day are going to be your best source for staying on top of what’s right for your business. A good forwarder can also help you make smart changes to your supply chain to react to shifts in the marketplace like this.
In summary, as with many other global events, the future of air freight is uncertain. However, now that you understand the main factors at play, you’ll be better equipped to understand what’s driving the capacity crunch and the rate increases. Along with your forwarder, you can leverage this information to come up with a plan that keeps your supply chain moving forward as smoothly as possible. We’ll keep you posted as new developments arise.
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Want some help with your air freight plan? Interested in taking a new look at your supply chain and the modes you’re currently using? Our experts would be happy to help! Just get in touch with us for a free consultation. We’d be happy to take a look at your current operations and suggest a plan to optimize your supply chain for today’s markets.
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