Russia-Ukraine, soaring energy prices a ‘double whammy’ for stressed air cargo market

With heavy customer demand for faster delivery, the air cargo market may face a dilemma as the threat of a Russian invasion of Ukraine fans geopolitical tensions, and puts new strains on an already stressed worldwide supply chain.

An Eastern European conflict “will not be good. Anytime you have geopolitical tension, it actually takes up a lot of demand for a lot of these air charters that exist,” Brian Bourke, chief growth officer at freight company Seko Logistics, told Yahoo Finance Live on Thursday.

“Air freight and air cargo are going to remain to be very important levers for companies looking to keep their products moving to keep the products on the shelves or ready to order and warehouses for e-commerce,” Bourke said.

Oil prices (Cl = F) have been dangling close to $ 100 per barrel, as US and NATO officials struggle to find diplomatic ground with Russia. Conflicting reports of de-escalation on the ground have roiled markets, and put upward pressure on energy prices that weigh on air cargo rates.

Shippers “would see a lot of more activity from the oil and gas sector that would be taking advantage of elevated rate levels to continue and expand their exploration of wells and drilling capacity throughout their network,” Bourke said.

“It has a double whammy effect on really increasing rates throughout the world,” he added.

Air freight prices have skyrocketed thanks to the lingering supply chain disruptions brought on by the pandemic. As ships clogged the world’s ports, many waited weeks to unload their cargo, sparking some retailers to avoid ocean shipping and import their cargo by air.

Government data shows transportation costs surging, recording an 18.3% jump in shipping by truck and 29% surge in ocean freight costs from January last year. Meanwhile, air cargo inflation increased to 11%, the highest in a decade, according to the latest Producer Price Index.

But there is some upside, as states move closer to their ‘endemic’ stage of reopening. Bourke explained they are optimistic for the “return of passenger capacity on the international side” by this spring, but that it “will not be enough to keep up with the increased demand for air cargo.”

He added: “Eventually, we will return to normal, but normal of the same amount of capacity of belly space on passenger flights, as we’re seeing cargo flights meeting pre pandemic levels, we may not see that until the year 2024 or beyond . “

Global air cargo demand volume rose by 18.7% last year— the second-best ever showing according to the International Air Transport Association (IATA) air cargo analysis report, with volumes 3.5% above pre-pandemic highs. In contrast, Asia Pacific airlines struggled with a lack of capacity, tumbling 17.1% in 2021 versus 2019, while demand for goods made in the region was strong.

port congestion Dec 2021 vs Jan 2022

port congestion Dec 2021 vs Jan 2022

In a sign of how global demand remains insatiable, SEKO logistics used 397 flights last year, compared to 72 flights in 2020, Bourke said. This year the company expects this figure to grow further by around 20-30%.

“We’re seeing that ocean is not really an option with the delays, not just at the ports on the West Coast, but now we’re seeing congestion increase in the ports on the East Coast,” Bourke added.

New data from project44 shows vessels waiting to berth in Asia recorded an average increase from 13 days in December to 16.7 days in January. Hong Kong, which has seen an increase in COVID cases, tops the list with the lag time soaring 5 full days, to 22.5 days.

“This is a time of a lull period where not as much cargo is supposed to be moving internationally, especially on the import side but that’s not providing much relief for the congestion that we’re seeing,” he added.

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv

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