Markets can act strangely sometimes. The assumption that the impact of the coronavirus would be to drive down prices in logistics markets would seem to be an easy forecast to make, yet in the case of air freight it seems to be wrong.
Certainly, demand is falling heavily. The latest IATA figures for January report a 5.9% year-on-year fall in cargo tonne kilometres in China for the month of January, leading to a 3.3% fall for the global market overall. IATA say that these numbers do not reflect the even steeper falls seen in China and elsewhere due to the effects of the coronavirus. Other figures say the situation is worse, with volumes falling by double digit percentages in January alone.
Yet reports from the markets suggest that prices for air freight have leapt. In particular, prices around Asia Pacific and China have been very volatile, with suggestions of 50% or 100% price increases over the past few weeks. Sources such as TAC Index report wild swings in rates, very different to the sorts of market profile usually seen in the first quarter of the year. Anecdotal reports from market participants also suggest an unpredictable pricing environment, with very high prices being asked on some routes.
The reason for this seems clear. Airlines have reduced their passenger services substantially in the face of collapsing demand. The latest IATA briefing suggests that passenger numbers have fallen by 90% in China whilst even in Singapore they have fallen by 30%. In Europe and North America, the reaction has been less but there have still been routes that have seen flights cancelled due to low demand. Consequently, there is suddenly a shortage of belly freight.
It also appears that many industrial customers are facing problems with suppliers in China who have either reduced production or cannot transport components to their customers. These industrial customers are now trying to arrange emergency shipments and relying disproportionately on air freight.
The combination of falling belly freight capacity and a sudden demand for emergency shipments has created a spike in prices. It is unclear if this is being experienced across the market or if it is concentrated on a few routes. However, it would appear that charter freighter operators are well placed to benefit.
Source: Transport Intelligence, March 5, 2020
Author: Thomas Cullen
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)