Air freight rates are rising and cargo carriers ramping up their utilisation to fill the gap left by grounded bellyhold capacity on passenger jets.
Normally, nearly half of global air cargo is carried in passenger jets’ bellies.
Total cargo capacity, adjusted to include the Lunar New Year, fell 4.4% in February, according to IATA, even before shutdowns were enacted outside Asia, wreaking havoc with passenger schedules in March. Air cargo demand also fell in February, notes IATA, by 9.1% globally and 15.5% in Asia-Pacific.
“The disruption of global supply chains led to a fall in demand,” IATA states, “but the dramatic disruption in passenger traffic resulted in even deeper cuts to cargo capacity. And the industry is struggling to serve remaining demand with the limited capacity available. We only got a first glimpse of this in February.”
This shake-up of the industry has led to booming price rates for air freight as capacity is squeezed.
“We have never been as busy as we are now,” Larry Coyne, chief executive of cargo specialist Coyne Airways, tells Cirium. “We would rather not have Covid-19, but for our business this has been a real uplift.”
Coyne Airways does not own or operate its own aircraft, but purchases space on passenger and cargo flights. With much of the capacity removed from the market, prices have leapt to many times their previous levels. Whereas freight rates for transatlantic cargoes were previously at around $0.80 per kilogramme, they have now risen to $2.50-4 per kilogramme, enticing several passenger airlines to begin operating cargo-only flights.
Air Canada, Aeromexico, American Airlines, Austrian, British Airways, Cathay Pacific, Delta, Emirates, Iberia, Korean, LATAM, Lufthansa, Qantas, Scoot, Swiss and United, among many other carriers, have made passenger aircraft in their fleets available for chartered cargo operations, notes IATA.
Coyne explains that “a calculation that needs to be done”: at a rough estimate, a New York to London flight at the normal market rate of $0.80 per kilogramme would earn a passenger airline operating a Boeing 777 around $20,000, but with rates now at up to $4 per kilomgramme they could earn $100,000.
The incentive to deploy passenger aircraft in the freight market may be blunted as cargo airlines bring back into service aircraft that had previously been stored. This process will be helped by collapsing oil prices, which make fuel-guzzling older jets more economical to fly. IATA noted recently that freight carriers were also delaying the retirement of aircraft.
In Coyne’s words, “the enemy of passenger planes [carrying cargo loads] is cargo operators bringing back capacity”.
So far, most existing customer demand has held up in the face of higher prices, he notes. Coyne Airways arranges capacity for energy projects in the Caspian region, which have large enough budgets to absorb the increase. For consumer products and food, demand is more elastic. “There is a difference between freight that has to go and that likes to go,” Coyne observes.