The aftereffects of Covid-19 have thrashed global air freight supply chains.
As a result, volatility, and uncertainty prevail at unprecedented levels. This aggravates air freight’s operating environment.
Availability of capacity is unpredictable, making pricing erratic. For example, since February 2020, spot rates for China – Europe have increased 272%. Likewise, spot rates for China – North America have increased 340%.
Further complicating matters is the unpredictable retail sales cycle due to shutdowns. Adding to the chaos, social distancing has affected loading/unloading of cargo.
Second, much of the cargo leaving China wasn’t palletized. This added time to loading passenger planes carrying cargo. It resulted in unexpected congestion at airports.
Today, shippers must show up four days before loading. That’s twice as long as pre-Covid-19. And charter flights need even more time to load aircraft.
Last of all, clearing customs has also added to significant delays in air freight shipping. In particular, Shanghai, Guangzhou Baign, and Zhangzhou Xinsheng airports have experienced considerable delays.
Chinese regulations stipulate, if planes are not loaded within 72 hours after clearance, customs compliance is no longer valid. That means cargo must go through clearance again.
That describes today’s operating environment. No one knows when global trade will settle down.
To pinpoint what the future holds, two questions emerge. First, what are the short-and long-term impacts to the air freight industry? Second, how do those impacts affect shippers, 3PLs, freight forwarders, etc.?
Short-term Impacts to Air Freight Supply Chains
The recovery, by all indications promises to be an uneven recovery. Thus, you can expect continued volatility and uncertainty to persist.
Air freight supply chains will experience capacity constraints and unstable pricing, until the pandemic is under control.
At a minimum, governments must control the virus’ spread. Tools available to them are social distancing and expanded testing. At most, the pharmaceutical industry must deliver an effective vaccine available at a large scale.
Medical shipments will decrease in urgency and number. That will ease some of the capacity constraints and pricing pressures.
Additionally, delays at airports due to loading/unloading and customs clearance will improve. Air freight will transition to normalcy as passenger aircraft-for-cargo-only phases out.
Again, no one knows when the virus will be under control. But its plausible that over the next 18 to 24 months, air freight supply chains will see some relief. That is, capacity constraints, unstable pricing, and Covid-19-related delays should abate.
Long-term Impacts to Air Freight Supply Chains
The long-term picture is more complicated. Long-term changes may result from a global recession due to the global quarantine.
The duration and depth of the recession remains unknown. So an element of uncertainty will continue even as volatility subsides.
Recovery should first occur in domestic markets. Following that, international markets will see improvement. So, domestic air freight operations should normalize sooner. Capacity constraints and pricing pressures should subside.
That said, Lufthansa has published its schedule for June 2020. It plans to international flights from five to fifteen by mid-June. So, the outlook for air freight supply chains to international destinations appears promising.
Yet a return to pre-Covid-19 conditions remains unlikely.
According to Fung Business Research, Covid-19’s impacts may lead to structural changes. In adapting to volatility and uncertainty, air freight supply chains will look different. They will become more responsive and resilient.
Air freight supply chains will become smoother and more effective out of necessity. Intense competition and new technologies will drive some of the structural changes.
The industry will likely shrink due to intensified competition in air freight. Estimates suggest manufacturers, freight forwarders, and trucking companies will decline 7.5% in 2020. And that follows a drop of 1.5 percent in 2019. Stronger companies, meanwhile, will continue to adapt.
They will exploit new technologies focused on improving air freight operations. Specifically, they will merge AI/machine learning with IoT. This enables decision makers to account for weather, unexpected repairs, and clearance delays. This fusion of data and information will result in improved real-time decision making.
Also, companies that adapt will look for ways to improve long-term decision making. You will see more emphasis on analyzing past trends to gain insights into future trends.
A major change to air freight supply chains will come from diversification. We will see continued diversification out of China. Diversification is ongoing today and will continue in the future. That will mitigate some of the issues tied to sourcing in a single market.
Moreover, we can expect another kind of diversification. Supply chains will also diversify. Expanded use of land, rail, and expedited ocean transport will ease capacity and pricing issues.
These changes will go a long way towards reducing uncertainty and volatility. But consumers’ move to online shopping will likely continue. And that increase in ecommerce will continue to exert pressure on capacity and pricing.
What Air Freight’s Changes Mean to Your Business
Competition in air freight will increase.
The air freight industry will shape up to be smaller, more resilient, and more responsive. It will be more diversified and operate more effectively and efficiently than today.
To compete and win, in the long term you must ship cargo faster, better, and cheaper. Faster and better will likely be more achievable. Streamlined operations and improved decision making may help achieve competitive pricing.
Here’s what you need to do to survive and win.
Shipper and logistics service providers must think about and plan for the long-term. Short-sightedness reflects poor planning. In contrast, taking the long view wins the game.
Operating in a 24×7 world places a premium on sustained operations. It replaces reaction with dynamic response. Diligent and comprehensive strategic planning results in competitive advantage.
- Develop agility into your operations and supply chains. In today’s unpredictable world, your business must be more adaptable to changes – on a moment’s notice.
- Improve crisis responsiveness and resilience by integrating potential changes into your strategic plans. Go beyond mere identification of potential risks to your business and supply chain. Expand risk management planning company wide.
- Seek new relationships for competitive advantage. As diversification unfolds you will need new partners to secure warehouses and transportation.
- Focus on improving performance, streamlining operations, and early anticipation of unexpected changes. Capitalize on the benefits of new technologies like predictive analytics and end-to-end visibility
Are you prepared for tomorrow’s heightened competitive landscape
The world of air freight has changed. And it continues to change. Recovery will be uneven. Volatility and uncertainty will persist but decline gradually, as the virus is brought under control.
Consequently, tomorrow’s air freight supply chains will embrace responsiveness and resilience. Likewise, your business must be responsive and resilient.
American Global can help you deal with the changes impacting air freight. Our air freight professionals can guide you successfully through the coming changes.
We’ll ensure your cargo gets to its destination when you want it, at the most competitive rate. We’ll work in close collaboration with you every step of the way.