Grounded airplanes, shuttered economies, interrupted supply chains, and the introduction of buzzwords like “social distancing” were just some of the key disruptors that took over in 2020, making the year one for the record books—and not necessarily in a positive way. The airfreight market felt its fair share of those impacts as passenger travel was either curtailed or, in some cases, halted completely as organizations stopped shipping goods for a variety of different reasons.
From his vantage point as Executive Vice President and Head of DB Schenker’s Americas Airfreight, Asok Kumar has his finger on the pulse of the airfreight market, which, we’re happy to report, prevailed despite the challenges placed in front of it in 2020.
Tracing the initial COVID-19 impacts back to March, Kumar says the earliest flight restrictions were driven by government mandates and effectively removed airfreight capacity from the market. With a large majority of passenger plans grounded worldwide, there was a resultant 90% reduction in airfreight capacity (and a 35% reduction in cargo capacity).
Rates Go Through the Roof
Kumar says carrier rates also “escalated tremendously” in 2020 thanks to the natural economic laws of supply and demand. With less capacity available on the market, the capacity that was available fetched premium prices. When China’s economy began to start back up, those prices went up even higher. “There was a period in June when prices did come down slightly, but they’re now back up again,” says Kumar. “The situation remains very fluid and turbulent right now in terms of rates, capacity, and demand.”
The massive movement of personal protective equipment (PPE) for hospitals, first responders, and other front-line workers exacerbated the capacity crunch. As the demand for gowns, gloves, and masks grew in the May-July timeframe, airfreight became scarcer.
“As time has progressed, governments, hospitals, and other entities have had time to plan out their PPE needs,” Kumar says. “As a result, demand for airfreight has dropped somewhat, and much of the PPE freight has moved over to ocean.”
Alternative Transportation Options
One of the more interesting trends that Kumar noticed in 2020 was the influx of freighter capacity into the airfreight market. Freighters are fixed-wing aircraft designed or converted for the carriage of cargo versus passengers. Such aircraft usually do not incorporate passenger amenities and generally feature one or more large doors for loading cargo.
“A lot of freighters that were previously mothballed were brought back to fly in a safe, reliable way,” Kumar explains. As that capacity came back on the market, more airlines began converting their passenger planes into cargo planes, knowing that the latter was in big demand while the former was temporarily on hold.
“Airlines took out the passenger seats from the upper decks of their passenger planes, or simply put the shipments on the empty seats, and then used them to transport cargo,” says Kumar. “That’s something you really didn’t see happening pre-COVID.”
Fast Reaction Times Count
When the world’s governments began announcing travel restrictions in early-March, the news came as a big shock for some organizations. Unclear on whether these groundings impacted airfreight cargo, logistics providers like DB Schenker sprang into action to 1) get the most accurate information possible for their customers, and 2) determine the impacts and come up with a plan of action.
“We quickly secured additional capacity for our flight operations within three to six hours of that announcement on March 10th,” Kumar recalls. “Later, as it became clear that planes weren’t going to be flying and that capacity would be extremely tight, we were sitting in a relatively good position.” He sees being willing and able to react quickly to such shifts as a key strength for both shippers and logistics providers operating amid uncertainty. This not only helps ensure capacity availability, but it also shields shippers from steep rate increases.
Pointing to the freight conversion trend, Kumar says a lot of carriers were reluctant to start doing this in the March-April timeframe. They weren’t sure how long the no-fly mandates would last, so they didn’t want to go through the trouble of removing passenger seats or otherwise accommodating cargo with their passenger planes.
“Carriers that sat on the sidelines for two or three months to see what would happen are now scrambling to jump on the freight bandwagon,” says Kumar. “During the interim, those that waited until too late to make their move definitely missed out on business.”
Capacity Begins to Come Back
Looking around at the current market, Kumar says the airfreight capacity situation is beginning to improve, with the capacity decline coming in at about 18% lower in November 2020 versus the same period in 2019. Passenger airline capacity has also increased, and at press time was about 57% less than it was leading up to the COVID outbreak.
“Since April, a number of carriers have returned flight frequencies back into the market as countries have opened up,” says Kumar. “Compared to mid-2020, more people are beginning to travel and that’s driving a reversal in capacity.”
Even so, capacity remains at about 57% of the total market (including freighters) and about 18% less than what it was in early-March 2020. “That in itself then creates issues and problems for shippers,” says Kumar, “and drives them to find logistics solutions providers to help them navigate these challenges.”