Demand for General Air Frieght Cargo Hasn't Come Back Yet
Air Transport

Demand for General Air Frieght Cargo Hasn't Come Back Yet

In conversation with Michael Blaufuss, SVP Air Freight Management at Agility GIL

TLME News Service

How are air freight market conditions starting to change now that some countries believe they have the virus largely under control?

It hasn’t yet had a real impact on the market. Demand for general cargo that would normally go by air freight hasn’t come back yet. There is still demand for space for relief goods, and personal protective equipment.

But the auto industry is still down, and while some tech companies have recovered, otherwise you’re seeing a very slow demand increase. The need for air freight is there, but the overall market is not back at pre-COVID levels. The industry is down approximately 25% from normal volumes.

Where do you see Q3 capacity – total, freighter and widebody belly – going in Q3 and Q4?

I think in July and August the industry will still be down roughly the same percentage. Hopefully in September we’ll start to see a gradual recovery. Everything’s balanced out by a 25% to 30% capacity reduction because of the loss of passenger flights and widebody belly capacity.

Rates at one point in May out of China were six times normal. That has come down, but they’re still considerably higher than pre-COVID-19 times, depending on what day of the week you’re flying and how urgent your shipment is.

When charter availability will normalize?

It’s normalizing right as we speak. A lot of aircraft have been permanently deployed, and there continues to be pressure in the market. It’s easier to find a charter today than it was in June or May.

What are the lessons learned from the past few months?

We thought after the Icelandic volcano erupted in 2010, then the unprecedented peak seasons, and things like conflict in the Gulf, that we had seen everything, and managed through everything.

It turns out we hadn’t. … The main lesson is that it’s very important to stay calm and see what’s going on in the market rather than making super-quick, uninformed decisions. Observe and understand the market and your customer needs, then make decisions.

Another lesson is that the partner with a deep understanding of how the business works in all areas is usually prepared to maneuver through crazy situations.

You need to know how to obtain capacity, split charters, route shipments, handle letters of credit, engage with customers to get at their real needs, and figure out new destination-side requirements to get through customs in China. Then you can do a better job.

When the market changed because of COVID, it first swamped China, then Europe, the US and Middle East. In mid-March or the end of March, the market completely changed.

Only forwarders that could maneuver during these rapidly changing conditions and understand the implications – if something’s happening here, what does it mean over there – could make the right business decisions for customers.

For us, it came down to customer relationships, carrier relationships and the ability to get accurate information quickly into the hands of customers.

When rates will normalize?

Out of Asia, you still have areas where rates are a multiple of what they were pre-COVID. If you look in Europe, it’s a mixed bag. Some have returned to close to normal. For Trans-Atlantic cargo, a classical passenger aircraft market, rates are still higher as they used to be. … It’s all driven by less capacity and strong lockdown conditions like in India or some places in the Middle East.

Other than PPE, has there been much cargo shifted from ocean to air?

Some things that were needed on an urgent basis. In the early going people discovered the need for equipment that would enable employees to work from home, so you had increased demand for laptops and headsets and products like that that were pushed out by air. There were also some specialty foodstuffs. But there was not a huge shift.

Will there be an industry shakeout – carrier consolidation, bankruptcies by more financially vulnerable carriers, etc.?

It’s going to change for sure. I don’t think we can call it a shakeout, but ownership structures will change, governments will step in, as they have for several European carriers. Other carriers might restructure. The landscape will change. Some airlines are trying to decide whether to sell planes or scrap them. I’m curious to see how that will go.

What’s happening with peak season?

My view is that the passenger aircraft won’t return and add cargo capacity in a big manner because of the COVID situation in big markets like the US, places like India. There will be a peak season, but it will be shorter. There will be some product launches – high tech products out of Asia – that will squeeze capacity for two or three months because we still are operating with 30% less capacity in the market.

How the crisis is affecting tender negotiations?

It’s fair to say that except for one or two examples, most major tenders have been pushed back or stopped. Maybe late this year or early in ‘21 we’ll see a return of the tender market. … In the US, Latin America, India and some other places, COVID cases are still increasing. Until that is under control and there’s more confidence in the future, the vast majority of tenders won’t come back. When they do, there will be a lot of tenders.

Are shippers making any permanent adjustments in their air freight strategies? Maybe changing their air-ocean or tender-spot mix in any way?

It’s a bit early to say. … We will see some shifts from air freight to ocean freight and maybe a comeback for Sea-Air.

Any other trends or noteworthy developments to call out?

The general message out there is that those parties that really want to have frequent air freight shipping, need to make sure they are working closely with their partners to understand the capacity situation in the market place. We’re not a commodity in times like this. Some forwarders have distinguished themselves from others by proving they could handle themselves when and where things got really difficult.

Read More: Agility Helps Businesses Ramp Up Online Sales

Transport and Logistics ME
www.transportandlogisticsme.com