Dive Brief:
- The price is climbing for air cargo headed out of China as factories come back online, numbers from the TAC Index show. Shippers eager to move products have encountered a freight environment with reduced capacity, pushing prices higher.
- Airfreight rates from China to the U.S. increased by 27% between Feb. 24 and March 9 to reach $3.49 per kilogram, according to the latest numbers from the TAC Index. Air cargo rates within Asia are also increasing, an indication that factories are beginning to restock, according to note from Freightos.
- Flight cancellations out of China have removed 5,100 tons of capacity from China per day on average, which has led to a 36% year-over-year decline in total airfreight capacity out of mainland China, according to an operational update from Agility Logistics.
Dive Insight:
Air cargo rates had been declining throughout January and February as COVID-19 spread throughout China and the quarantine led to factories shuttering or reducing production. Because factories were not functioning, there was nothing to ship, and demand for freight declined. But with factories coming back online, shippers have turned to airfreight to move items quickly.
"We're starting to really see the tremendous demand and the increase in yields and the factories to get back to work this week," Spencer Schwartz, Atlas Air Worldwide CFO, said on an earnings call last month.
Goods that would normally travel by other modes, either by ocean or surface transportation, will travel by air in the coming weeks "because of the urgency to go to market," Atlas CEO John Dietrich said on the same call.
"Even when the commercial belly capacity comes into the marketplace, there is still going to be a tremendous amount of demand, given the significant setback that manufacturing has experienced," Dietrich said. "And it’s not going to change overnight, when some of the commercial carriers resume service. And looking ahead, I don’t have all of the dates, but some of the commercial carriers have pushed into April before they’ll resume service."
More than half of air cargo travels in belly cargo of passenger airlines, which began cutting flights drastically as COVID-19, an illness in the coronavirus family, spread first in China and then around the world.
As demand for airfreight within and out of Asia remains higher than capacity, some airlines are considering running cargo-only flights in the region. Scoot, an airline based in Singapore, is one airline that has begun offering freighter flights into China, according to Air Cargo News. Cathay Pacific is also considering a similar option, according to Air Cargo News.
Multiple carriers — Atlas, FedEx and UPS — declined to comment on the current capacity crunch and resulting price increases.
"We don’t disclose that information," a UPS spokesperson told Supply Chain Dive when asked about increases in aggregate rates between China and the U.S.
