Supply chain fragility highlighted by “handful of Covid cases”

09.03.2021

Air freight demand continued to outstrip capacity in August, with the closure of terminals in Vietnam and Shanghai demonstrating the on-going effects of the pandemic

Resilient international demand for air cargo capacity in August versus a shortfall in supply pushed average global air cargo rates up 112% to their pre-Covid level, according to CLIVE Data Services.

Analyses for August 2021 shows volumes up 1% compared to the same month of 2019, before the pandemic took hold, and +19% versus August 2020.

The biggest challenge for businesses importing and exporting goods by air remained the low level of available cargo capacity at −16% below the level seen in August 2019, the company said.

Capacity has been further impacted by a local lockdown in Vietnam and the closure of cargo handling terminals at Shanghai Pudong International Airport after a handful of new Covid cases demonstrated the fragility of supply chains.

Accelerating crisis

Transport Intelligence reports that Vietnam is seeing an accelerating crisis with intense outbreaks leading to much of the country to enter various extremes of quarantine behaviour leading to severe problems around port and airport operations.

It states that the danger is that Covid-19 will spread across the whole region and possibly spread to economies in North Asia such as Japan and South Korea. «This may represent a further leg in the crisis with the consequence that dysfunction in international logistics markets may increase. With shippers already facing large increases in prices for both sea and air freight, the situation moving into the Christmas peak season may become very serious.»

In interviews with the Wall Street Journal and South China Morning Post, CLIVE’s Managing Director, Niall van de Wouw, said even before the latest disruptions in Pudong and Vietnam, air cargo capacity was already tight due to fewer international passenger flights, with very full flights elevating rates significantly on prime intercontinental trade lanes.

Peak sales season

Rising demand is also being driven by the number of retailers having to pivot from traditional ocean freight-based supply chains to air cargo to replenish stock levels in time for their peak sales season.

CLIVE’s August 2021 analyses, however, shows the impact on ground operations in Shanghai, contributed to a 10% drop in volumes China to Europe in the last two weeks of August, while westbound capacity was reduced by 18%. As a result, spot rates increased by nearly 20% in the last week of August compared to the last week of July.

«The problem for the air cargo industry is not demand, it’s clearly capacity. The market is solid from a demand viewpoint, but it is currently based on a scarce and fragile infrastructure. As we saw in August, a small handful of Covid cases at Pudong airport led to the closure of air cargo terminal operations.

«When something like this happens at what is the world’s third largest cargo airport, it only reflects how fragile things are for global supply chains and the immediate impact on rates which were already high.»

Passenger operations

He said shippers want to see more cargo capacity from the return of airline passenger operations, but some signals suggest this may get pushed back again on intercontinental routes following the recent EU recommendation to pause on all non-essential travel from the US to Europe.

«For passenger airlines operating cargo-only flights, it’s all about the margin per flight and not about adding capacity to grab market share. Airlines want and need passengers back and I suspect airline cargo departments are anxious to see this too because of the pressure they are under to generate revenue — but even when cargo revenues double, if passenger revenues are down 80%, it’s not a sustainability situation for passenger airlines,» he commented.

CLIVE’s ‘dynamic loadfactor,’ which measures both the volume and weight perspectives of cargo flown and capacity available to produce a true indicator of airline performance, was 66% for August 2021, +6% pts versus August 2019 or −1% pt under the same month of last year.

CLIVE continues to measure and report air cargo market performance to pre-Covid 2019 levels, as well as providing 2020 year-over-year comparisons, to provide meaningful analyses of the current state of the market. Year-over-year, capacity was +18% compared to August 2020.

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