The outlook for economic recovery and better health for airlines is more pessimistic and that’s bad news for manufacturers and other shippers seeing input costs rise due to higher transport prices in the COVID era.
Passenger airlines are reporting huge second-quarter losses, terminating employees and slowing the reintroduction of flights as the coronavirus flares up. Fewer flights means fewer transport options for shippers already facing a supply shortage, but full-freighter operators – and freighter friendly airports like Rickenbacker in Ohio – will reap the reward with more business than they can handle.
Last week, the global trade association representing airlines said cargo capacity in June was 34% below the 2019 level. It also added a year to its timeline for the airline industry to reach full strength
Airfreight rates from Asia are on the rise again the past three weeks. Most notable in the past week is the 8.6% increase in air cargo prices from China to the U.S., which are averaging $5.16 per kilogram. In the past three weeks, spot market rates have increased 18%. The China-to-Europe rate ticked up a half point to $3.29, according to data compiled The Air Freight Index Co.
The outbound rate from Europe to the U.S. slipped 3.4% after staying flat the prior two weeks.
(Source: The TAC Index, Freight Investor Services)
The rate increases and volatility could create an incentive for carriers to steer customers to the spot market rather than agreeing to longer contracts, according to a customer note from Freight Investor Services in London. Meanwhile rising fuel prices will potentially squeeze margins for freighter operators until carriers start to hedge fuel with futures contracts at predetermined prices or pass costs onto customers, FIS said.
Jet fuel prices have increased 11% in the past month, which is why some passenger airlines have scaled back cargo-only flights, which have less revenue capability than a pure freighter, according to air transport specialists.
A factor that could soon influence capacity is the scheduled release of several big tech products starting in September. The latest cell phones and other electronic gadgets are typically rushed to market on all-cargo aircraft before transitioning to ocean when initial demand is satisfied. Apple said this week the debut of its iPhone 12 will be delayed a few weeks because of COVID-related production delays.
Airline troubles
More twin-aisle passenger planes with lots of lower-deck space for cargo would be welcomed by companies needing goods transported, but optimism that the coronavirus will quickly pass and lead to a steady increase in travel demand is fading.
Passenger airlines say a decline in ticket sales after a brief uptick a month ago is forcing them to reintroduce fewer fall flights than planned. Travelers are worried about quarantines in areas they might visit, travel restrictions and getting infected. Transportation Security Administration figures for throughput at U.S. airports fell 63 basis points week-over-week to 73.8% of the year-ago traffic.
Underscoring the long road to recovery, especially for the all-important corporate travel business, was the announcement that the massive Consumer Electronics Show will be digital in January 2021 instead of being held in Las Vegas.
The situation could get worse. Large sections of the U.S. are dealing with spikes in coronavirus infections, leading states and localities to tighten restrictions on public activities. Several European countries are also experience a resurgence of COVID cases after the region began to reopen its borders last month.
Meanwhile, U.S. economic output dropped by a record-shattering 33% in the second quarter, wiping out five years of growth. Things didn’t get better in July. Jobless claims rose for the second straight week, consumer confidence is falling, the U.S. Congress can’t agree on a second stimulus package as $600 unemployment bonuses expire, and credit and debit card spending fell. More than 12 million people couldn’t pay their rent in June and without new federal help many more could be on the streets.
All those people facing economic hardship aren’t spending money that ends up supporting businesses and their employees. And they aren’t flying.
Pure freighter operators will be in high demand to handle COVID medical, e-commerce and other high-demand shipments, but for everyone else the reality is scary.
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
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