Jan. 27, 2021

Change of Air: Supply Shortages and Ocean Jams Transform Airfreight in 2021

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Airfreight has entered a new era of extraordinary volatility. New developments—like inventory shortages and tumult in ocean shipping—pile onto ongoing Covid chaos. All this cultivates the very real possibility of air-market turbulence at a moment’s notice. Even as airlines scramble to add capacity to their fleets, this year is likely to look more like 2020 than 2019.

By the Numbers

The impact of Covid-19 on the airfreight market has been nothing short of seismic.

That’s because, pre-Covid, approximately 50% of all air cargo was flown in the belly of passenger planes. Covid-related travel bans were the first domino: Flight cancellations decimated cargo capacity and shifted consumer spending from travel to goods. Any remaining space became even more valuable.

By July 2020, 6.5 million tonnes of airfreight capacity had been removed from the market. By August, passenger travel rates were down approximately 70% year-over-year. Despite all that, the supply-demand volatility pushed revenue yields up to 30% higher.

This year, the International Air Transport Association (IATA) still expects rates to hit historic highs. To stay current with relevant market fluctuations, read the weekly Freight Market Update.

Capacity Updates

Supply chain directors may recall another IATA prediction that air travel—and its cargo capacity—was unlikely to return to pre-Covid levels until 2024 or later.

Flexport EVP and Global Head of Airfreight Neel Jones Shah softens the blow with another possibility, “Capacity may return by the end of summer 2023—with a caveat.

“The next six months will be extremely difficult as the pandemic rages on globally, but the second half of 2021 and 2022 look better than originally forecast. Airline CEOs increasingly believe that once we achieve a minimum threshold of vaccinations, global travel will rebound sharply and with it more capacity for cargo.”

Another factor is industry responsiveness. Airlines are doing their best to add capacity quickly and transforming fleets to meet the shape of the market. By the end of last year, many had converted passenger planes to accommodate more cargo.

As a result, the number of decommissioned planes may soon rise as airlines divest from jumbo jets. Smaller, more fuel-efficient planes will replace them to carry passengers. And, dedicated freighters will transport more cargo. Already this year, several major airlines have added all-new freight planes to their fleets or have more on order.

Additionally, vaccine distribution may not cause as many hiccups as once expected.

Getting billions of shots in arms around the world is a gargantuan task. But much of the logistics work is regional and relegated to the cold chain. The intercontinental portions of transport aren’t causing major trade lane disruption at this stage.

Once vaccine orders increase, however, the situation may change, especially into the developing world. The major Transpacific and Transatlantic trade lanes are not likely to be disrupted in any significant way by vaccine shipments.

Consumer Patterns

What’s more likely to impact available airfreight space: inventory shortages, caused by months of high consumption and Covid-related supplier challenges. Shortages have been occurring across industries in waves for months now.

For retailers, low inventory is a major business threat. Stockouts represent more than missed sales opportunities; they destabilize customer trust and can send consumers elsewhere for good.

Companies short on inventory are hungry for fast transport to replenish stock quickly. These shippers may choose air over ocean, even if it means a difficult decision to take a loss on a sales cycle. Keeping customers engaged can be more important to the longevity of a business.

Ocean capacity woes may also drive harried shippers to bump goods onto planes if they get the chance. Trade lane turmoil remains exacerbated by equipment shortages, delays due to port congestion, and a seafarer crisis. Chinese New Year capacity is uncertain with carriers forgoing the usual blank sailings—for the most part. A slew of cancellations to Northern Europe could cause new logjams.

Strategic Approaches

With so many circumstances pointing to continued volatility, accurate forecasting and budgeting are crucial in 2021. Plan ahead with these tips:

  • Invest in forecasting. The pandemic has persisted for long enough now that companies can review recent data for trends and predictors. Run in-depth reporting from Flexport’s platform to learn as much as possible about new or emerging supply chain patterns.
  • Bulk up budgets. Since airfreight rates are unlikely to show significant dips for now, businesses should account appropriately for higher costs in go-to-market strategies.
  • Communicate needs. Ask freight forwarders about capacity mixes for different business goals. For Flexport customers, sharing as much information as possible can help find available space across wide air or other carrier networks. Request air or ocean experts join planning sessions as needed.
  • Get creative. Adaptability lets companies find unexpected solutions, like multimodal transportation or new gateways. For example, if the Chicago airport is congested, fly goods to LA and truck them from there.

As strong consumption and tight capacity keeps pressure on rates in 2021, embrace a forward-thinking approach, based on data, market trends, and expert partnerships. Existing Flexport clients can reach out to their client services team and start a conversation about optimizing airfreight. For others, consult with a Flexport expert to get tailored advice.

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