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Market watch: Air cargo frenzy dies down

Supply chain demand shifts from face masks to hot tubs and outdoor pools

Airfreight is still a carrier's market, with demand exceeding supply. (Photo: Qatar Airways)

The white-knuckle ride through the airfreight market stratosphere has ended as prices continued to fall back toward earth again last week, bringing relief to companies that purchase air transport to move their goods.

The change in conditions is best illustrated by export flows from China to the U.S. and Europe, where air rates have tumbled more than 60%, from $15 to $20 per kilogram at one point, to under $10 per kilogram, as panic-buying for personal protective equipment (PPE) gives way to pre-planned ordering and supply chains shifting to accommodate other types of products.

Third-party logistics providers say the situation reflects waning demand for hospital supplies to combat the coronavirus as inventories have built to the point that importers can convert shipments to less expensive ocean transport, with some supplies also moving to Europe via rail. Also contributing to a more stable delivery tempo is the fact that established freight management intermediaries have weeded out first-time shippers who capitalized on the urgent need for protective gear but clogged the system because they didn’t understand best practices for sourcing and customs compliance.

“We’re still buying PPE like we never have before, it’s just we don’t need it to all arrive yesterday. It’s a whole new product line, for sure, but it’s more like toothpaste and toothbrushes now,” Brian Bourke, chief growth officer at SEKO Logistics in Chicago, said in an interview.

In the past week, shippers paid about $5.90 per kilogram on the China-Europe lane, down $1.06, a far cry from the peak in April through mid-May but still more than double the rate at the start of the year, according to the Hong Kong-based TAC Index. Prices collapsed $1.68 from Shanghai Pudong International Airport to Europe, primarily impacted by rates into Frankfurt.

The China-U.S. air rate fell 57 cents to about $5, which is still four times higher than the same period a year ago. Summer is typically a slower volume period compared to the typical peak season around the year-end holidays. Rates out of Hong Kong to the U.S. bumped up slightly.

Beijing scare

Airlines this month have been gradually rebuilding passenger networks as more COVID travel restrictions are lifted, although most of the activity is in domestic markets. Qatar Airways, for example, last week resumed flights to Budapest, Hungary; Istanbul; New York; Dhaka, Bangladesh; and Dar es Salaam, Tanzania; and increased frequencies to 10 cities. 

Delta Air Lines (NYSE: DAL) on Monday said it will restart service to Shanghai from Seattle, via Seoul, South Korea, on Thursday with Detroit-Shanghai service following July 1 after the U.S. and Chinese governments ironed out differences over airline access

Additional aircraft provide more transport options for shippers given the overall shortage of freight capacity and all-cargo carriers reporting they are booked through the summer, but the increases remain modest and are partially offset by some temporary cargo-only passenger aircraft exiting the market, according to industry analysts.

Flare-ups in COVID cases, however, could disrupt the airline industry recovery and put pressure on capacity again, as evidenced by the situation in Beijing. More than 60% of scheduled passenger flights (1,255) to the city’s two airports were canceled by the middle of last week as Chinese authorities tried to stem the spread of the disease after a sudden outbreak there, according to Christos Spyrou, the CEO and founder of Neutral Air Partner, a freight forwarding and shipper collaborative based in Hong Kong. 

“As a result, in the coming days, we expect airfreight prices to be increased at both Shanghai and Guangzhou airports as northern China’s traffic will be routed” there, he said via email.

Logistics companies report that ground operations at Chinese airports,notably Shanghai, have returned to normal after several weeks of intense congestion because of the sharp decrease in shipment volume for face masks and other medical supplies.

Stricter vetting by Chinese authorities and the U.S. Food and Drug Administration to ensure defective or mislabeled face masks aren’t shipped from China has helped reduce the capacity crunch, international traders say. Most shippers now make sure they have documentation in order, such as manufacturers’ business licenses and pictures of product labels, and that shipping marks are on packaging and products, before sending goods to the airport. China customs is sending suspicious shipments to labs for more invasive testing, which can delay export.

Hot products

Supply chain managers say their focus has shifted to products other than personal protective equipment. Stores and health care providers now have sufficient quantities of masks, gloves, hand sanitizer and other safety products, and are going through a handful of domestic distributors rather than racing overseas on their own to beat out others for scarce products, as happened at the start of the COVID crisis.

Meanwhile, importers are using airfreight to move other products that have become popular during the coronavirus quarantines, such as “athleisure” clothing, building supplies for home improvement projects and office equipment, according to logistics professionals.

“Have you tried to buy a bike recently? This is the kind of stuff we’re shipping via airfreight right now because everyone realizes, now I’m not going on vacation, I’m not spending money on trips,” SEKO’s Bourke said. “I’m going to be stuck at home for a long time, so I’m going to remodel my house or my backyard, or I want to buy a bike and exercise. These post-COVID trends are having a huge impact on supply and demand for other types of commodities.

“We’re airfreighting hot tubs and outdoor pools. It’s insane.”

Companies such as Athleta and Lululemon are shipping more by air to keep up with demand for activewear as people seek comfort while working more from home. 

“I think if you’re selling suits and ties right now you’re probably really, really hurting,” said Neel Jones Shah, global head of airfreight at freight forwarder Flexport.

“There are definitely winners in this sort of market,” he added. One of Flexport’s customers makes a product to keep alcoholic beverages cold, something now in demand as restaurants offer take-out cocktails. “His business is going gangbusters. We chartered half an airplane” on the company’s behalf, Jones Shah said.

Freight intermediaries are also moving more traditional goods such as consumer electronics, automotive parts and high-tech equipment for their existing customers. SEKO Logistics is no longer operating ad hoc charters for urgent medical supplies but is booking lage blocks of space on scheduled all-cargo and passenger freighter aircraft for its regular clients, said Bourke. 

(Click here for more FreightWaves articles by Eric Kulisch)

Eric Kulisch

Eric is the Supply Chain and Air Cargo Editor at FreightWaves. An award-winning business journalist with extensive experience covering the logistics sector, Eric spent nearly two years as the Washington, D.C., correspondent for Automotive News, where he focused on regulatory and policy issues surrounding autonomous vehicles, mobility, fuel economy and safety. He has won two regional Gold Medals and a Silver Medal from the American Society of Business Publication Editors for government and trade coverage, and news analysis. He was voted best for feature writing and commentary in the Trade/Newsletter category by the D.C. Chapter of the Society of Professional Journalists. He won Environmental Journalist of the Year from the Seahorse Freight Association in 2014 and was the group's 2013 Supply Chain Journalist of the Year. In December 2022, he was voted runner up for Air Cargo Journalist by the Seahorse Freight Association. As associate editor at American Shipper Magazine for more than a decade, he wrote about trade, freight transportation and supply chains. Eric is based in Portland, Oregon. He can be reached for comments and tips at [email protected]