Air cargo passes its test

The cargo capacities of passenger aircraft have been almost completely eliminated. However, airfreight prices have now largely returned to normal; the initially extreme price fluctuations were a short-term phenomenon. Sufficient capacity is available for critical goods.

In Asia, the peak of the corona crisis has passed. How are capacities and rates in Asian transport developing?

Passenger traffic to Southeast Asia remains severely restricted, and India is now also affected. As a result, the cargo capacity provided by passenger aircraft will not be available for the time being. This will continue to be the case at least until the end of April. However, the effects are less dramatic than initially feared. Before the beginning of the corona crisis, only about 70 percent of the available airfreight transport capacity was in use. However, the number of cargo aircraft in service is increasing daily. In addition, airlines are increasingly using passenger planes in pure cargo traffic.

The initial price explosion with increases of up to 1,000 percent on the spot market was a short-term phenomenon. Prices have since largely returned to normal, and markups have become significantly lower. In addition to the increased capacity, the decline in demand due to economic slowdown is also a contributing factor. All market participants are trying to create a new "normal situation". However, this is characterized by scarcer capacities at moderately higher prices. Short-term border closures and entry bans remain a factor of uncertainty.

Will the development in North America be the same as on Asian routes?

In recent days, passenger transport between Europe and North America has been restricted. This also means that freight capacities are reduced, as passenger aircraft generally transport 60 to 70 percent of air freight. It is not yet possible to reliably estimate whether cargo airlines will be able to compensate. However, it is possible to reschedule these flights at short notice and withdraw them from other regions to fill gaps in North American transport. In addition, airlines are also starting to use passenger aircraft to transport cargo only. In any case, we expect freight to have longer transit times.

Overall, air freight transport is organized in a fragmented manner. For this reason, the absence of individual providers is not critical. A "herd instinct" on the part of the airlines is likely to be problematic, with a large number or a majority of large network carriers discontinuing connections. However, this is countered by the decline in demand.

How does the overall market present itself?

Uncertainties and altered production conditions continue to cause a comparatively short-term demand for air freight in almost all regions. For February, IATA reports a 10 percent drop in airfreight demand. For 2020 as a whole, the organisation of international airlines is expecting a decline of 15 percent. This is also due to the fact that specific regions can no longer be served. Russia has recently prohibited international traffic.

Are sufficient capacities available for critical goods?

Yes. The transport of critical goods, such as medicines, is currently ensured on all routes and is being given priority. Where previously regulations and requirements hindered rapid transport, special permits are now in place to enable swift delivery. Overall, the airfreight industry is doing everything in its power to maintain supply chains.

Will the current and expected border closures in Europe have an impact on air freight?

Providers follow a hub concept in air freight, too. Feeder traffic usually takes place by road. Border closures will affect operation. The number of available drivers could also affect transport. Notable congestion at the borders, especially between Germany and Poland, was a short-term phenomenon.

What impact will the corona crisis have on airlines and freight capacities in the medium term?

The big airlines earn their money through passenger flights. Cargo is an additional business. The cancellation of major routes represents a considerable financial challenge for airlines. If up to two-thirds of aircraft remain grounded, even contrary developments such as a falling oil prices do not help. Even a healthy company like Lufthansa has already announced that it will apply for state aid.

This situation gives reason to suspect that airlines will increase freight rates across the board – regardless of capacity and demand. Air freight providers would then be expected to follow suit in order to improve their earnings situation.

You can find more information about the impact of the coronavirus on the current transport logistics here.