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Demand for air freight grows as rates remain elevated

Shippers and businesses need to plan ahead to better manage their costs in the months to come.
13 October 2021 •

There is little to suggest that demand for air cargo services will dim any time soon. Indeed, all indicators point toward a hectic few months ahead.

As rates remain elevated, possibly into the next year, businesses and shippers have to plan to manage their costs for air transport. “It is important to commit to capacity, and manage their manufacturing schedules earlier, and more accurately, so that they don’t miss the boat,” said Kelvin Leung, Asia Pacific CEO of DHL Global Forwarding.

Planning is crucial as markets are likely to tighten from October, in anticipation of China’s National Day Golden Week. “This usually prompts a rush for inventory as factories reduce production,” added Leung.

Meanwhile, the International Air Transport Association’s (IATA) latest air cargo market analysis diplomatically concludes that supply chain conditions “continue to be supportive of air cargo” when compared to other modes of transport.

IATA’s understated reading of the situation references the current high cost and limited availability of container slots and boxes for shippers seeking to move cargo from Asia to North America and Europe.

To add on, the queue of container vessels waiting to unload containers at U.S. west coast gateway terminals at the ports of Los Angeles and Long Beach passed 70 ships in the third week of September.

Of course, this state of affairs is pushing many shippers to shift suitable products to air freight options.

Carriers anticipating strong air freight demand in the months to come

A leading Asian carrier is certainly expecting a surge in air cargo demand. “Market indicators suggest a strong peak season driven by the need for inventory replenishment, against a backdrop of ongoing air capacity constraints and disruptions to supply chains due to seaport congestion,” said Ronald Lam, Cathay Pacific Chief Customer and Commercial Officer, in a press announcement.

Lam also noted that while August was traditionally a quieter month for cargo due to the summer holiday period in the Northern Hemisphere, it was not the case this year for Cathay Pacific. Demand has continued to be buoyant both from the carrier’s home market, Hong Kong, and across its network.

For many airlines, the current market remains hugely tricky, despite a boost to cargo revenues, as passenger capacity remains far lower than pre-Covid-19. Though Cathay Pacific saw an increase of 278.4 percent year-on-year in passengers, this was still a mighty 95.3 percent lower than pre-pandemic August 2019. Last month, passenger capacity and revenue were down 86.9 percent and 92.4 percent, respectively, versus August 2019.

Cathay Pacific had ramped up its freighter and passenger-freighter operations to peak season levels to bolster income. Despite increased freight revenues, the carrier is still targeting a “cash burn of less than HK$1 billion (€110 million) per month for the rest of 2021”.

Increased rates as global freight capacity remains limited

Source: DHL Air Freight State of the Industry

The lack of bellyhold space available on carriers is a major limiting factor on global freight capacity and an ongoing driver of air cargo pricing. The latest DHL Air Freight State of the Industry reports that rates in July were 77 percent higher than 2019 and 18 percent higher than 2020 levels.

Rates will remain high as businesses continue to see huge demand growth against limited capacity, and demand is set to increase as the upcoming peak season approaches.

However, congestion continues to be an issue at key airports in North America and Europe while Covid-19 outbreaks have limited capacity in Asia through the summer.

“There have been several canceled flights to/from China due to Covid-19 cases this summer, and also operational limits at several airports including Shanghai Pudong,” said Thomas Mack, Global Head of Air Freight, DHL Global Forwarding.

“Upgraded sanitizing processes and strict operation restrictions have also limited operational capacity and increased rates, while also adding to warehouse congestion,” Mack added.

On top of that, multiple Asian countries such as Vietnam face Covid-19 Delta variant surges, affecting services and restricting capacity.

Expect rates to remain elevated in the near future

Niall van de Wouw, managing director of data analytics firm CLIVE Data Services, said air cargo capacity was already tight due to fewer international passenger flights. This occurred even before the latest disruptions at Pudong and Vietnam, with full flights elevating rates significantly on prime intercontinental trade lanes.

