American Airlines fleet services cargo pallets await loading in Dallas, Texas, the US, March 20 2020. Picture: TOM PENNINGTON/AFP
American Airlines fleet services cargo pallets await loading in Dallas, Texas, the US, March 20 2020. Picture: TOM PENNINGTON/AFP

Air freight costs are still soaring, squeezed higher as space in the belly of passenger jets dries up and demand rises for sending goods faster than a container ship can make the journey.

Cargo rates on flights from Hong Kong to North America surged to the highest level in almost 16 months, according to TAC index data tracked on Bloomberg. The route from Frankfurt to North America is also still spiking upwards.

As the Covid-19 pandemic discourages consumer travel and forces governments to close borders to noncitizens, “air freight is getting severely constricted”, Phil Levy, chief economist with Flexport, a freight logistics provider, said in an interview. “It’s a particularly acute problem now,” he says. “Often when you had supply-chain interruptions, goods that might have been sent by some other, slower routes, people often turn to air as a way to replenish inventories quickly.”

American Airlines last week announced cargo-only flights on grounded passenger jets between Dallas and Frankfurt to move medical supplies, mail for US military personnel, telecom equipment and e-commerce packages. It was the airline’s first scheduled cargo-only flight since the last of its Boeing 747 freighters was retired in 1984.

So why not convert all those empty passenger cabins into cargo holds, to alleviate the capacity constraints? It turns out it is a very expensive and time-consuming process, Levy says.

As for other modes of transport, ocean freight is “still moving reasonably well”. On Monday, the chair of Copenhagen-based Maersk, the world’s biggest shipping container line, said the company is running at full speed despite “significant challenges in global supply chains”.

Stockpiling goods

That may change, however, as China reopens for business and goods try to start flowing again out of the world’s second-largest economy — just as economic activity in the US and Europe sharply slows when people are forced to stay home to contain the spread of the virus.

Meanwhile, on roads across the US, trucking companies are riding a surge in demand from consumers stockpiling basic goods, but it probably will not last long as the US economy grinds to a halt. New Jersey is restricting travel for the foreseeable future on its roadways between 8pm and 5pm so that commercial and emergency vehicles have priority.

Stephen Laskowski, president of the Canadian Trucking Alliance, told Bloomberg’s Jen Skerritt that there is an “imbalance” in the supply chain as there is high demand to ship goods such as food, toilet paper and medical products, and no demand from industries that have shut down.

In Europe, the challenges for trucking are even starker. With roads used for three-quarters of the EU’s inland freight transport, the European Commission is pressing member nations to scale back border barriers that in some cases have caused delays of more than 24 hours, including for medical supplies.

In a set of guidelines on Monday, the Brussels-based commission called for the creation of cargo “green-lane” crossings at which checks, including the health screening of drivers, would be limited to no more than 15 minutes.

“The Covid-19 outbreak is having a major disruptive impact on European transport and mobility,” the commission said. “The European supply chain is maintained through an extensive network of freight transport services.”

The eurozone is sinking into the biggest economic crisis in its history as measures to contain the coronavirus pandemic bring much of the business world to a standstill. IHS Markit’s measure of private-sector activity plunged to the lowest since the index was started — and the currency bloc was formed — more than two decades ago. The meltdown was across the region.

Bloomberg