Russian invasion drives up air freight costs

A Boeing 747-8F operated by AirBridgeCargo takes off from Leipzig/Halle Airport.

John Woitas | Image Alliance | Getty Images

The cost of airfreighting goods has risen since Russia invaded Ukraine last week, just as consumers are already grappling with the fastest pace of inflation in nearly 40 years.

Carriers including KLM Royal Dutch Airlines and United Parcel Service are filling their planes with more expensive fuel for longer Asian routes to avoid Russia due to airspace closures. U.S. jet fuel prices hit their highest level in more than a decade this week.

The United States joined Canada and much of Europe on Tuesday in barring Russian planes from entering its airspace. In January, more than 2,500 flights from the United States used Russian airspace, while 493 flights from Russia used American airspace, according to aeronautical data company Cirium.

“With the uncertainty of Russian airspace restrictions to civilian aircraft, UPS decided on March 1 to avoid the use of Russian airspace for our North Pacific (NOPAC) operations until further notice. “, the UPS pilots’ union told Airmen on Wednesday.

Higher transportation costs are likely to be passed on to consumers, as it becomes more expensive to ship everything from manufacturing components to perishables like imported cheese and fruit. Prices for raw materials, from wheat to aluminum, are already skyrocketing.

The U.S. ban on Russian planes included cargo giant Volga-Dnepr, which flies large chunks of planes like wing parts for some Boeings.

“We are working closely with our wide range of supply chain and logistics partners to manage any potential impact,” the aircraft manufacturer said in a statement.

No more seasonal doldrums

Some carriers are canceling flights altogether and Russian airlines have been hampered by airspace bans. Reduced capacity is driving up rates during what is normally a seasonal lull for shipments in the months following the holiday season.

Air freight rates from China to Europe jumped 80% this week to $11.36 per kilogram, the highest since October, according to freight booking and data platform Freightos.

FedEx said Thursday its Express unit is increasing surcharges for international packages and freight. Some peak surcharges will more than double – such as the shipping rate from Hong Kong to Europe, Africa and the Middle East, which the company will raise by 55 cents a pound to $1.20 a pound, according to notice on its website.

“As we approach the second anniversary of COVID-19, the industry is still reeling from the capacity and price ramifications of the pandemic,” Stifel logistics analyst Bruce Chan said in a note this week. “As a result, subsequent supply shocks will be felt more intensely, as there is less of a capacity buffer to absorb them.”

Air freight demand and prices have skyrocketed over the past two years. Carriers reaped the rewards of customers paying a premium to fly past port grunts and offset other supply chain safeguards, getting goods to factories and consumers faster.

Stronger e-commerce demand during the pandemic and limited aircraft hold capacity as international passenger travel plunged kept fares firm even before the Russian invasion.

Now the costs are rising even further, testing how much customers are willing to pay air cargo carriers and how much consumers will shell out at retailers.

Soaring fuel prices

On Friday, benchmark jet fuel in the United States was worth more than $3.882 a gallon, the highest since September 2008. Matthew Kohlman, associate director of refined products pricing at S&P Global Commodity Insights, called the price increases this week of “hurricane level” because they haven’t been this steep since Hurricane Ike hit Texas that month.

Asia’s benchmark jet fuel hit a more than eight-year high this week, while Europe’s benchmark hit its highest level since August 2008, according to S&P data.

Freightos said shipping rates could also continue to rise due to the war in Ukraine. The price from Asia to the US West Coast on Thursday was $16,155 per 40ft equivalent container, more than triple the rate from the same time last year.

New port safeguards could lead to even higher demand for air freight.

“Most of the time it’s ‘I need these goods to keep my supply line open,'” said Jason Seidl, managing director and analyst of air cargo and surface transportation at Cowen & Co. “The cost of absence is very high. .”

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