According to CLIVE’s August 2021 analysis, available global cargo capacity in August was 16 percent lower than levels enjoyed in August 2019, while volumes were up one percent.

Furthermore, disrupted ground operations in Shanghai contributed to a 10 percent drop in volumes on the China to Europe trade lane in the last two weeks of August, while westbound capacity was reduced by 18 percent.

As a result, spot rates increased by nearly 20 percent in the last week of August compared to the last week of July.

With rates staying at its current level, Leung noted that the real challenge for the air cargo industry continues to be the supply of capacity rather than demand, despite the return of more bellyhold capacity to the market during the summer.

“Essentially, capacity is still insufficient to fully support current demand. Covid-19 outbreaks illustrate that, as in the shipping market, it only takes a slight shock to the system at somewhere such as Pudong to have large market ramifications,” said Leung.

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There is little to suggest that demand for air cargo services will dim any time soon. Indeed, all indicators point toward a hectic few months ahead.

As rates remain elevated, possibly into the next year, businesses and shippers have to plan to manage their costs for air transport. “It is important to commit to capacity, and manage their manufacturing schedules earlier, and more accurately, so that they don’t miss the boat,” said Kelvin Leung, Asia Pacific CEO of DHL Global Forwarding.

Planning is crucial as markets are likely to tighten from October, in anticipation of China’s National Day Golden Week. “This usually prompts a rush for inventory as factories reduce production,” added Leung.

Meanwhile, the International Air Transport Association’s (IATA) latest air cargo market analysis diplomatically concludes that supply chain conditions “continue to be supportive of air cargo” when compared to other modes of transport.

IATA’s understated reading of the situation references the current high cost and limited availability of container slots and boxes for shippers seeking to move cargo from Asia to North America and Europe.

To add on, the queue of container vessels waiting to unload containers at U.S. west coast gateway terminals at the ports of Los Angeles and Long Beach passed 70 ships in the third week of September.

Of course, this state of affairs is pushing many shippers to shift suitable products to air freight options.

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With no end in sight to ocean freight challenges, Vietnam’s largest fishery corporation turned to air freight for an urgent shipment of chilled crabs, with tweaks to lower costs.

Vietnam’s seafood export business is facing its greatest challenge yet as ocean freight capacity remains maxed out while demand is at an all-time high. This has, unfortunately, led to some businesses shipping at a loss to fulfill their orders around the world.

But Seaspimex, Vietnam’s largest state-owned fishery corporation, may have found an answer: shipping by air using cheaper packaging, some careful calculations, and photos taken with a smartphone. The DHL team which helped Seaspimex on the project believes more economically viable approaches are key to solve the supply chain problems many exporters are facing.

For the past two decades, Seaspimex has been relying on ocean freight to import fresh fish and crustaceans to Philadelphia.

Recent disruptions and shortages in ocean freight, however, have affected deliveries to the U.S.. This, unfortunately, had an adverse effect on their partner, an American full-service distributor which produces canned seafood.

While arranging to deliver an urgent shipment of chilled crabs, Seaspimex found themselves having to pay record-high ocean freight rates. Worse still, it would have taken at least three weeks to a month to secure their full container load (FCL) reefer to the U.S.

“Ocean freight rates have soared for all trade routes and space shortage is worsening month after month, making it increasingly difficult for many seafood businesses who rely on seaway to export their seafood,” said Laurence Cheung, Managing Director, Vietnam, Cambodia & Laos, DHL Global Forwarding, on the ocean freight situation.

A combination of a shortage of reefer containers and skyrocketing ocean freight rates are leading many businesses to look for alternative methods to ship perishables. (Photo: Shutterstock)
A combination of a shortage of reefer containers and skyrocketing ocean freight rates are leading many businesses to look for alternative methods to ship perishables. (Photo: Shutterstock)

As an average of 95 percent of Vietnam’s seafood is traditionally exported via seaway, the ocean freight price hikes have forced seafood exporters to accept losses to keep relationships with traditional partners.

