Capacity reductions, Russian airspace closure to drive up airfreight rates

Severe capacity reductions are likely to trigger a spike in airfreight rates on routes to and from Asia due to the closure of Russian airspace and the withdrawal from the European cargo market by Volga Dnepr Group’s AirBridgeCargo Airlines (ABC) and Atran affiliates. [caption id="attachment_94915" align="alignright" width="448"] Photo courtesy of Hong Kong International Airport.[/caption] “ABC leaving will drive the rates further up, but their departure is not the only reason,” Jan Harnisch, CEO of Rhenus Air and Ocean, told Air Cargo World . “Many airlines took the route via Russia to Europe, which is now a no-fly zone, and longer routes will result in longer flight times [which] means more fuel. This will lead to planes taking less cargo on board, and on top of that, oil prices have been increasing, further worsening the situation.” In the past week alone, China-Europe rates climbed more than 80% to $11.36/kg, according to Freightos Air Index data. Meanwhile, after following a slight downward trajectory since peaking in mid-December, airfreight rates from Hong Kong (HKG) to the U.S. are 7.0% higher at $8.87/kg as of Feb. 28, according to the most recent data from the Baltic Exchange Air Freight Index. Rates from HKG-Europe reached $5.81/kg, while Frankfurt (FRA) to China increased by 28.2% to $2.82/kg. Trade lanes between Asia and Europe have been heavily dependent on using Russian airspace for the shortest routes, and with the new restrictions and closures, carriers will most likely have to take a southern route, Pierre Houe, COO at Bollore Logistics, told Air Cargo World. The alternate routes would add significant flight times, extra operational costs, and in some cases, a reduction of payload because the aircraft are carrying more fuel, he said. In turn, some carriers, including Nippon Cargo Airlines, Finnair and All Nippon Airways, have cancelled their Asia-Europe services altogether, further exacerbating the capacity situation. Additional costs are also rising because of the Ukraine crisis as carriers have begun to introduce war risk surcharges to compensate for adjusted operational costs. Starting March 7, Cargolux will be implementing a $0.20/kg war surcharge on cargo to and from Asia, according to a notice to customers on Tuesday. The surcharge is to remain in place until the carrier can return to its “normal operating pattern.” Bollore’s Houe noted that insurance companies are starting to introduce war risk surcharge premiums on insurance, as well. Restricted airspace, reduced capacity ABC and Atran ceased operations at its European hub in Liege (LGG) Sunday because of Europe’s ban on Russian carriers, removing significant capacity from the already strained airfreight market. The next day, Russia banned 36 countries from using its airspace, and on Tuesday U.S. President Joe Biden closed U.S. airspace to Russian aircraft , further restricting global aircraft movement. Freight forwarders have already been working to implement strategies to mitigate capacity shortages in the region, especially considering travel restrictions due to COVID-19 variant omicron outbreaks in recent months . However, rerouting or diverting shipments to other destinations comes with its own issues, Bollore’s Houe said. "When you look at the map between Western Europe and China, the shortest flight time is flying over Russia, and usually carriers would do a technical stop somewhere in Siberia for refueling,” he said. “When flying over Russia [isn't] permitted anymore, you will have to go further down south [to places] like Turkey and Azerbaijan, but you also need to select countries which have decent infrastructure in terms of airports and refueling." This includes the quality of infrastructure on land, such as ports, airports, warehouses, lack of chassis and truckers, all of which can contribute to bottlenecks in the supply chain, Houe added. The Air Cargo Tech Summit, the new airfreight logistics event presented by Air Cargo World , will take place live in Miami from June 6-7. Learn more and register here.

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