Carriers caught in the deepening crisis caused by the COVID-19 pandemic are fighting for survival.
Some companies are forced to reduce staff, refuse equipment leasing, try to use the transportation of high-demand goods, necessary to fight the pandemic.
At the same time, some experts expect a possible consolidation of the big players, as they may buy up crisis-weakened mid- and small-scale logistics companies after their bankruptcy in difficult economic conditions.
According to Brandon Freed, executive director of the Air Carriers Association, revenue for freight forwarders has fallen by more than 50%, and 65% of Air Carriers Association members have either already laid off some employees or plan to cut staff.
At the same time, the pressure on logistics companies is increasing. “In order to reserve a seat on a flight, airlines ask for an advance payment,” commented Rick Campbell, CEO of ICAT Logistics, Inc. in Baltimore. — I have been in this business for 38 years and have experienced all the ups and downs of the industry, but nothing like this has ever happened to us. The costs of doing business have increased exponentially.”
Profitability in the freight forwarding industry depends on maintaining a high level of freight flow to achieve the required level of efficiency and economies of scale while covering high fixed costs. When this delicate balance is disturbed by a sharp decrease in income, the freight forwarder’s profitability quickly drops to a minimum.
According to some company executives, the price of air transportation rose sharply last month. Chris Connell, senior vice president of North American perishables for Los Angeles-based Commodity Forwarders, a subsidiary of Kuehne + Nagel, said prices for inbound flights from Asia are up more than 75%, while export rates domestically and globally increased from 20 to 100%.
Industry consolidation can benefit large shipper customers by giving the stronger carrier more leverage in negotiating better terms.
In addition to the financial pressures, one executive at a major shipping company said customers are increasingly asking if they can delay paying for air freight. “Our long-standing customers, very large companies, are asking us to cover their costs, and that puts a heavy financial burden on us,” said Ross Baccarella, chairman of BTX Global Logistics in Shelton, Connecticut.
We have been hit hard by the decline in overall air traffic. It started with international airlines and then moved to domestic airlines, but we use carriers with whom we have a long-standing close relationship, such as Southwest and Delta, said Michelle Halkerston, CEO of Hassett Express / Hassett Logistics of Oakbrook Terrace. state of illinois To cope with the devastating business impact of the COVID-19 pandemic, the company has focused on same-day air transportation to deliver medicines and pharmaceuticals across the United States. “We provide the fastest delivery.”
Air freight rates from China are at their peak as huge demand for personal protective equipment in countries battling the novel coronavirus disease 2019 (COVID-19) remains unabated.
Demand from Europe and the US is so great that Chinese factories that produce vital medical equipment are working almost 24/7.
Prices this week for flights from Shanghai to Europe reached $8.79 a kilogram, while prices in Shanghai and the US rose 175%, according to TAC Index data. By comparison, the average weekly air fare from January 2018 to mid-March 2020 was $2.71. USD/kg on China-Europe routes and USD 3.47. USA/kg on China-USA routes.
In addition to the steady demand for PPE, available cargo space has shrunk dramatically due to the suspension of passenger flights on China-Europe and trans-Pacific routes, leading to a change in market conditions.
“The air transport market is experiencing rapid growth in demand for medical equipment as end-users and governments continually demand new product volumes,” FIS said.
The Freightos platform shows that air freight rates are at record highs outside of China, with demand for critical goods high and limited capacity driving rates up 25-30% from the previous week for the second week in a row.
“On-time delivery affects charter prices like never before,” said Edoardo Podesta, operations director for air and sea logistics at Dachser. He said shipping prices, especially from southern China, are at an all-time high and demand is so high that additional capacity has to be found.
Marco Reichel, regional business development manager for Shanghai / Asia Pacific at Crane Worldwide Logistics, said that demand for air freight and personal protective equipment from China is currently extremely high amid a volatile market.
Brian Bourke, development director at SEKO Logistics, predicts peak demand for air freight in the run-up to the May holidays.
“Some factories are open on holidays or are only partially closed, and factory closures create a frenzy over the airlift of urgent medical cargo,” Burke said.
The length of the period during which high demand for PPE will continue to stimulate air travel depends on when the number of cases of infection with the coronavirus infection begins to decrease in the main markets of Europe and the United States.
Podesta expects that demand for air freight will decrease when Europe builds up large stocks of the necessary masks and personal protective equipment, with rail and sea transportation replacing air, but it is not yet known when that will happen.
“At this stage, with a few notable exceptions, we can only judge booking volumes and demand two to three weeks ahead at most,” he said. — In the end, the number of urgent air transportation will decrease and then stop. My personal guess is that this will happen during May.”
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Prepared based on materials from: www.joc.com, www.joc.com, and data from open sources.