Air, Business, Freight News

Virus puts the squeeze on airfreight market

[ April 9, 2020   //   ]

Air freight rates from China to Europe had tripled or quadrupled since the delayed reopening of factories after Chinese New Year, says Cheshire-based logistics expert Straightforward Consultancy director Andy Cliff.

He warns that the Covid-19 crisis has led to a spike in air freight demand. “However, a perfect storm evolved as this demand coincided with the drastic reduction of scheduled flight capacity led by airlines such as Virgin and British Airways. We normally operate in a very organised cost and service framework with forwarders, but overnight, our customers’ agreed contract rates became invalid as space evaporated and airlines cancelled their BSAs with forwarders, citing force majeure.”
As Coronavirus has permeated throughout the major economies of the world, a bizarre situation has unfolded, whereby air freight importers are now reviewing and cancelling air freight orders as rates spiral upwards (at time of writing Chinese yuan 60-65 per kilo £6.90-7.50), almost four times market rates for small and medium-sized businesses.

Rates can increase substantially in the time it takes the customer to decide whether or not they are willing to pay the increase, often very substantially. The dilemma that the airfreight customer faces, of course, is that its own customer may not be willing to pay the increased charge. And of course, no one can even begin to guess what next week’s sales figures are likely to be, still less next month’s.

The Trump travel ban from Europe in mid-March led to a similar drastic reduction in scheduled passenger flight schedules which led to Transatlantic air freight rates skyrocketing. “For example, we had an 800kg shipment from Chicago 2 weeks ago where rates jumped to US$6.00 a kilo, more than six times the level of our agreed rates contracts. On the US, agreed customer rates on the airport to airport element of the freight cost were also invalidated, although within a week we did agree a defined CVS (CoronaVirus Surcharge as we’ve named it) per kilo with one major partner forwarder which has worked very well, keeping a lid on costs for our key customers.”

However, it has so far proved impossible to do anything similar in the chaotic Far East cargo market.
Most of the freight forwarders operations staff are working from home, fairly seamlessly as far as the customer is concerned. “However we’re now seeing incidences of furloughing, one from a large forwarder only two days ago, losing 40% of their import staff until 31 May.”
All in all, these are worrying and uncertain times for everyone in the freight industry. “I’ve been through SARS, the Ash Cloud, world recessions, but I’ve never known times like these,” says Cliff. “It’s at times like these that I really earn my money.”