Rising demand, low capacity push up air freight charges
The surge in freight rates increased transportation costs for shippers, who are still struggling to come out of the pandemic shock
Highlights
- Air freight rates jumped between January and December 2020
- 30% increase for Middle-Eastern countries
- 40% for European destinations
- 48% for shipment of goods to London
- Cost of shipment to Singapore multiplied four times
- Global data show year-on-year cargo demand is down 6.6%
- Freight capacity reduced by 20%
- Cargo capacity shrank due to grounded passenger flights
Mounting pressure on cargo shipment in recent months due to rising export and import volumes has pushed up air freight charges against the backdrop of most passenger aircraft remaining grounded, limiting cargo space.
The surge in freight rates increased transportation costs for shippers, who are still struggling to come out of the pandemic shock.
Freight rates for Middle Eastern countries jumped by as much as 30% in December last year, compared to January of the same year, while the cost for shipment to European destinations rose more than 40%, according to market insiders.
For example, air operators charged around Tk75 a kg for carrying goods from Dhaka to Abu Dhabi in December last year, an increase from Tk57 in January. Similarly, shippers using the Dhaka-London route last month paid Tk240 per kg, 48% higher than the amount paid in January 2020.
The cost of cargo shipment from Dhaka to Singapore also increased four times to Tk80 per kg, according to different airlines.
Air operators placed the blame on capacity constraints for the rise in freight charges.
Md Mokabbir Hossain, managing director of Biman Bangladesh Airlines, said cargo goods were carried in the belly of passenger flights. But the number of such flights had declined drastically, mainly due to travel restrictions amid the pandemic.
Air freight charges went up when import and export volumes grew, with limited flights to carry the goods, Mokabbir said.
He also said there were slight increases in cargo volumes. For example, Biman carried 2,259 tonnes of goods in January last year, while the volume was 2,402 tonnes in December.
A rise in ground handling charges in different countries also contributed to the increase in air freight charges, the Biman managing director said.
Biman has been paying $15,000 more per flight in Riyadh due to the rise in different charges. The additional cost has led to an increase in the freight rate.
With a few passenger aircraft flying, Biman has begun operating chartered cargo flights to meet the rising demand for goods shipment, the top executive of the national carrier said.
The International Air Transport Association (IATA) released data for global air freight markets in November, showing that freight volumes had improved compared to October, but remained depressed compared to 2019.
Global cargo demand, measured in cargo tonne-kilometers, was down 6.6% year-on-year in November, while global capacity, measured in available cargo tonne-kilometers, shrank by 20% in November compared to the previous year.
The capacity crunch is caused by a 53% decrease in belly capacity. This has only been partially offset by a 20% increase in the capacity of freighter aircraft.
Economic conditions in November, normally the peak season for air cargo, remained positive.
The new export orders component of the manufacturing Purchasing Managers' Index (PMI) remained in growth territory in both developed and emerging markets for the third month in a row after two years of indicating negative growth.
Retail sales for November were up by around 5% from 2019 for both China and the US, propelled by events like Black Friday and Singles Day.
The IATA, in a statement, said air cargo demand was improving month-on-month, but severe capacity constraints persisted as large parts of the passenger fleet remained grounded. "This will put pressure on the industry as it gears up to deliver vital Covid-19 vaccines."