If continued, the pandemic-driven disruptions in the ocean supply chain could threaten the booming seafood industry in Vietnam, which leapfrogged Thailand to become the world’s third-largest seafood exporter in 2019.

“Difficult problems require creative solutions. We knew we had to look into viable alternatives to help customers in the same situation as Seaspimex,” said Cheung. “The shrinking cost differential between air and ocean freight helped make the case of sending the shipment via air instead.”

Diverting chilled crabs from the ocean to the air

The transition of freight modes came with a host of challenges. Time was one of Seaspimex’s main issues as they had to deliver their urgent shipment — 200 cartons of chilled crabs — to the U.S. within a week.

To circumvent the delays in delivery time within reasonable costs, Seaspimex worked closely with the DHL Global Forwarding Vietnam team to divert their ocean cargo to air freight.

The delivery required close collaboration between both the origin team in Vietnam and the destination team in the U.S. to navigate the transition. At short notice,  the team had to find an airline with the facilities to fulfill the temperature requirements at a reasonable rate, and also arrange a weekday flight that suited the customer’s preferred estimated time of arrival.

“Shipping 200 cartons of perishables via air freight is quite significant. We had to go through a lot of planning as this was the first time we were working with Seaspimex and also their first time shipping seafood via air.”

Within short notice, the DHL team found an airline with temperature-controlled facilities suitable for storing and delivering Seaspimex’s 200 cartons of chilled crabs.
Within short notice, the DHL team found an airline with temperature-controlled facilities suitable for storing and delivering Seaspimex’s 200 cartons of chilled crabs.

Another key challenge with Seaspimex’s shipment was maintaining the temperature of the cargo between zero to three degrees celsius from their factory in Vietnam to their destination in the U.S.

“For perishables, we would typically recommend using active packaging, such as envirotainers, which actively adjusts the temperature inside the container to keep the specified temperature range,” explained Cheung. “That does, however, come at a higher cost.”

To keep shipping fees affordable, the DHL team proposed a more cost-efficient alternative in passive packaging, using styrofoam boxes packed with dry ice. The thermo-package and cooling materials can maintain the temperature inside the cartons for 96 hours, and temperature data loggers can provide full visibility of the temperature conditions of the crabs throughout the entire transport process.

However, perishables managed by airlines are typically housed at two to eight degrees Celsius, slightly above the ideal range for the chilled crabs.

To keep the crabs chilled, the team had to navigate a fine balance, as crabs are notoriously known for being delicate perishables. “We had to calculate the exact quantity of dry ice to use for each box, monitored using the temperature loggers, to consider the rate at which the dry ice would melt,” added Cheung.

“With too much ice, the crabs could be frozen, whereas too little dry ice could melt quickly, both of which would affect the quality of the crab during the trip,” explained Cheung.

Furthermore, airport regulations prevented DHL staff from entering the temperature control facility in the cargo terminal. To monitor the repackaging of the shipment, the team had to provide clear instructions to the terminal staff, who sent them photos, as they unloaded the crabs in a chiller and repackaged them in Styrofoam boxes filled with fresh replacements of dry ice before the shipment embarked on its long flight to the U.S.

The DHL team worked closely with the terminal staff, who sent them photos from the terminal's temperature-controlled facility to monitor the repackaging of the chilled crabs.
The DHL team worked closely with the terminal staff, who sent them photos from the terminal’s temperature-controlled facility to monitor the repackaging of the chilled crabs.

Throughout the 38-hour journey, the team monitored the shipment milestones, providing Seaspimex with continuous updates until the shipment touched ground at John Frank Kennedy Airport, where the DHL Global Forwarding U.S. air freight team then handed the cargo over to the Seaspimex team awaiting the shipment at the airport.

The smooth transition from ocean to air freight gave Seaspimex the confidence to consider air freight as a viable shipping option for future shipments.

Innovating new ways for affordable chilled packaging

Cheung believes that a more permanent solution to overcome freight disruptions is to develop innovative solutions for reefer containers that would make shipping perishables more affordable.

“In the age of Covid-19, the growing need for volume flexibility and increasing time and cost pressures will necessitate new container formats and processes that will take time to innovate and be adopted,” said Cheung.

