Ukraine war’s economic consequences take hold on global air cargo

Rising air freight costs, reduced air capacity and the war in Ukraine are seriously impacting the global air cargo sector, which is already battered by the Covid-19 pandemic. Sanction-related shifts in manufacturing and economic activity, rising oil prices and geopolitical uncertainty will take their toll on air cargo’s performance in the coming months, although it benefited in February compared with January.The negative impacts of Russia’s invasion of Ukraine and related sanctions (particularly higher energy costs and reduced trade) will become more visible in future, according to the global body of airlines – International Air Transport Association (IATA).Logistics UK magazine said the cancellation of flights to Russia from the UK, the EU, the US and the closure of airspace above Russia and Ukraine is leading to lengthy detours for air freight, particularly to Asian markets, such as Japan, South Korea and China. The closure of the direct route via Russia’s Siberian air corridor is adding hours to flight times between the UK and Asia, and flight bans are estimated to affect over a fifth of air freight.Several factors benefited air cargo in February compared with January. On the demand side, manufacturing activity ramped-up quickly after the early February Lunar New Year holiday. Capacity was positively influenced by the general and progressive relaxation of Covid-19 travel restrictions, reduced flight cancellations due to Omicron-related factors (outside of Asia), and fewer winter weather operational disruptions.Global demand, measured in cargo tonne-kilometres (CTKs), was up 2.9% compared with February 2021 (2.5% for international operations). Adjusting the comparison for the impact of the Lunar New Year (which can cause volatility in reporting) by averaging January’s and February’s performance, demand increased 2.7% year-on-year. Although cargo volumes continued to rise, the growth rate decelerated from the 8.7% year-on-year expansion in December. Capacity was 12.5% above February 2021 (8.9% for international operations). Though this is in positive territory, compared with pre-Covid-19 levels capacity remains constrained, 5.6% below February 2019 levels.Limited air capacity presents a double whammy for shippers. With airspace over Ukraine closed to civilian flights and airlines avoiding Russian airspace, air freight rates are spiking, according to the firms.“The flying ban has cancelled many of these flights and removed 10mn miles of airspace from international freight routes. With airlines responsible for flying around 20% of cargo, this will dramatically decrease capacity provided by carriers," Dylan Alperin, head of professional services at supply chain software platform Keelvar told CNBC.Air freight charges had already increased following the pandemic and the reduced capacity in passenger flights. Air cargo rates were 150% above 2019 levels in December, according to IATA, and the longer routes, which require additional fuel and flight time, are making flights more expensive.In 2020, the air cargo industry generated $129bn, which according to IATA, represented approximately a third of airlines’ overall revenues, an increase of 10% to 15% compared to pre-crisis levels.In 2021, cargo demand was expected to have exceeded pre-crisis (2019) levels by 8% and revenues might have risen to a record $175bn, with yields expected to grow by 15%.This year the demand is expected to exceed pre-crisis (2019) levels by 13% with revenues expected to rise to $169bn although there will be an 8% decline in yields.“Demand for air cargo continued to expand despite growing challenges in the trading environment. That is not likely to be the case in March as the economic consequences of the war in Ukraine take hold. Sanction-related shifts in manufacturing and economic activity, rising oil prices and geopolitical uncertainty will take their toll on air cargo’s performance,” said Willie Walsh, IATA’s Director General.Air cargo is a key driver of global economic development, facilitating trade and creating millions of jobs worldwide.It helps countries contribute to the global economy by increasing access to international markets and allowing the globalisation of production.To maintain growth momentum, the global economy requires delivery of high-quality products at competitive prices to consumers worldwide.Air cargo transports more than $6tn worth of goods, accounting for approximately 35% of world trade by value.Air cargo also helps people stay connected – some 328bn letters and 7.4bn postal parcels are sent every year and airmail plays an essential role in their delivery!The significance of air cargo is perhaps best illustrated in the supply of much-needed Covid vaccines and other essential lifesaving drugs around the world, every single day!Air cargo is critical in flying these temperature-sensitive pharmaceuticals in the best conditions, using cutting-edge technologies and procedures.Pratap John is Business Editor at Gulf Times. Twitter handle: @PratapJohn