When it comes to effective disruption management, those who best plan for the unforeseen are those who best weather the storm, according to TIACA’s director general Glyn Hughes.
In real estate, it’s often said that the three most important words are ‘location, location, location.’ In the air cargo industry, the three most crucial words appear to be ‘disruption, disruption, disruption’.
As we close 2023 and move into 2024 what can we expect in this regard?
Events impacting supply chains
2023 was marked by several events that impacted global supply chains and consequentially air cargo.
We saw continued increases in central bank rates designed to curb inflation by slowing down economic activity. This resulted in continued subdued consumer activity, increased global inventory levels, and therefore reduced demand for air cargo.
Meanwhile, international passenger numbers returned with huge momentum which prompted a significant return of belly capacity.
The increased spend on passenger travel and holidays placed further pressure on consumer retail sales reducing air cargo demand even further.
The resulting situation of increased capacity and reduced demand saw air cargo yields decline for most of the year.
The war in Ukraine continued to impact air cargo by forcing most operators serving Asia/European routes to suffer from longer flight times and increased costs.
Sadly, we then saw in October some tragic events in the Middle East which resulted in escalated tensions and war zone conflict.
As is often the case this galvanized alignments of support for each side in the conflict which had a spillover into supply chain disruption from November in the Red Sea; since then we have seen over two dozen attacks on commercial ships passing through.
Maritime operators have mostly now decided to avoid the Red Sea routings, adding up to 14 days and up to USD2 million in additional costs for sailings from Asia to Europe. This is also leading to container shortages.
Collectively this led to increased demand for air cargo particularly in the run-up to the Chinese New Year with January volumes showing improvements vs 2023.
If tensions increase further, escalating to further frictions between Iran and the US, which also brings Saudi Arabia into the equation, we could see further impacts on other crucial shipping channels, such as the Strait of Hormuz, through which 30% of the world’s seaborne traded crude oil passes.
The effect of the extended sailings around Africa will not just impact the cost of each journey but also has the effect of taking out a significant portion of global maritime capacity, estimated to be around 6-8%.
This removal of capacity will place additional pressure on maritime with further price rises expected.
Increased maritime disruption particularly narrowing cost differentials to air cargo could see a further boost to air cargo demand.
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How are supply chains being impacted?
Ikea, Michelin, Volvo, and others have already started to report production slowdown and delayed deliveries.
The UK has reported many critical lifesaving and life-affirming drugs are in critically short supply.
If the conflict and impact continue significantly it could accelerate nearshoring or further supply chain diversification and de-risking.
The US Commerce Department has reported that the value of goods imported to the US from Mexico rose nearly 5% from 2022 to 2023, to more than USD 475 billion. At the same time, the value of Chinese imports tumbled 20% to USD 427 billion. Is this policy related? Supply chain complexity related? Or both?
So how does the air cargo industry adjust to deal with current situations and what will no doubt be further disruptive influences?
The most important aspects of preparation for known and unknown challenges are communication, collaboration and preparation.
Freight forwarders and shippers need to be as precise as they can with regard to what their transport needs will be.
That precision and transparency will enable freight forwarders to look at various contingency plans possibly involving air, rail, sea, or combinations of all.
Sea–air blended supply chains may be crucial to avoid continuing restrictions in the Panama Canal as well as the Red Sea if that continues to be an issue.
As we discovered during the COVID pandemic, those who best plan for the unforeseen are those who best weather the storm. It is the ability to respond quickly and efficiently that is the key driver for effective disruption management and therefore can keep costs under control as much as possible whilst keeping supply chains flowing. Air cargo’s ability to adapt is one of this industry’s greatest strengths.
With inflation coming under control in most developed economies and wage rises of past years working their way through, we can expect to see renewed consumer activity through 2024 with high tech, pharmaceuticals, e-commerce and perishables expected to grow.
Sustainability will also play a large part going forward following COP28 commitments and the worldwide focus on minimising global temperature increases.
So, another year of challenge lies before us – but air cargo is equipped better than ever with great new technology, a renewed purpose and adaptive leadership to deal with disruption, disruption, disruption.