As businesses struggle with soaring freight rates and long transit times, they are looking for more cost-effective and efficient ways to export their cargo.

Logistics providers, meanwhile, are stepping up to find solutions through the pandemic-driven obstacles.

“It is therefore essential that we are agile and flexible when working to find logistics solutions for our customers. We hope to continue helping businesses find more economically viable end-to-end solutions to their supply chain problems, and in doing so, build partnerships that last beyond the pandemic,” said Cheung.

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Carriers anticipating strong air freight demand in the months to come

A leading Asian carrier is certainly expecting a surge in air cargo demand. “Market indicators suggest a strong peak season driven by the need for inventory replenishment, against a backdrop of ongoing air capacity constraints and disruptions to supply chains due to seaport congestion,” said Ronald Lam, Cathay Pacific Chief Customer and Commercial Officer, in a press announcement.

Lam also noted that while August was traditionally a quieter month for cargo due to the summer holiday period in the Northern Hemisphere, it was not the case this year for Cathay Pacific. Demand has continued to be buoyant both from the carrier’s home market, Hong Kong, and across its network.

For many airlines, the current market remains hugely tricky, despite a boost to cargo revenues, as passenger capacity remains far lower than pre-Covid-19. Though Cathay Pacific saw an increase of 278.4 percent year-on-year in passengers, this was still a mighty 95.3 percent lower than pre-pandemic August 2019. Last month, passenger capacity and revenue were down 86.9 percent and 92.4 percent, respectively, versus August 2019.

Cathay Pacific had ramped up its freighter and passenger-freighter operations to peak season levels to bolster income. Despite increased freight revenues, the carrier is still targeting a “cash burn of less than HK$1 billion (€110 million) per month for the rest of 2021”.

Increased rates as global freight capacity remains limited

Source: DHL Air Freight State of the Industry

The lack of bellyhold space available on carriers is a major limiting factor on global freight capacity and an ongoing driver of air cargo pricing. The latest DHL Air Freight State of the Industry reports that rates in July were 77 percent higher than 2019 and 18 percent higher than 2020 levels.

Rates will remain high as businesses continue to see huge demand growth against limited capacity, and demand is set to increase as the upcoming peak season approaches.

However, congestion continues to be an issue at key airports in North America and Europe while Covid-19 outbreaks have limited capacity in Asia through the summer.

“There have been several canceled flights to/from China due to Covid-19 cases this summer, and also operational limits at several airports including Shanghai Pudong,” said Thomas Mack, Global Head of Air Freight, DHL Global Forwarding.

“Upgraded sanitizing processes and strict operation restrictions have also limited operational capacity and increased rates, while also adding to warehouse congestion,” Mack added.

On top of that, multiple Asian countries such as Vietnam face Covid-19 Delta variant surges, affecting services and restricting capacity.

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Expect rates to remain elevated in the near future

Niall van de Wouw, managing director of data analytics firm CLIVE Data Services, said air cargo capacity was already tight due to fewer international passenger flights. This occurred even before the latest disruptions at Pudong and Vietnam, with full flights elevating rates significantly on prime intercontinental trade lanes.

According to CLIVE’s August 2021 analysis, available global cargo capacity in August was 16 percent lower than levels enjoyed in August 2019, while volumes were up one percent.

Furthermore, disrupted ground operations in Shanghai contributed to a 10 percent drop in volumes on the China to Europe trade lane in the last two weeks of August, while westbound capacity was reduced by 18 percent.

As a result, spot rates increased by nearly 20 percent in the last week of August compared to the last week of July.

With rates staying at its current level, Leung noted that the real challenge for the air cargo industry continues to be the supply of capacity rather than demand, despite the return of more bellyhold capacity to the market during the summer.

“Essentially, capacity is still insufficient to fully support current demand. Covid-19 outbreaks illustrate that, as in the shipping market, it only takes a slight shock to the system at somewhere such as Pudong to have large market ramifications,” said Leung.

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