Features editor Melissa Moody explores how the trans-Pacific air freight market is handling the impact of the coronavirus pandemic in a landscape where trade was already struggling at the end of 2019.
It is safe to say that the coronavirus pandemic has turned the world on its head, with travel suspended and entire fleets grounded. As many have noted, this is an unprecedented time and the cargo industry has certainly felt the fall-out.
In January, the Inter-national Air Transport Association (IATA) predicted it would be a “challenging time for air cargo in the year ahead”, with air cargo tonne kilometres (CTKs) contracting by 3.3 per cent year on year industry-wide due to a decrease in volumes. It could not predict just how much the industry would be challenged in the months ahead: by June, CTKs had in fact contracted to 17.6 per cent compared with last year.
In its January Air Cargo Market Analysis, IATA notes that although the start of the coronavirus outbreak closed Wuhan’s airport, the impact of the virus “did not materialise immediately. Indeed, despite another month of the year-on-year contractions, the seasonally adjusted volumes for Asia Pacific carriers ticked up in January.”
Prior to the pandemic, it looked as through trans-Pacific trade would be on the rise, with a phase one trade agreement between the US and China signed after two years of trade tensions. It was expected too that tariffs between the two countries would decrease and new tariffs be postponed, easing pressure on international trade flows.
Following the global spread of the virus however, the Asia-Pacific market dropped significantly, impacting the international outlook for cargo. What happens in China strongly influences both the global economy and air transport in general and in February output fell to a historic low in the country.
Cancellations of passenger flights from February onwards compounded the situation, with shares of belly-hold capacity falling to 62 per cent, down from 65 per cent in February 2019. This had the knock-on effect of creating transportation bottlenecks in those countries initially impacted.
In June, six months on from the shutdown, the year-on-year decline in CTKs continued to be driven by Asia Pacific, followed by Europe and the Middle East, accounting for some 16.4ppt of the 17.6 per cent year-on-year decline.
IATA reported that airlines based in Asia Pacific saw international CTKs fall 20 per cent year-on-year in June, slightly below the 18.8 per cent decline experienced in May due to the reduction in PPE shipments by air.
A changed landscape
Asia-Pacific airline Cathay Pacific saw a significant decline in its year-on-year revenue and announced a HK$39 billion ($5bn) recapitalisation plan in May to keep its operations going.
The airline’s tonnage fell by 31.9 per cent in the first six months of 2020, with a 31 per cent decrease in capacity and 24.4 per cent decrease in revenue freight tonne kilometres (RFTKs) compared to the same time last year.
There was some positive news in June, as the airline was able to operate a full freighter schedule, as well as chartered flights via its all-cargo subsidiary, Air Hong Kong, with fewer cargo-only passenger flights compared to the previous months.
However, year-on-year numbers were still down significantly. The month’s RFTKs fell 35.8 per cent, although the cargo and mail load factor increased by 11.7 percentage points to 74.5 per cent. Meanwhile, capacity – measured in available freight tonne kilometres (AFTKs) – was down 45.9 per cent.
Cathay Pacific group chief customer and commercial officer Ronald Lam says that improvement is further down the line: “The landscape of international aviation remains incredibly uncertain, with border restrictions and quarantine measures still in place across the globe.”
Lam continues: “Although we have begun to see some initial developments, notably a slight increase in the number of transit passengers following the easing of restrictions through Hong Kong International Airport, we are still yet to see any significant signs of immediate improvement.”
Another carrier operating trans-Pacific routes, Hawaiian Airlines, followed a similar trend, reporting that cargo revenues declined in June by 52.3 per cent year on year to $17.4 million.
“As Hawaii’s airline, we understand that our operation is essential to the state. We serve both guests who rely on us for important travel and the transportation of critical cargo,” comments Hawaiian Airlines president and CEO Peter Ingram.
In March, the carrier announced that it would adjust its service to focus on cargo, reducing passenger flights, but in the three months prior to June its cargo revenue was down 48.5 per cent and its parent company Hawaiian Holdings announced the need to proceed with “involuntary separations” in its company.
Airports rise to the challenge
Airports have also taken a hit, especially in the first two months when Asian hubs felt it most. Hong Kong International Airport, the world’s busiest cargo airport for the past ten years, disclosed a 10.4 and 9.8 per cent drop for January and February respectively, but by June it had recovered slightly, recording a decrease of 7.7 per cent compared to 2019.
With the impact of the pandemic and the late resumption of production at mainland China’s factories, the airport also reported that cargo traffic was weak in the first two months of the year, but picked up towards the end of the second quarter. Freighter movements increased in May and June to 29.3 and 23.1 per cent compared to the same months in 2019, while cargo exports recorded an increase of 11 and seven per cent respectively.
Executive commercial director at the Hong Kong Airport Authority Cissy Chan elaborates: “In view of less cargo being carried by passenger aircraft, and to keep the global supply chain intact, the airport authority collaborated with different parties to boost our capacity to handle cargo. This included closely coordinating with government departments to facilitate the quick approval of flight slots for additional freighters and medical surveillance arrangements for crew.”
Meanwhile, the volume of express cargo increased by 20 per cent year on year between February and May, mainly attributable to the shipment of medical supplies, e-commerce products and electronic consumer goods. Machinery, semi-conductor and telecom products were recorded as the top three in terms of volume transported, while medical supplies and chemical goods such as disinfectants recorded the highest spike.
Similarly, Singapore’s Changi Airport reported a decrease of 8.4 per cent in air freight during January, before going against the trend by rising 7.6 per cent in February, largely due to urgent fulfilment of backlogs after a prolonged factory shutdown in China plus a leap year.
However, by March when the global lockdown hit, air freight movements at the airport dropped by 19.1 per cent, due to the reduction in belly-hold capacity, with overall aircraft movements declining by 49.9 per cent. Its first-quarter results showed a decrease in aircraft movements of 20.1. per cent, while air freight fell eight per cent to 453,000 tonnes.
Perhaps foreshadowing a post-pandemic future, in the months since North America has recorded the strongest growth in air freight consignments as coming from Hong Kong and Singapore, with any overall decline attributed to the reduced belly-hold capacity of passenger flights.
Delta’s joint venture
Away from the impact of coronavirus, Delta Airlines and Korean Air have announced the launch of a new joint venture agreement that will benefit trans-Pacific air freight commerce. The partnership routes, on which Delta and Korean Air carry around 270 million tons of belly cargo annually, will allow customers to work with either carrier to transport shipments across a broad network of flights. Approved by the regulatory authorities in the US and Korea, the deal gives customers on both sides of the Pacific access to more than 290 destinations in the Americas and 80 across Asia.
Delta and Korean Air currently transport a diverse range of cargo products across the trans-Pacific region. Semi-conductor production equipment, perishables and e-commerce shipments are some of the key products shipped from the US to Seoul and throughout Asia. In the opposite direction, mobile phones, automobile parts and other electronics are carried.
“The Delta and Korean Air venture means increased joint belly cargo capacity across the trans-Pacific, as well as future co-location of key facilities, world-class reliability and the industry’s best customer service,” comments Delta’s vice-president of Cargo, Shawn Cole.
“The partnership also means a host of new destinations with commercial and logistics solutions across Asia and North America for these important markets.”
This venture is hopefully a sign that it is not destined to be all doom and gloom in terms of activity on the trans-Pacific trade route, with things starting to look up in the months ahead.