Exorbitant ocean tariffs, need for speed give air freight an advantage

The increased use of air freight by shippers trying to avoid congested ports is increasing pressure on overtaxed air capacity and driving fares up sharply, especially outside Asia, but new data shows demand has increased. capped in October reinforces evidence that the traditional busy shipping season has started earlier than normal.

In the panic caused by the slowdown in factory production due to power rationing in China and semiconductor shortages, as well as shipping backlogs that have quadrupled delivery times, more and more retailers and manufacturers have been rushing to make emergency air shipments since July. Flights with exports from Asia were sold out in October, raising the price of shipments to Europe by 20% from September and fares to North America into double-digit territory.

A systemic lack of capacity due to reduced passenger flights due to the pandemic has made space difficult to find, freight experts say.

The International Air Transport Association said on Wednesday the passenger air transport sector saw a 2.7 point month-over-month improvement in traffic in September, mainly due to the lifting of travel restrictions. in China, with total demand 53.4% ​​lower than the 2019 baseline. But international passenger demand, which dictates the number of wide-body aircraft with high cargo capacity that fly on major trade routes, is growing. actually deteriorated by half a point to 69.2% of pre-pandemic levels.

COVID restrictions at some airports have reduced the workforce available to load and unload planes, further limiting air capacity.

Monday, Hong Kong Air Cargo Terminals Ltd. said he had returned to full staffing and normal operations after authorities forced many workers to self-quarantine for contact with a single runway worker who tested positive on October 7. Labor shortages, plus two typhoons, affected around 20% of flights. HACTL was able to minimize the impact by increasing overtime, rescheduling some flights, redeploying other ground crew and outsourcing some functions to other operators.

The China International Import Expo held in Shanghai from this Friday to Wednesday caused another pinch point, with some airlines canceling regular freight and passenger freight service during the event. Spot rates have risen sharply in recent days and shippers can expect transit delays of three to five days due to limited capacity, freight management company Flexport said in a market update. to customers.

China’s benchmark rate to the west coast of the United States reached $ 12.71 per kilogram at the end of October, about four times the normal level, according to the Freightos Air Index. The index is powered by automated transactions on the company’s freight reservation platform. Many freight forwarders claim that the true spot rate, which includes bonuses for securing a reservation, is closer to $ 18 to $ 20 per kilo.

Dynamics of supply, demand

Clive Data Services, which tracks the air cargo market by collecting data on passenger and cargo flights from numerous airlines, said on Wednesday that the physical volume moved around the world increased 3% in October compared to 2019 and 14% compared to a year ago, but the measure of how full planes are plunged by 3 points from October 2020.

The average reading of 68% is relatively high. Before the pandemic, peak season load factors hovered around 67%, but as they hit 68% at the end of September, some analysts expected an increase in capacity utilization per flight. Still, the figure reflects the fact that the market effectively matches supply and demand, according to Clive Data.

Although data suggests that the increase in peak season demand has not been as dramatic as expected so far, freight forwarders paint a picture of extreme scarcity on major trade routes.

Clive Data said load factors from the Asia-Pacific region to North America and Europe were around 90%, with some airports like Shanghai well above it.

Overall, air freight rates are up 10% month over month, Clive said in his report. Compared to the high season 2019, prices are 155% higher and they are 37% higher than they were a year ago. Some middle markets, such as Vietnam and Malaysia, had higher spot prices to Europe – between $ 9 and $ 10 per kilogram – than Hong Kong, demonstrating that, like politics, all goods are local.

Large shippers rely heavily on freight forwarders to charter entire planes, either for their exclusive use or for sharing with other customers, but most planes are already committed. Competition for freighters is so high that the one-way cost from China to the U.S. Midwest is around $ 2 million, according to airline logistics specialists.

“We have chartered flights for things you never thought you would go through the air, like deck screws and nails,” said Joe Saggio, COO of Steam Logistics, in the edition of the October 20 from the FreightWaves podcast “Rising Tides.”


Look: Dude, where’s my freight?


Westward and eastward fares from Hong Kong and Guanzghou increased per kilogram this week, with some Guangzhou airlines rejecting large shipments or offering longer transit times of up to three weeks , Flexport reported.

The Taiwanese market remains very tight and rates are reaching an all time high, the San Francisco-based logistics provider said. Expect at least seven days of original dwell time for standard service and at least three days of dwell time for express service. Airlines have announced price increases of 15 to 25% from November 3.

Available cargo capacity in October was 13% lower than pre-pandemic levels, according to Clive Data, although significantly better than a year ago, when international passenger flights were just one net.

The conditions for a strong use of air freight should remain favorable.

The September Global Purchasing Managers Index (PMI) for supplier delivery times was 36, reflecting ongoing ocean freight arrears that analysts say are expected to continue through mid-2022, see more. The metric hit an all-time low in the United States in October at 3:45 p.m. Values ​​below 50 indicate that companies take longer to receive inputs from suppliers and are favorable to air freight.

Manufacturing exports fell from previous highs, but continue to grow. And retailer inventories remain extremely low ahead of big sales events such as Single’s Day in China, Black Friday and Cyber ​​Monday this month.

The decision to convert ocean freight to air freight is also easier for shippers, as air travel is much more competitive than ever before. Before the pandemic, the average price of air freight transport was about 13 to 15 times higher than that of the ocean, but it is now only three to five times more expensive, according to IATA and experts from the ‘industry.

Demand for international air freight increased 9.4% in September compared to 2019, up 1.9 points from August, with a capacity shortfall of 12%, according to IATA. Seasonally adjusted, volumes increased only 0.2% from the previous month. International capacity was severely limited in the Asia-Pacific region, down 18.2%. North America continues to be the hottest market, with a 19.3% increase in freight volume in September.

The professional association report ilagging indicator because results are based on monthly data submitted by airlines and differs from other research because it is based on freight tonne-kilometers, a measure that multiplies weight by distance and counts shipments twice with a intermediate stopover. Overall, freight volume increased by 9.1%, with negative freight capacity of 8.9%.

The IATA report showed load factors to be 9.1 points ahead of 2019 at 62.6%, doubling freight yields and improving airlines’ bottom line. Air Canada, for example, this week reported record third quarter freight revenue of $ 291 million.

Belly cargo capacity is expected to increase gradually over the next year following the new change in US policy to reopen travel on November 8 to 33 countries, including members of the European Union, for fully vaccinated travelers, as well as the lowering of border restrictions in markets such as Australia, Argentina, Thailand and Singapore. Airlines said bookings rose sharply after the U.S. announcement in mid-October. Thursday, Delta Air Lines (NYSE: DAL) said it saw a 450% increase in international bookings in the six weeks following the announcement in the United States compared to the previous six weeks.

A potential headwind for air freight is inflation, which tends to reduce manufacturing output and the volume of goods shipped. Supply problems, from raw materials to bottlenecks in the production and transportation of goods, increase the cost of goods and businesses pass higher prices on to consumers. The G7 producer price index rose 10.8% year-on-year in August, according to Refinitive Elkon. This is the largest increase since the series began in 1983. Consumer price inflation for all items was 4.3% in September, the largest increase since 2008.

The inflationary impact is already visible in the PMI data, which continues to grow sequentially each month, but at a slower pace. In China, both new export orders and manufacturing output were below 50 in August and September.

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

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