March 19, 2021 | Supply Chain Blogs
The east-west trade seems to be finally turning around in 2021 after a lackluster 2020.
This is evident from the increased export of medical and electronics products from China to European and American markets, driven mostly by a gradual economic revival.
However, this spike in exports is putting pressure on cargo capacity.
Handling this export surge with limited air cargo belly capacity is creating a bottleneck situation for shippers and forwarders. And this status quo in capacity crunch is also increasing air freight rates.
Shanghai-North America rates rose 20 per cent and were 104 per cent higher as on February 3 this year compared to the same day last year, according to TAC index.
Shanghai-North Europe rates posted a 7 per cent jump and were 98 per cent higher as on February 3 this year compared to the same day last year.
Abrupt rise in air cargo rates from China to Northern Europe and North America
Disruption in the air cargo supply chain is mainly due to travel bans. This has resulted in the grounding of long-haul passenger aircraft, and removing at least half of the air cargo belly capacity on the east-west trade.
This increase in demand is likely to continue till the end of the year. Freight forwarders are increasing capacity by expanding their portfolio, adding new routes and increasing the frequency of shipping trips.
Like Dachser, the Germany-headquartered logistics service provider, which has increased its air network capacity and plans to expand the network in the second quarter.
The demand surge is expected to continue with belly capacity remaining limited. This has made securing capacity through charters a key part of forwarder service offerings.
Geodis is also expanding its charter offering.The France-based logistics provider will connect Asian and South American regions on a weekly basis. The service will join Geodis’ charter network linking China with western countries.
However, while expanding the charter networks is helping forwarders buy additional capacity, the COVID-19 pandemic continues to hamper the flow of air cargo logistics chains.
Aggravating capacity constraints is the second wave of coronavirus infections in Asia, Europe, and the U.S. Measures to reduce the infection rates are affecting the availability of airline pilots and ground crew.
In the key Asian air cargo hub of Hong Kong 14-day quarantine measures for pilots and crew is likely to have a significant knock-on effect on the industry.
Freight carrier FedEx interim solution is to relocate its Hong-Kong-based pilots to San Francisco to avoid quarantine-memo while Cathay Pacific Airways is asking crew members to do 21-days shifts following which they go for quarantine and take time off.
Service providers added new connections to increase charter portfolio to substitute grounded passenger flights in 2020. This trend continues in 2021.
In addition, medical supply products will remain an important driver for air capacity demand. General air cargo volumes for automotive equipment and consumer goods are increasing even amid capacity shortage.