[140121.EN.AIR] Air Cargo Carriers Extend Space Guarantees, But At Premium Prices

 

THE air cargo industry is slowly rebuilding the block space agreement (BSA) structure scrapped by airlines when travel bans grounded half the available capacity in late March, but shippers looking for fixed rates out of Asia this year will pay premium prices for such guarantees.

Airlines are beginning to extend the rate validity offered on some major trades to three months, a huge improvement from the price and space guarantees of one week or even less when all the passenger belly capacity was pulled out of service overnight at the end of the first quarter of 2020.

Although much of that passenger capacity remains on the ground, forwarders are beginning to get on top of the demand flows, locking in space through the extensive use of charter flights and entering strictly controlled BSAs with airlines that are deploying passenger aircraft in greater numbers as all-cargo carriers.

"At the start of this crisis, maximum validity of the rates was only one week, then it increased to two weeks, and now we are getting to months," Jan Kleine-Lasthhues, chief operating officer for air freight at Hellmann Worldwide Logistics, said. "It depends on the carrier and trade lane, but we are at the point where we can negotiate longer rate validity. But the market remains unpredictable, so on longer fixed contract rates, carriers will price risks in."

Passenger aircraft grounded by travel restrictions introduced at the end of the first quarter to slow the spread of the Covid-19 pandemic will not be back at scale until at least 2024, according to the International Air Transport Association (IATA), and major airlines have slashed the size of their fleets to accommodate a long-term decline in demand, reports IHS Media.

With so much capacity out of the market and volumes remaining elevated due to sustained demand for personal protective equipment (PPE) and electronics, air cargo has essentially been operating under what would normally be considered "peak season" conditions since March. This imbalance of supply and demand pushed spot rates up to record highs in April and May on both the trans-Pacific and Asia-Europe trades, as well as on the trans-Atlantic. While the rates declined sharply in June as PPE demand dropped off, the tight capacity kept rates elevated compared with last year before rising into the end-of-year peak season.

With air freight capacity in such short supply, shippers have few options at the moment, Mr Kleine-Lasthhues said. "If you want guaranteed capacity for next year, the only way is to negotiate a BSA or charter. On some charter trades, you can negotiate long-term rates with customers that want to be on the safe side during the [Covid-19] vaccine rollout and are willing to buy fixed allocations."

The limited available air cargo capacity will be even more constrained as Covid-19 vaccines are distributed around the world. The Pfizer-BioNTech COVID-19 vaccine was approved in the UK in early December, and approvals for other vaccines are expected to follow. However, Niall van de Wouw, managing director of CLIVE Data Services, said the additional demand could be a positive development for shippers, because it will force airlines to deploy additional capacity.

Source : HKSG.