From early October to mid December, the average air freight rate for 250 kilograms of goods increased by 25% from major ports in China to eight major destination cities in the United States.

When the air freight price is only three times that of sea freight, will shippers come up with new freight arrangement and combination gameplay to change the supply chain transportation pattern?

However, in the past three months, the prices of major air cargo routes from China to the United States have almost doubled. According to the Freightos Shipping Price Index (FBAX), from early October to mid December, the average air freight rate for 250 kilograms of goods increased by 25% from major ports in China to eight major destination cities in the United States. As of the final update on December 19th, this price is $5164 (approximately $20.6 per kilogram).

According to the data of the International Air Transport Association (IATA), air transport accounts for less than 1% of global trade by weight, but the air cargo industry is responsible for transporting 35% of world trade by value.

"From the demand side, in the first year of the epidemic in 2020, there is no problem of port congestion in the United States, even if there is, it is not as serious as this year. The sudden outbreak of port problems caused a small part of the goods originally planned to be transported by sea to be transported by air." Wan Song, head of the DHLink business department of cross-border e-commerce DHgate.com, also warned in an interview with China Business News, Although it is only a small part, due to the large scale of sea transportation, as long as 2% to 5% of the goods are transferred to air transportation, the supply of air transportation will be unbearable and will explode

Even small capacity transfers can crowd out air freight

Everyone knows that if they want to put things on shelves before Christmas, they must use air transportation, "said Yngve Ruud, global air freight director at one of the world's largest freight forwarding companies, Kuehne+Nagel.

In order to deliver the goods to customers in a timely manner, some carriers who originally used sea freight routes had to choose more expensive air freight. The increased demand during this period has also been reflected in the level of air freight.

"We see that some airlines offer one-way charter flights from Asia to the United States at a price close to $3 million," said the executive of an all Cargo airline.

According to IHS Markit data, air freight rates across the Pacific region are much higher than the levels reached during the medical equipment transportation boom in May 2020. The latest data from Freightos and freight data provider TAC Freight also shows that the global air freight rate is currently $4.41/kg, which is 30% higher than the beginning of the year. In addition, as of the week of December 19, the price of the route from China to Central United States exceeded $15 per kilogram, and the price in mid September was only about $9.5.

Wan Song said: "Before the epidemic, under normal circumstances, the air freight price of the belly cabin of the passenger plane was about 20~30 yuan per kilogram on an average year round. For the price of charter flights, take the Boeing 747 (747-ERF) as an example, its theoretical capacity is 100 tons, and a round trip of charter flights is about 500000 dollars."

But after the epidemic, the fluctuations in air freight prices need to be seen in stages. Wan Song said, "It has been two years since the epidemic, and although it was also the epidemic last year, air transportation is not so tight. The price in 2020 fluctuated around 60 RMB/kg, which has doubled compared to before the epidemic

Since the beginning of this year, air freight prices have gradually increased from 60 RMB/kg, and in the peak season at the end of the year, the highest price reached 120 RMB/kg. Wan Song said, "Starting from mid December, as traditional foreign trade enters the off-season (the peak season for cross-border e-commerce will continue until January), air freight prices have slightly decreased to 60-70 RMB/kg, which is still higher than last year's prices. After the epidemic, charter flights for the same model as before require at least $1 million

So, which goods are forced to switch to more expensive air freight? Wan Song said: For example, we need to export a batch of clothing. We originally planned to ship it by sea, but now the arrival is far away. I have to use air freight to quickly deliver two tons of this batch of 20 tons of clothing to the US market, so that there are goods available for sale in the US and the rest will continue to float at sea. As a Chinese factory or trader, I will adopt this strategy. When more people adopt this strategy, even a 5% proportion will The capacity of air transportation is bursting

Bharat Ahir, CEO of supply chain consulting firm 28one, said that as the supply chain comes under pressure, consumers will eventually feel the impact. He said, "There are two obvious impacts. One is that the supply will decrease, and the other is that the things you get will be more expensive

Ishipping logistics air freight more competitive than sea freight

Due to faster and more convenient transportation, the price of air transportation has always been much higher than that of sea freight. But since the outbreak, the relative prices of air and sea freight have been decreasing. The report of International Air Transport Association (IATA) in November pointed out that the cost of air freight is still very competitive with that of container transport. Before the crisis, the average price of air freight was 12.5 times that of sea freight. In September 2021, the air freight price was only three times that of sea freight.

