Air cargo gains momentum from rising prices in ocean shipping

The record-breaking sea freight rates, driven by restricted volumes, equipment availability and service disruption is pushing increasing quantities of ‘distressed’ ocean cargo to air freight solutions.

Metro have advised and updated regularly on the dynamic air freight market, which has restricted lifting capacity through the grounding of passenger aircraft and increased costs as carriers rely on air cargo as the only revenue stream available. 

Coupled with manufacturing delays through lockdowns, component and raw material shortages and constant schedule malfunctions of ocean carriers, due to congestion and disruption and we are experiencing a very high air freight demand globally, on all routes, by desperate shippers, needing product to market or into manufacturing.

The International Air Transport Association (IATA), the trade association of the world’s airlines and air freight agents, confirmed that that air cargo is benefitting from “exceptionally congested” container shipping supply chains and suggested that the cost-competitiveness of air, relative to that of container shipping has improved over recent months.

Prior to the pandemic air freight was typically 12 times more expensive than sea freight, but that differential has halved, with air cargo just six times as expensive in May. This is not a reduction in cost but a resetting of the standard price of ocean freight versus air freight pricing, which is at elevated levels, compared to the pre-pandemic situation.

Air cargo rates from the Asia to the US began to climb last week, driven in part by rising ocean rates. It is a peculiarly circular situation which sees ocean rates increase, driving an increase in ocean to air conversions, that are triggered by those same climbing rates and persistent delays in ocean freight.

It appears that some UK importers are deciding, or being forced, to move ocean imports to air, despite the expense and possible financial loss, as a way to guarantee their inventory availability and maintain and build customer loyalty, while their competitors continue to struggle with ocean freight delays.

Ocean rates from China to the US west coast last week were up over 150% on 2020, while prices to the east coast were up 209%.

Air freight, while volatile, is very stable in comparison to shipping, with global shipping schedule delays equivalent to an 8.6% loss of capacity. 

Airlines are much more reactive and agile, and can switch on flights quickly to meet demand, as long as there is a reasonable return on the investment. 

Similarly they can switch off supply if their aircraft cannot be filled with cargo – immediately – which ensures market rates remain elevated.

IATA believes that air cargo is likely to continue to benefit from disruption in ocean shipping. “Air cargo also tends to over perform other means of transport at the start of an economic upturn due to restocking cycles, when businesses turn to air to rapidly refill inventories as demand rises.”

“But with strong consumer demand and the lack of container capacity expected to continue until late 2021 at the earliest, air cargo is likely to remain a viable alternative to container shipping for some businesses. The upshot is that air cargo is likely to continue to perform well compared to other modes for most of 2021.”

We work closely with leading airlines and cargo carriers to offer the widest range of time-sensitive solutions, routes and transit times at the most competitive rates, from every origin.

If the right market conditions exist, we will be adding charter capacity during Q3 and Q4 to ensure that expectations from our customers are met and delivery deadlines achieved. We welcome enquiries and expressions of interest for specific origins, as we develop our plans to deal with the anticipated extended ‘peak season’. 

We are driven by client needs and requirements – please engage and we will provide all options available in what is predicted to be a very active market in the latter months of the year and the lead up to an early Chinese New Year.

If you have urgent or time-sensitive consignments and would like to explore options, transits and costs, please contact Elliot Carlile or Grant Liddell, to ensure your deadlines are met.