As China’s manufacturing plants reopen and ramp up to full production, demand has surged for air cargo space needed to move critical medical supplies and products which were delayed due to the coronavirus shut-down.
Fedex’s Chairman Fred Smith was a guest on Face the Nation Sunday and commented on the strength of demand for Fedex’s cargo operation stating “China is now actually back mostly in production. About 90 percent of their big factories are open. Their smaller businesses, less so, but about 70 percent… Just last week, for instance, we flew 246 flights in and out of China.”
At the same time, passenger air service to and from China and other global points has been sharply curtailed. Airlines in every global region have suspended or reduced passenger flight frequency to China and now Asian, European, and American points. Two examples of this are Cathay Pacific who reduced 96% of their international passenger capacity and United, which eliminated 95% of its international schedule as of Sunday.
These passenger flight cancellations eliminate the belly space used to ship cargo. The scale of the reduction is unprecedented – about 50% of the air freight capacity to and from Europe is gone – and the speed of the change means no one was able to plan alternatives. “With the shut-down of passenger operations across the Pacific, we have significant backlogs coming into this country and a significant amount of traffic going back to China. More recently, the same thing’s true across the Atlantic,” commented Fred Smith.
Because of the rapidly changing demand and supply for air lift, rates to and from global locations are skyrocketing. According to a cross-section of international logistics suppliers, rates are up between 40%-60% and changing daily. Charter rates for B747 freighter aircraft are approximately twice the rates pre COVID-19. Major freight forwarders have advised Baker that all “contract rates are out the window” and at least one global player has declared force majeure.
We’ll continue to provide market updates as well as options clients can explore. Tomorrow look for Baker’s insights into what surging air freight prices and reduced space mean for International Exhibition Shipments.