Freightos developed the weekly freight price index FBAX using thousands of weekly price data from freight forwarding companies. From the perspective of freight routes between China and the United States, as of December 19th, FCL's sea freight price was $22508/40 foot standard containers (FEUs), while the average air freight price was $5164/250 kilograms. At the beginning of the year, these two prices were $8554/FEU and $3087/250 kg, respectively. According to IATA's algorithm, assuming the weight of each standard container is 9 tons, it can be calculated that at the beginning of 2021, the sea freight price for this route was 7.6% of the air freight price, but by the end of this year, this proportion had expanded to 12%.

Wan Song told a reporter from First Financial: "At present, sea freight prices have not decreased and have slightly increased, which is very abnormal. The current situation of sea freight prices between China and the United States is that high-end and fast sea freight services such as Meisen Express are priced at 40000 US dollars per container, while other ordinary ones are priced at around 7000 to 9000 US dollars per container. For LCL, Meisen Express is about 30 RMB per kilogram. The current sea freight prices are similar to the air freight prices before the epidemic

In contrast, Wan Song stated that from the second half of this year to early December, air freight prices have increased to over 100 RMB/kg, with a peak of 120 RMB/kg.

In a report released in mid December, IATA stated that the global cargo loading rate has eased, but some important trade routes remain tight and above 2019 levels. Throughout 2021, air freight rates have been on the rise and have started to rise again at the beginning of the peak air freight season due to insufficient capacity. However, compared to container freight rates, air freight is still more competitive than before the crisis, "IATA said.

Air transport capacity may permanently shrink

After entering the holiday, there is still a huge supply-demand gap in air transportation capacity. According to data released by the International Air Transport Association (IATA) in December, global air cargo demand increased by 9.4% year-on-year in October 2019, while capacity supply was 7.2% lower. This means that there is a gap of over 15 percentage points between supply and demand.

Why is the air transportation capacity insufficient? Adam Cowburn, executive director of Alton Aviation Consultancy, an aviation consulting company, explained to First Financial reporters that there are generally two main forms of air cargo transportation. One is the cabin of a passenger aircraft, commonly known as "belly cargo", and the other is a specialized cargo aircraft.

The cargo carried by passenger planes usually accounts for about 50% of air freight. During the epidemic, a large number of passenger planes were forced to ground, and even if passenger traffic recovered, most of them were concentrated on leisure routes rather than between major trade centers. According to industry media reports, outside of Asia, travel bans have grounded long-distance passenger flights, effectively eliminating half of the available air cargo capacity in the market. Rudd added, "Due to leisure travelers who tend to check in multiple suitcases returning faster than business travelers, cabin capacity is also limited

The grounding of passenger planes (after the epidemic) has led to the disappearance of a large part of cargo capacity. Currently, the belly cargo capacity is still about one-third lower than the pre epidemic level. Compared to the low point during the epidemic, this has improved. In most of mid-2020, the belly cargo capacity decreased by more than 50% year-on-year. However, on the other hand, the capacity of specialized cargo planes is currently about a quarter higher than the pre epidemic level Gao Ande said.

According to British media reports, some airlines have changed to cargo flights, and specialized air cargo companies such as FedEx and DHL have also picked up some bargains.

Some airlines' response is to shift most of their capacity and focus to freight operations. As a temporary solution, many airlines have converted their passenger planes into cargo missions, creating what is commonly known as' passenger to cargo '(preheater) Aircraft, placing cargo in the usual cabin area. Many industry-leading airlines, such as Cathay Pacific, Korean Air, Lufthansa, Air Canada, Swissair and other airlines, have taken such measures. "

Justin Barrow, the head of air cargo for Maersk Asia Pacific's Greater China region, said that international travel will not return to the pre pandemic situation, and it is foreseeable that the capacity provided by belly cargo will be reduced in the long term. "For example, if airlines choose to update their fleet and purchase newer, more fuel-efficient but smaller aircraft for international passenger transport, the Boeing 747 may not return to the sky, and the belly compartment capacity will be reduced compared with that before the epidemic."

However, Gao Mingde believes: "Our current model predicts that within the time frame of 2023-2024, a significant amount of passenger traffic will be restored, bringing meaningful additional freight capacity