(Updated June 3, 8:55 A.M. ET, with new data from CLIVE and SEKO Logistics)
Trailing data released Tuesday by the International Air Transport Association (IATA) showed total air cargo volume in April plunged 27.7%, year-over year because of the global recession caused by the coronavirus crisis. The airline industry group said it was the sharpest one-month fall in cargo business since it started collecting data in 1990.
The figure is consistent with previous anecdotal accounts from companies and market research. World ACD, which tracks airway bills — essentially the proof of receipt — issued by several dozen air carriers, three weeks ago said airfreight demand fell 31.7% in April versus 2019 and 22.8% from March.
Despite the contraction in global manufacturing and consumption, shippers are still finding it difficult to move airfreight. Airlines slashed passenger operations, which also carry cargo in the lower hold, when the pandemic destroyed travel demand. The capacity shortage, compounded by a surge of medical shipments to fight the virus, jacked up rates five to six times normal peak levels in the U.S.-China lane to more than $16 per kilogram, and to a lesser degree in other markets.
But new data from Freight Investor Services shows prices have begun to normalize. Outbound rates from China to the U.S. fell 22.4% in the past week to $7.12 per kilogram, driven by a $3.25 drop in price out of Shanghai. FreightWaves has reported that some cargo is migrating to Hong Kong and other airports in China because of extreme cargo congestion at Shanghai related to an onslaught of medical shipments and intrusive government inspections that caused some aircraft to leave empty or only partially loaded.
Meanwhile, the average price from China to Europe declined 7%, or 55 cents per kilogram, the London-based market intelligence firm said. Predictive analytics indicates air export rates from China will continue to moderate this month.
Rates are in free fall because the breakneck scramble for hospital garments and other medical supplies made in China to fight the coronavirus is subsiding and first-time importers who treated the situation like the Gold Rush have gotten pushed out by established players that know how to find certified manufacturers and manage the complex export process, said Brian Bourke, chief growth officer at Chicago-based SEKO Logistics.
“The demand curve has leveled off because everyone doesn’t need everything yesterday. People have inventory now” and are using express ocean service to the U.S. as an alternative, he said.
Current data from CLIVE Data Services underscores there has been a slight volume deterioration in recent the past couple weeks. Overall, demand was 31% below 2019 levels in May, but that was an improvement from the 37% decline in April demand. The volume decline was exceeded by a 42% loss of capacity, which continues to put pressure on rates. At the start of the month, week-over-week volume, measured by dimensional weight, began to grow, peaking with a 5% increase during the week of May 11-17. Demand fell back in the last half of the month, culminating with a 5% loss in the final week. During that period, capacity growth exceeded volume growth, which reduced load factors for the first time in weeks by a half percent.
“Looking at the last 12 weeks, it is clear to see that market volumes remain erratic and that this will continue for the foreseeable future. This is one of the few certainties we have at the moment,” CLIVE Managing Director, Niall van de Wouw said in a news release. “With the announcements of increases in passenger schedules, global air cargo revenues may suffer ‘collateral damage’ of more capacity returning to the market.”
Global capacity tightened by 42% in April, led by a 75% drop in international belly capacity, according to IATA. The drop was partially offset by a 15% increase in capacity from increased use of pure freighter aircraft. All-cargo operators are operating at full bore and returning aircraft to service to meet the strong demand. Atlas Air, for example, has reactivated three Boeing 747-400 freighters and UPS Airlines is purchasing five older MD-11 freighters from Boeing, two of which will enter the fleet this year.
With demand outpacing capacity, the cargo load factor grew 11.5% in April, the largest increase since IATA began tracking airfreight data. World ACD said load factors increased 9%.
Passenger airlines are partially filling the breach with faux freighters — passenger planes operated specifically for cargo customers through private charters or scheduled service and often using the passenger cabin to store additional cargo. The development is a revenue boon for struggling passenger carriers that otherwise would be paying overhead for idle aircraft and labor.
The capacity shortage led per-unit revenue to double from a year ago in April and jump 63% month-over-month, according to World ACD. Despite the greatest crisis in aviation history, global air cargo revenues skyrocketed 36% from the prior April and 26% compared to March, it said.
Freight operators benefited the most, with revenue growth of 29% from March despite a slight dip in total cargo volume. Airlines with a mixed fleet — Lufthansa, Cathay Pacific, Singapore Airlines — actually increased yield by 71%, but they lost a quarter of their traffic. Pure passenger airlines did even better, with 95% growth in yield, but it came against the loss of half their cargo volume, according to World ACD.
IATA reiterated that more governments, particularly in Latin America and Africa, need to do better facilitating critical shipments of medical supplies and other goods. Specific areas of concern include granting special permissions for ad hoc charter flights, expediting customs clearance, temporarily relaxing certain crew certification and training requirements, exempting air crews from travel restrictions and quarantine measures, and ensuring adequate ground staff and equipment to efficiently move cargo in and out of airports.
Strict containment measures and limited government support to ensure supply chain flows contributed to a 39% fall in international airfreight demand in Latin America, IATA said.
North America was the best-performing region in April, with international demand down 20.1%, which was less than the 32.3% decline experienced at the height of global financial crisis in 2009. European carriers reported a 33.8% drop in international cargo volumes, but the Europe-Asia trade lane fared better because of the large amount of personal protective equipment shipped from China to help in the COVID-19 response.
Virgin Atlantic and LATAM
Virgin Atlantic and LATAM Airlines are examples of pure passenger and mixed airlines that have swiftly adapted to the new airfreight market conditions.
Virgin Atlantic said Tuesday that it is increasing mini-freighter flights by 35% to nearly 600 in June with the launch of several new routes and frequencies.
The passenger carrier is extending its all-cargo network to help U.K. health services secure medical supplies and support increased demand for imports and exports from businesses. The new schedule includes daily flights between London Heathrow and Beijing, the first-ever flights to Brussels that connect from New York in London twice a week, weekly flights to Lagos, Nigeria, and three flights per week from London to Chicago and Atlanta beginning Thursday and June 9, respectively.
In May, Virgin Atlantic operated 446 cargo-only flights, including 66 charters for customers, averaging 52 weekly departures from the U.K. The airline said it carried 9.7 million of inbound cargo and 11.7 million pounds of exports, producing the highest monthly cargo revenues in the airline’s 36-year history.
The airline has flown 17 cargo charters per week on behalf of the U.K. hospital system, carrying more than 44 million items of medical equipment, including isolation gowns and disposable swabs, from Shanghai and Beijing to the U.K.
LATAM Airlines said its Brazilian subsidiary has transported about 600 tons of hand sanitizer, thermometers, equipment and food donations within Brazil on more than 100 flights since the pandemic began. Last weekend, it delivered 50 tons of respirators and other essential hospital goods from São Paulo/Guarulhos airport to Manaus on three flights using a Boeing 767 freighter and two passenger planes — a 767 and 777 — modified for cargo purposes. Cargo is placed under the seat, in the overhead bins and even on the seats of the passenger planes, depending on the circumstances.
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