Ukraine crisis, rising fuel prices drive up air freight surcharges

Diving brief:

  • Air cargo carriers are applying higher surcharges for flights operating in Europe and Asia as the price of jet fuel climbs and carriers avoid the airspace of Russia and Ukraine.
  • UPS increased surcharges on Feb. 27 on shipments from “other major Asia-Pacific origins” — excluding mainland China, Hong Kong and Macau — to 19 countries in Europe. On March 7, FedEx Express surcharges increased for certain international shipments, including certain “travel between Europe and countries in all regions.” Airlines have also introduced fuel surcharge hikes due to rapidly rising oil prices, according to Scan Global Logistics.
  • With fuel being the second largest expense for air carriers, they will pass on price increases, said Neel Jones Shah, executive vice president of Flexport and global head of air cargo. Airspace restrictions have also made some flights between Asia and Europe economically unfeasible, reducing capacity and adding further pressure on shippers’ costs, Shah added.

The price of kerosene jumps after the invasion of Ukraine by Russia

The Emirates SkyCargo Fuel Index is based on the average price of aviation fuel across five key spot markets. An index of 100 represents a price of $60 per barrel.

Overview of the dive:

Air freight shippers have endured an environment of high costs and limited capacity since the start of the COVID-19 pandemic, and the ripple effects of Russia’s invasion of Ukraine are poised to sustain this trend.

“Rates have gone up and down but have remained consistently between two and three times where they were historically pre-pandemic,” Shah said. “I would say before Ukraine we were starting to have a bit more stability.”

Since the start of the war, air carriers have introduced a new wave of surcharges to recoup additional costs. Some are implementing a wartime surcharge “at all levels on all lanes” to compensate for the extra flight time, others are expected to follow, according to transport and logistics company DSV.

Some carriers are resorting to flight cancellations, with China, Hong Kong, Japan and Korea being the hardest hit, DB Schenker said in an update on the Ukraine crisis. On Monday, Japanese carrier Nippon Cargo Airlines suspended European flights until March 13 due to route restrictions.

“We are currently investigating air routes that do not cross Russian airspace,” the airline said on its website. “We aim to resume our European flights as soon as possible.”

Rising fuel prices are adding additional pressure on airlines and shippers. Shah expects oil prices to rise over the next one to two months, leading to “significant surcharges in the range of $1.50 to $2 per kilo, which is extremely high.”

Shah said Flexport has communicated to its customers the importance of diversifying their modes of transport to absorb supply chain shocks – shipments between Asia and Europe may require sea transport to the Middle East before boarding a plane to its final destination, for example. But overall, options are limited for air freight shippers looking to mitigate the impact of the crisis.

“I think it’s going to get harder before it starts to get better, and it won’t get better until this conflict is over,” Shah said.

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