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Atypical Air Freight Rates

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As we head into August, European countries usually begin to wind down for the end-of-summer holidays. The schedule this year is certainly not following that trend.

Traditionally during this time, there is also a decline in air freight rates because volumes are down on both major inbound lanes from Europe and Asia. This happens so supply chains can catch their breath to begin the fall peak season dash.

This is also not the case this year, as PPE demands from Asia continue to keep rates from China and other countries above previous year averages. The lack of traveling passengers means a paucity of belly space on the Transatlantic.

Let’s look at where things stand.

The Current State of Air Freight

According to IATA, the global trade association representing airlines, industry-wide cargo tonne-kilometers declined by 17.6% year on year in June after falling 20.1% in May. June’s cargo demand was softer than normal. Capacity fell 34.1% year-on-year in June. That’s a full one third less space than this time last year.

For shippers from Asia, rates are surging again this week according to the latest TAC Index figures reported in The Loadstar. China to the United States increased by 8.6% while Hong Kong to the US jumped 9%.

Despite the overall weakness for airlines in general, some have figured out how to make money. United Airlines, broadly lower in their overall performance, saw an eye-popping 36.3% increase in cargo revenue in the second quarter. For the same period, Delta reports cargo revenue plunging 42%, and American Airlines had a 41% decline.

What does the future hold? As we move into the rest of 2020 and early 2021, there will be three key factors that will further pressure rates and availability.

1. Fall Consumer Goods and Holiday Products Season.

In a typical fall, a bevy of new products are be released by tech companies, including Google and Apple, with their annual phone refreshes.

Depending upon the product and the target market, some consumers have retained buying power during the pandemic and will be in the mood to purchase toys, electronics and console game systems this holiday season. The sale prices of these objects can absorb or hide the higher-than-normal airfreight rates.

2 – COVID’s Continued Rate of Spread in the United States.

Asia, Europe, Australia and other markets have lower rates of infection than the United States and are deploying contact tracing, more readily imposed quarantines and expedited test results.

However, the state of the virus’ spread in the United States means that flights will not be returning until likely next year because passengers cannot or will choose not to travel. This means less belly space and continued utilization of converted passenger aircraft as “phreighters,” scheduled all-cargo services and charters.

3 – Dispersing a COVID-19 Vaccine

This story in Bloomberg details how unprepared supply chains are for the influx of vaccines and how widely these vaccines must be distributed. Billions of doses will be needed worldwide that will require not just air lift, but also temperature-controlled transport from end to end. Like other medicines, the chain of custody within a narrow range of temperatures will dictate how and where the vaccines can be shipped.

We can see a scenario where general cargo competes for space with vaccines. This gets both messy and even more expensive.

How to Prepare

For TOC Logistics customers, we continue to iterate a number of key points:

  • Prioritize within your supply chains. What needs to go by air should be booked proactively and early while calculating what can and should move by sea. We are working with both airlines and ocean carrier partners to protect space. We’re negotiating fiercely on your behalf.
  • Identify transit routes that provide the necessary level of service. Is expedited LCL an option? Do we need to transload and truck via exclusive use vehicles? Are charter aircrafts an option or a necessity?
  • Transparency, forecasting and collaboration are needed more than ever. We may sound like broken records, but the past seven months have demonstrated that when faced with headwinds in capacity, companies experience the most success with the greatest amount of notice and planning.

 

Your TOC account representative is always available to speak with you about market conditions, options and planning. Contact us today to get started.

13 Aug, 20

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