Peter Moore on Pricing: Air cargo hits a significant rough patch

Even for those of us who have been through several business cycles, in my case 40 years of cycles, the current coronavirus pandemic is a new experience. We’re seeing reductions in passenger flights, and thus less aircraft cargo hold capacity, daily disruptions and serious concerns about employee safety.

Unlike previous capacity and cost crunches, this time the challenges are very lane specific. In exporting countries with outages in manufacturing, there may be carriers scrambling to fill cargo planes. In countries where there’s product to move, but no air capacity, the prices and schedules will be very challenging. Then there’s the extra scrutiny at destination airports and disruptions in the land portions of the supply chain.

The response of carriers and shippers needs to be creative, deliberate and flexible. This is not the time to berate each other for failures that can’t be foreseen. If your operations are affected by government actions or health concerns of your partners, don’t immediately announce a force majeure and cut off communications.

Instead, partners increase communications and share information all along the supply chain. These logistics crises are the time when we learn about the quality, commitment and resiliency of our networks as carriers, agents and shippers.

When I asked carriers and forwarders what types of creative responses they’re seeing others do or initiating themselves, I heard a few that I’d like to pass along.

Adapting schedules to peak demand times is now possible because the European Commission is temporarily relaxing landing slot rules for carriers. Usually the carriers have to use 80% of their time assigned slots at airports or they’re subject to forfeiture. Now, carriers can consolidate loads with wider time windows so as to maximize loads without fear of permanent damage to operations.

Substituting charter flights is becoming particularly popular with shippers that have to surge large volumes in an attempt to catch up on inventories in key markets. This might include components for automobiles destined for U.S. assembly plants. As we know, time slots for charters are more available as regularly scheduled flights are reduced.

On a domestic basis, the increased use of expedited ground services is a common tactic. The truckload market has been a bit soft recently, so there are operators that will bid for expedited loads from brokers and shippers trying to close inventory gaps.

Converting passenger jets to cargo jets is being tried by some majors like Delta. Even if cargo space is limited, it beats parking an asset to wait out the end of this crisis.

Interest in 3-D printing is surging. Today, 3-D printing is a very small part of the metals industry, but it’s growing rapidly, and this market is expected to be worth as much as $10 billion by 2030 to 2035 according to consulting firm McKinsey. Whether plastic or metal, parts are being made locally on demand rather than shipped. The more valuable a product is, the greater the savings by eliminating air transport and handling charges.

Some industry analysts are predicting that many air carriers will be in serious financial difficulties by mid-year. The alternatives listed may do a little to help them, but they may really help shippers and forwarders to weather the storm by enabling them to fill customer orders.