Covid19 and airfreight, devastating or accelerated change

Covid19 is shaping the airfreight industry and slowly the picture is emerging how cargo by air will be different. Not just whilst countries re-open borders but for many years to come. Some analysts are predicting that the earliest we will see normality is 2022. As airlines struggle with the notion of lockdowns the service industries surrounding air travel continue to shrink. London Heathrow has seen many handling sheds close and presently the biggest sheds are struggling to cope. Lack of resource means cargo arrives but then suffers a delay in release. By resource it’s not just within the handling shed but drivers & delays in cargo agent clearance increases the issues.

• Swissport set to halve it’s UK workforce
• Menzies cuts 17,500 from their supply chain
• Emirates consider cutting 30,000 jobs, retire A380s faster

These headlines make stark reading but what has been just as interesting are governments reactions to the industry. Despite cargo looking to get going and kick-start the industry exports have struggled to get there goods overseas. The government has continued along the “BREXIT” path which is fine. Presently high rates and rate volatility due to dynamic pricing models is causing issues. Freight forwarders are finding it difficult to secure cargo to match cargo capacity. Dynamic pricing was around before Covid19 with the likes of Air France and KLM relying heavily on the model. During the pandemic though it has frightened off many exporters in the UK & Europe.

Airlines and cargo tariff rates

In order for the industry to have confidence and shippers to get cargo moving in volume we need normality. This came as airline rate tariffs, under the old system two were published per year. There would then be further spot rates based on capacity. Tariffs though are being held back as airlines with deep pockets hold out on capacity to keep rates high. With a lack of passengers subsidising cargo, rates remain high. Shippers will adjust to paying higher rates over time. The question though is stability. Dynamic pricing is all well and good but shippers need to know what they will pay on future orders. Instant pricing has it’s place but so does tariff rating. To get cargo volumes moving again the industry appears to be crying out for monthly tariff rates.

Is it just down to COVID-19 that airlines have moved away from tariff rates. We have seen for some time airlines operating away from standardised pricing and moving towards a more dynamic approach. Base load cargo in the form of PB’s and passengers allow European airlines to sell excess space dynamically. What has upset this approach has been the removal of passengers from the equation and airlines not reacting. Continuing to trade this dynamic approach and looking for rates far in excess of what shippers can comfortably accommodate.

Airbridges and cargo

The press now reports airbridges are no more, replaced by a broad country list. Airbridges were originally mooted and aimed at short haul destinations which are great for tourists. Holiday destinations though are not necessarily cargo transhipment points. It is now being reported that almost all EU countries, along with Turkey, Thailand, Australia and new Zealand are included. Turkey is great news for cargo, as a regular transit point it allows a route for passengers which supports cargo. Bangkok opens up a second transhipment route into the Far East. With passengers come scheduled services and help covering flight costs. Transhipment cargo may shift but the Middle Eastern airlines are working hard to ensure they are in the mix.

Presently it is the industry itself coming up with solutions. With IATA reporting that capacity is out-stripped by the requirement to move goods should the industry do more. What more can the individual government’s do to help.

Etihad’s decision to add Manchester flight’s during July to their route is a very welcome addition. What we are not seeing though is UK or European carriers reacting with the same conviction. Held back by a lack of government support to put the confidence back into the UK & European airline industry. Without confidence airlines will continue to struggle and be risk-averse.