“The gap between sea and air freight rates is narrowing, and the market environment is more cautious
The cost of shipping goods around the world by air is about 2.5 times higher than it was before the pandemic. On major trade routes with particularly high demand, such as China and Southeast Asia to the United States, freight rates are five or six times the normal level during peak shipping seasons.
So how did air freight become relatively cheap when ocean freight was cheaper?
According to the Freightos Air Index, air freight from China to the U.S. West Coast was about $14 a kilogram in the first week of November, double what it was a year ago. Air freight to the East Coast costs about $13, double what it was in 2020.
We all know why now. Passenger planes, which are the source of more than half of the world’s air cargo capacity, stopped flying when COVID began to spread and restrict travel. The reduction in border restrictions this year has boosted demand and helped airlines begin to recover, but international air capacity remains around 70% below pre-crisis levels.
Meanwhile, demand, especially in North America, is at record levels as federal benefits and higher savings rates give people more disposable income, who disproportionately spend on goods rather than services , while manufacturing is experiencing chaos and labor shortages. Inventory has not kept up.
Airfreight is usually a last resort, limited to perishable and high-value goods, the profits of which can pay for extra. Incredibly, for many companies, air freight has become a bargain relative to ocean freight, especially when measuring the cost of out-of-stocks and lost sales.
This happens when supply chains are turned upside down by ongoing chaos.
At present, all-cargo aircraft are the main cargo force in the aviation market. On December 15 last year, the Civil Aviation Administration of China revised and re-issued the Operational Safety Circular “”Cargo Transport in Passenger Cabin (Second Edition)””, prohibiting “”passenger-to-cargo”” on January 1, 2022. The cargo compartment can carry cargo, but the passenger compartment has The new restrictions will limit the expansion of air capacity in Asia. According to data from the Civil Aviation Administration, as of the end of 2020, domestic airlines had 186 cargo aircraft, accounting for 4.8% of the transport fleet.
Although most of the air freight orders of most freight forwarding companies are transported by all-cargo aircraft, there have been few cargo flights recently and the space is tight. Passenger-to-cargo aircraft are not allowed to change the cabin structure, and many cardboard boxes that can be placed in the passenger compartment of the removed seat need to find another cabin.
It is worth noting that the high freight rates of shipping containers and the situation of port congestion have weakened the low-cost advantage of shipping, which is also the reason for the large increase in the volume of this wave of sea-to-empty cargo. According to the estimates of the International Air Transport Association (IATA) and industry experts, the air freight rate before the epidemic was about 13 to 15 times that of sea freight. Now air freight is only about 3 to 5 times higher than that of sea freight. within the acceptable range.
Freight costs to remain at 2021 levels
DHL recently released an air cargo report, which predicts that 2022 will be a higher year for freight costs. Demand remains strong, with GDP expected to grow by 4% in 2022.
On the other hand, as vaccinations increase, belly space will increase, but it will still be 28% lower than pre-coronavirus levels.
With the advent of the Omicron variant and the cancellation of flights, belly recovery has been affected, the report said. Air freight rates rose 126% in November 2021 compared to the 2019 baseline. The rate is expected to remain high in 2022 compared to the previous year.
High shipping costs make the market more cautious
Released by the Hong Kong Productivity Council (HKPC), the Hong Kong Airline Trade Leading Index (DTI) has declined slightly recently after reaching a high of 3.5 in the fourth quarter of 2021.
The latest survey marks the first time since the pandemic that the proportion of Hong Kong air traders has reached the same level, with the fourth quarter of 2021 seeing the largest percentage increase in Hong Kong air trader earnings.
This decline in the first quarter of 2022 is reflected in the outlook for air traders, with the impact of the new wave of the virus on their business as their top concern, followed by high transport costs.
All indices declined slightly in the first quarter of 2022 as the pandemic recovers globally, high fuel costs and supply chain disruptions to transport networks continue, suggesting aviation traders are becoming more cautious about the business environment this year.
The impact on the Hong Kong market and business is greater due to recent signs of re-emergence of Covid-19 variants. Hong Kong companies have experienced business disruptions related to the lingering epidemic, and most of them are now maintaining their business through e-commerce and digital technology.
In the first quarter of 2022, the top issue affecting the business of Hong Kong air traders was the new wave of Covid-19 outbreak (39%), followed by high freight rates (26%) and consumer demand (16%).
Freight costs are not expected to decline in 2022, with short-term rates for air and ocean freight rising slightly and long-term rates likely to remain at 2021 levels.
The new crown epidemic has severely disrupted global supply chains, slowing the flow of raw materials, components and consumer goods, coupled with labor shortages and port congestion, sea and air transport capacity shortages have caused global shipping costs to rise slightly.”
