The Cost of Air Freight Soars Even Higher

The Cost of Air Freight Soars Even Higher

(Bloomberg) --

Air-freight costs are still soaring, squeezed higher as space in the belly of passenger jets dries up and demand rises for sending goods faster than a container ship can make the journey.

Cargo rates on flights from Hong Kong to North America surged to the highest level in almost 16 months, according to TAC Index data tracked on Bloomberg. The route from Frankfurt to North America is also still spiking upward.

As the Covid-19 pandemic discourages consumer travel and forces governments to close borders to non-citizens, “air freight is getting severely constricted,” Phil Levy, chief economist with Flexport, a freight logistics provider, in an interview on Bloomberg Television.

“It’s a particularly acute problem now,” he says. “Often when you had supply-chain interruptions, goods that might have been sent by some other, slower routes, people often turn to air as a way to replenish inventories quickly.”

The Cost of Air Freight Soars Even Higher

American Airlines last week announced cargo-only flights on grounded passenger jets between Dallas and Frankfurt to move medical supplies, mail for U.S. military personnel, telecom equipment and e-commerce packages. It was the airline’s first scheduled cargo-only flight since the last of its Boeing 747 freighters was retired in 1984.

So why not convert all those empty passenger cabins into cargo holds, to alleviate the capacity constraints? Turns out that’s a very expensive and time-consuming process, Levy says.

As for other modes of transport, he says ocean freight is “still moving reasonably well.” On Monday, the chairman of Copenhagen-based Maersk, the world’s biggest shipping container line, said the company is running at full speed despite “significant challenges in global supply chains.”

That may change, however, as China reopens for business and goods try to start flowing again out of the world's second-largest economy — just as economic activity in the U.S. and Europe sharply slows when people are forced to stay home to contain the spread of the virus.

Meanwhile, on the roads across America, trucking companies are riding a surge in demand from consumers stockpiling basic goods, but it probably won’t last long as the U.S. economy grinds to a halt. New Jersey is restricting travel for the foreseeable future on its roadways between 8 p.m. and 5 p.m. so commercial and emergency vehicles have priority. 

Stephen Laskowski, president of the Canadian Trucking Alliance, told Bloomberg’s Jen Skerritt that there’s an “imbalance” in the supply chain as there’s high demand to ship goods such as food, toilet paper and medical products, and no demand from industries that have shut down.

In Europe, the challenges for trucking are even more stark. With roads used for three-quarters of the European Union’s inland freight transport, the European Commission is pressing member nations to scale back border barriers that in some cases have caused delays of more than 24 hours, including for medical supplies.

In a set of guidelines on Monday, the Brussels-based commission called for the creation of cargo “green-lane” crossings at which checks, including the health screening of drivers, would be limited to no more than 15 minutes.

“The Covid-19 outbreak is having a major disruptive impact on European transport and mobility,” the commission said. “The European supply chain is maintained through an extensive network of freight transport services.”

Charting the Trade Turmoil

The Cost of Air Freight Soars Even Higher

The euro zone is sinking into the  biggest economic crisis in its history as measures to contain the coronavirus pandemic bring much of the business world to a standstill. IHS Markit’s measure of private-sector activity plunged to the lowest since the index was started — and the currency bloc was formed — more than two decades ago. The meltdown was across the region.

Today’s Must Reads

  • Around the clock | After meeting its own country’s needs, a Chinese factory is working flat out to fill on orders from overseas for its lifesaving ventilators.
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  • Feeding the poor | India will have enough grain to feed its poor for at least a year-and-a-half as reserves are likely to further balloon after record harvests in the South Asian nation.
  • Owning warehouses | With online marketplaces are still thriving, Blackstone, Prologis and other warehouse landlords are benefiting from one of the few bright spots in a bleak investing landscape.
  • Harvest hardship  | The world’s biggest exporters of soybean meal and oil are fending off a slew of logistical hurdles as they rush to get ready for the impending harvest in Argentina.
  • Cleaning up | Companies from Pernod to BrewDog are switching to anti-Covid production of hand sanitizers, and it might improve their public image.
  • Caffeine rush | Coffee trading has been a tug of war between demand and supply concerns, with futures swinging between gains of losses. For now, supply worries are winning.

Bloomberg Analysis

  • A massive hit | The virus and the world economy — Bloomberg Economics forecasts a $3 trillion blow.
  • Road to recovery | Virus could be the cure for weak contractual truckload rates.
  • Higher costs | Supply-chain disruptions posed a greater risk to companies like Amazon, Google and Uber.
  • Use the AHOY function to track global commodities trade flows.
  • See BNEF for BloombergNEF’s analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
  • Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.

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