COVID-19: China-Europe air cargo rates climb as new products hit the market

Product launches are competing for space with general air cargo and medical equipment. Photo credit: Shutterstock.com.

Air cargo rates on the China-Europe trade are responding to rising demand as product launches from 5G smartphones to gaming consoles put pressure on already limited capacity.

Average spot rates on the Shanghai-North Europe route rose 4.5 percent over last week to a four-month high of £4.20 per kilogram, according to the TAC Index.

The rate is now 63 percent above the same week last year. 

"The market in Asia has now picked up speed again with production ramping up, and we are seeing increasing tonnage for export," said Edoardo Podesta, COO of air and sea logistics at Dachser. "With passenger flights not likely to resume to pre-coronavirus levels, we can expect a lively peak season this year."

The new products are competing for space with general air cargo and increasing amounts of personal protective equipment (PPE) as COVID-19 infections spike across Europe. More than half the available cargo capacity on the China-Europe trade is typically provided by the belly space in passenger planes, but travel bans have brought long-haul travel to a standstill.

With capacity so tight, there are signs of growing frustration at the lack of information surrounding the product launches as forwarders try to find spare capacity to secure shipments for their customers.

"It's surprising how little we know about what big guys like Apple, Samsung, Sony are doing, when they are launching, how they are launching, what capacity they will need," a forwarder said at the Xeneta Summit this week.

Forwarders have been scrambling to lock in cargo capacity, with Dachser adding peak season charters to connect Asia and Europe to its weekly Frankfurt-Shanghai charter rotations that began this week for the autumn peak. Weekly charters have also been provided on the Hong Kong-Frankfurt route, and the Frankfurt-Chicago rotation service.

Most of the global service providers have contracted freighter operators and cargo charter services to enable them to control capacity during the anticipated peak season demand on the Asia-Europe and trans-Pacific trades. 

'Toxic' spot for buyers of air freight

The high demand and absence of capacity is pushing up load factors.

Niall van de Wouw, managing director of CLIVE Data Services, said while that may be encouraging news for airlines, shippers and forwarders were being hit by higher air freight costs. 

"Uncertainty over how the market will develop alongside very high load factors is a toxic combination for the buyers of air freight capacity," he said in an air cargo update this week. "These remain uncertain times, but with more optimism in the market for October and November volume, the question is: How far can the recovery go?"

Van de Wouw said if the strong demand continued, and shippers were prepared to pay, there could be a resurgence in passenger planes being deployed to move freight. It only makes economic sense to deploy passenger planes to carry cargo when rates are above a certain point because it is a highly inefficient and costly process loading cabins by hand with all freight packaged in a way that can fit through the passenger doors.

The air cargo industry has been in desperate need of additional capacity for months, underlined by the International Air Transport Association (IATA) stating in a recent report that daily widebody freighter utilization was already at its highest level since 2012 at almost 11 hours a day.

The lack of capacity was particularly acute on belly cargo-heavy trade lanes where the markets have struggled to switch to freighters ever since the COVID-19 travel bans, IATA pointed out.

"For example, total capacity on the large Europe-North America market was down 56 percent year over year in total in August, with dedicated freighters air cargo ton kilometers only up 8.8 percent," the report said. 

Some air cargo solutions are being found in the most unlikely of places. In the first air freight job Maersk has undertaken since absorbing Damco's air, ocean, and less-than-container load (LCL) services on Oct.

1, the carrier contracted 11 chartered flights for a shipper from low-cost carrier Air Asia.

"We have been dealing with many different airlines and AirAsia X (XJ) offered the best fit both on charter cost and on load ability," a Maersk spokesperson told JOC.com.

AirAsia X operates Airbus 330-300s. "XJ supported loading cargo on passenger seats, which allowed us to maximize space on the aircraft," the spokesperson for the carrier said.

Contact Greg Knowler at [email protected] and follow him on Twitter: @greg_knowler.

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