Sunday, January 17, 2021

Airlines scramble to deliver goods in time for Christmas

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After the most devastating year in aviation history, airlines scramble to deliver goods and gifts in time for Christmas.

With thousands of jets stranded in the wake of the pandemic and the collapse in passenger numbers, cargo capacity has been dramatically reduced, just as a boom in online shopping has driven demand for air cargo soaring.

This means companies are struggling to find planes to transport goods around the world as the busiest time of year approaches, putting pressure on the global supply chain.

“There are not enough freighters to meet air travel needs,” said Heathrow Airport Managing Director John Holland-Kaye.

Global freight capacity fell 25% year on year, according to the world trade body, the International Air Transport Association (Iata), while the cost of air freight transport on the Baltic Exchange rose again after reaching record levels in the second quarter. .

As U.S. consumers spend $ 9 billion online on Black Friday last week, up 21.5% from 2019, according to software group Adobe, the rush to ecommerce is straining the market .

Squeezing supply chains and disrupting services have prompted Amazon to push customers to buy earlier than usual to make sure they meet their Christmas deadlines.

“It’s going to be tight for everyone. . . we’ll all be exhausted, ”Amazon CFO Brian Olsavsky told analysts in October.

The lack of capacity has been compounded because the planes best suited to transporting cargo, the large, wide-body jets used for long-haul flights, are still mostly grounded, with demand for short flights returning faster.

He forced the cavernous specialized cargo planes to take over. They carry 80 to 90 percent of global cargo this year, an increase of about 50 percent, said John Peyton Burnett, managing director of the TAC Index air cargo pricing group.

Air freight and courier companies such as DHL and FedEx also continued to fly to try to close the capacity gap.

“We expect the mother of all peaks [ahead of Christmas]”Said John Pearson, Managing Director of DHL Express.

DHL, based in Germany, uses a fleet of 280 aircraft, roughly the same number as British Airways, and has added 17 more this year to help deal with capacity shortages, as well as hiring of 10,000 additional employees.

“It’s a bit like Brexit. It’s preparation, preparation, preparation, ”he said.

With more planes standing if needed, Pearson is confident the complex web of air-connected supply chains will not collapse.

Line graph of revenue share from freight and logistics (%) showing that freight has become more important for airlines

US delivery company FedEx, which employs 500,000 people, is also adding 70,000 additional seasonal workers to meet demand.

“I have been in this industry for 40 years. I’ve never seen a more difficult operating environment than the one we find ourselves in, ”said Henry Maier, Managing Director of FedEx Ground, during the group’s latest earnings call.

Many airlines have also stepped up, launching exclusively cargo flights, with more than 2,000 planes adapted as workhorses this year, Iata calculates.

Emirates’ four-engine A380 superjumbos, which can carry up to 50 tonnes of cargo, have returned to the air as makeshift cargo planes.

“We saw the opportunity and knew that our existing fleet of freighters would not be enough to meet the demand,” said Nabil Sultan, an executive at Emirates SkyCargo.

The Dubai-based airline has also removed the seats from 10 of its Boeing 777s to turn them into “mini-freighters”.

“We have seen an increase in demand for shipping medical items such as PPE and medicines, essentials such as fresh foods, and even in e-commerce as consumers move online to their purchases, ”Sultan said.

This demand for freight has put airlines such as IAG, Lufthansa and Air France-KLM on track for their best freight results, although it will do little to offset billions of dollars in passenger revenue. lost.

Line graph of the Baltic Sea Air Freight Index showing that the cost of transporting goods by air has increased again

It has also shaken the industry’s economy, according to HSBC analysts, as airlines plan long-haul routes for the first time around where cargo needs to be carried rather than where passengers are. want to fly.

Although less than 1% of world goods are transported by air, they represent more than a third of world trade by value. Bigger items, including expensive electronics and fashion items, are typically airlifted rather than shipped, as are perishable foods, flowers, and pharmaceuticals.

For lower value products, rising costs may exclude them from the market. Items such as flowers were left on the tarmac as “prices exploded” earlier this year, TAC Index’s Mr Peyton Burnett said.

“Transporting a particular product is so expensive it is not worth it. . . there is always capacity in the market, you just have to pay for it, ”he added.

Delivery failures for these less valuable items can be repeated as Christmas approaches, especially if online demand increases and freight rates rise.

The challenge will be even greater in the new year, as the need to distribute Covid-19 vaccines will create more pressure.

The vaccine distribution is likely to present an “unprecedented challenge,” warned Iata’s cargo manager Glyn Hughes.

It was just as good that distribution wasn’t expected on a large scale until the first quarter of 2021, he said, once the busy period was over.

“In a way, the timing is pretty good,” he added, given that almost all planes would be full by Christmas.

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