Russia-Ukraine energy price spike is a ‘double whammy’ for struggling air cargo market

With strong customer demand for faster delivery, the air cargo market could face a dilemma as the threat of a Russian invasion of Ukraine stokes geopolitical tensions and puts new pressures on a supply chain already tense world.

A conflict in Eastern Europe “is not going to be good. Whenever you have geopolitical tensions, it actually takes a lot of demand for a lot of these air charters that are out there,” said Brian Bourke, director of the growth of freight company Seko Logistics, to Yahoo. Finances Live Thursday.

“Air freight and airfreight will continue to be very important levers for companies looking to keep their products moving to keep them on the shelves or ready to order and warehouses for e-commerce,” Bourke said.

Oil prices (Cl=F) are hovering around $100 a barrel as US and NATO officials struggle to find diplomatic ground with Russia. Conflicting reports on ground de-escalation have rattled markets and put upward pressure on energy prices which are weighing on air cargo rates.

Shippers “would see a lot more activity from the oil and gas sector that would take advantage of the high tariff levels to continue and expand their well exploration and drilling capacity across their entire system,” Bourke said.

“This has a double effect on the real increase in rates around the world,” he added.

Air cargo prices have soared on the back of ongoing supply chain disruptions caused by the pandemic. As ships clogged ports around the world, many waited weeks to unload their cargo, prompting some retailers to avoid shipping and import their cargo by air.

Government data shows transport costs are rising, recording an 18.3% increase in truck shipments and a 29% increase in sea freight costs compared to January last year. Meanwhile, airfreight inflation rose to 11%, the highest in a decade, according to the latest producer price index.

But there are benefits, as states move closer to their “endemic” stage of reopening. Bourke explained that they were optimistic about the “return of passenger capacity on the international side” by this spring, but that this “will not be enough to meet the increased demand for air cargo”.

He added: “Eventually we will return to normal, but to normal of the same belly space capacity on passenger flights, as we see cargo flights reach pre-pandemic levels, we will not see maybe not until the year 2024 or beyond. .”

The volume of global air cargo demand grew by 18.7% last year – the second best on record according to the International Air Transport Association (IATA) Air Cargo Analysis Report, with volumes 3.5% above pre-pandemic highs. By contrast, Asia-Pacific airlines struggled with a lack of capacity, falling 17.1% in 2021 compared to 2019, while demand for goods made in the region was strong.

Port congestion Dec. 2021 vs. Jan. 2022

In a sign that global demand remains insatiable, SEKO Logistics used 397 flights last year, compared to 72 flights in 2020, Bourke said. This year, the company expects that number to increase further by around 20-30%.

“We’re seeing the ocean not really being an option with the delays, not just in west coast ports, but now we’re seeing increased congestion in east coast ports,” Bourke added.

New data from the project44 shows that ships waiting to dock in Asia recorded an average increase from 13 days in December to 16.7 days in January. Hong Kong, which has seen an increase in COVID cases, tops the list with a lag of 5 full days to 22.5 days.

“It’s a period of calm where there’s not as much goods expected to move internationally, especially on the import side, but that doesn’t relieve much of the congestion we’re seeing,” he said. -he adds.

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv

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