The new year brings much promise but it is often over-rated and unremarkable. While 2020 so far can hardly be defined as unremarkable it has neither provided the fresh start or relief that many hoped for, in particular the air freight market.
Air freight was a volatile and unpredictable market throughout 2019. According to Ti research the air freight market contracted 4.2% year-on-year in real terms during the first half of 2019. Ti projected that the market will have contracted by 3.9% in comparison to 2018, the worst year for market growth over the decade. The impact of the difficult conditions has been witnessed in LSP’s annual results, many including DHL, Agility, CH Robinson and DSV Panalpina commented that the challenging market had negative implications on revenues.
The coronavirus has restricted many elements of individuals’ lives most notably their freedom to travel. Companies have already noted that they are unable to fully anticipate the full extent of the virus’ impact on profits and operations. IATA has estimated that industry passenger revenues could fall by $252bn, 44% below 2019’s figures if severe travel restrictions are in place for three months, followed by a gradual economic recovery later in 2020. In addition to this there are is the possibility of a looming global recession impacting job security and consumer confidence.
Unlike sea freight, where demand has been very volatile during Q1 2020 it has stabilised to some degree, air freight has not been as fortunate. Although demand for perishables and pharmaceutical supplies have increased other vertical sectors such as the automotive are currently experiencing a slump in demand. With no definite end in sight, some have suggested that difficulties associated with a lack of belly-freight capacity on passenger flights is likely to persist until 2021. Additionally, travel is unlikely to return to normal until the threat of the virus has been diminished substantially and borders worldwide are reopened.
However, in the meantime goods still need to be transported between China and Europe. Therefore, in order to maintain supply chains, shippers may need to look for alternative methods of transport including intermodal transport. Intermodal transport operations in comparison to other forms of transport continue to run without too much disruption. Between Europe and China, all trans-Eurasian rail lines, including those from Wuhan, are operating. Additionally, due to higher air freight rates and increased transit and lead times in both air and sea freight, intermodal transport may be a more viable option to send and receive goods between China and Europe efficiently.
The prospects of the air freight market over the next 12 months appear to be bleak and given the indefinite travel restrictions, it is unlikely to be given breathing room anytime soon. There is no guarantee that the market will fully bounce back once normality resumes, due to a reliance on belly-freight it is difficult to make any predictions. Additionally, recovery is unlikely to be swift. Following 2008, demand in the affected markets took 12 to 18 months to recover. The combination of the markets’ volatility and extended recovery period may result in shippers looking to alter their operations to maintain supply chains, including switching to an alternative form of transportation. At some point shippers may get used to these alternative modes of transport and potentially be lost to the air freight market. Valuable lessons may have been learnt during the 2008 crisis which will enable the market to return to normality faster than expected but only time will tell how deeply the impacts of the virus will be felt throughout the market.
Source: Transport Intelligence, April 9, 2020
Author: Beth Poole
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