From $3.19 to $7.73 per kg: air cargo prices jump during pandemic
The COVID-19 pandemic has proven to be a major issue and a blessing from the skies for the air cargo industry at the same time. While global freight capacity is calculated to be 20% less when compared to 2019, price per kilogram transported rose dramatically in every market since February 2020. Thus, the question arises: why Air Cargo has proven to be so strong in such unfavorable market conditions.
The lost capacity
Pre-COVID air cargo was made up of two equally sized freight carriage segments: cargo transportation on dedicated freighters and cargo transportation in passenger aircraft belly cargo. Over the years, both segments proved to be equally important and needed. Then, the COVID-19 pandemic began; airlines cancelled passenger flights and parked hundreds of aircraft for indefinite periods. As a result, available passenger aircraft belly capacity decreased by 80%.
The decline quickly affected the market, as the demand greatly exceeded supply, in turn driving up transportation costs to their highest point in last 5 years. The major capacity losses affected Hong Kong – North America sector the worst as the prices increased from US$3.19 per kg to the peak of US$7.73 per kg. While it may seem that the spike in price can be attributed to rising costs, the reality is different. In middle of the April 2020, jet fuel price index shows a half-year decline of more than 135 points. With labor costs experiencing minimal fluctuations, oil prices reaching an all-time low and other costs staying intact, the sharp growth in transportation prices meant a sizeable profit for freight-only carriers.
Sustained profits after COVID pandemic?
At the time of writing, airfreight transportation costs on some routes are still more than 60% higher than in the same period last year. With such figures, the business may not be able to be sustained in the long-term. After the full recovery of the economy and removal of travel restrictions, quarantine requirements and other measures to stop COVID spread, passenger airliners will take back to the skies. Consequently, the market will have an influx of capacity, which will drive down the costs to pre-COVID crisis levels.
The current opportunity for air cargo carriers needs to be taken seriously, as the current success, while it is still phenomenal, will continue to lessen and lessen with successful management of each COVID hotspot. The profits gained from the COVID situation must be used towards achieving long-term goals, investing into infrastructure and equipment to ensure sustainability and lessen environmental impact from aviation industry.
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