New year, similar challenges: Changing restrictions and the return of PPE on the trans-Pacific lane

While the Lunar New Year marks the start of new beginnings, the holiday season is also a time of reflection and celebration of the past year. Although the airfreight industry may not be gifting red envelopes or wearing red for luck, the air cargo community continues to reflect and build on the lessons and victories of 2021 and 2020 to help navigate the challenges of the congested trans-Pacific trade lane. The trans-Pacific lane has always been a competitive market due to belly carriers driving down cargo rates, but as the year of the Tiger begins with passenger flights still scarce, forwarders are preparing to continue the struggle of transporting cargo primarily using freighter aircraft. “Right now, the passenger carriers are down to an absolute minimum, and we’re trying to squeeze 100% of cargo into cargo aircraft, and that’s certainly very difficult,” Robert Krautheim, executive vice president of airfreight at Hong Kong-based Kerry Logistics, told Air Cargo World . “That has an impact on pricing, availability of lift, and most of all, congestion.” Cargo congestion and elevated trans-Pacific rates are nothing new and there have been no large trends or changes on that particular trade lane overall, CEVA Logistics Chief Operating Officer Peter Penseel told Air Cargo World . However, there have been momentary changes due to specific events, he noted. Paired with the fact that some aircraft operators, including Western Global Airlines, schedule aircraft maintenance during the Lunar New Year holidays, the trans-Pacific lane has even fewer aircraft available to transport much-needed cargo, including personal protective equipment (PPE), sparked by the region’s omicron outbreaks. Indeed, trans-Pacific cargo operators will need to step up their game to ensure that cargo routes are optimized to meet accelerated demand all while battling the region’s regulatory landscape, the industry’s labor shortages and other challenges. And perhaps, with a bit of luck and wisdom, the year of the Tiger will mark yet another prosperous future for the airfreight industry. New year, new restrictions Countries in the Asia-Pacific region have enforced new restrictions to keep outbreaks of the COVID-19 omicron variant at bay. While restrictions in countries like South Korea and Japan have remained relatively stable and more easily navigated by freight forwarders, the zero tolerance policy enforced in mainland China and Hong Kong has proved to be a little more challenging for 3PLs to work with, since changes occur suddenly and frequently. For instance, in January the Hong Kong government implemented a seven-day quarantine mandate for cargo pilots and also announced country-specific travel bans to help curb the spread of omicron, impacting both cargo and belly capacity in multiple ways. While carriers like Cathay Pacific, which drastically reduced its Q1 freighter schedule , have tried to plan around the restrictions, Krautheim noted that it’s challenging for carriers and forwarders to plan for anything long term since regulations often change without warning. Paired with the issue of labor shortages, the changing quarantine requirements have made securing additional pilots or crew members to service the cargo flights a challenge. “Historically, you fly from HKG, PVG or Wuhan (WUH) into Anchorage (ANC), and then from ANC to the [lower] U.S.,” Krautheim told Air Cargo World . “Due to the embargo and quarantine regulations of crews, we cannot do this anymore. Now we’re flying into Incheon, Korea, (ICN) to put a new crew on board, fly from ICN to HKG, fly back from HKG to ICN and change the crew again.” This means that during an aircraft rotation there are two more landings and one additional crew, eating up precious time and raising costs due to landing fees, he said. Furthermore, the difficulty surrounding crews and pilots has left carriers struggling to optimize airfreight schedules. As a result of pandemic-related closures and congestion as well as Lunar New Year holiday demand, airfreight have risen considerably . Unfortunately, the inflated airfreight rates, which aren’t expected to normalize until 2023, have had the most impact on the Asia-Pacific region due to trade imbalances, causing additional market challenges, according to Agility’s 2022 Emerging Logistics Index . Adding to the strain, ground movements within mainland China are also facing restrictions, further constricting cargo movement. “It is challenging to take a shipment from PVG and truck it to Chengdu (CTU),” Krautheim said. “All of the ground borders right now are closed or extremely slowed, which means that we’re trying to still push HKG, PVG and WUH as our three major gateways.” However, the use of trucking can bring down costs significantly, and in turn, some freight forwarders have dedicated themselves to navigating the country’s ground challenges. “We have limited space to PVG so we ship to Shenzhen … clear the customs at Shenzhen and then truck to PVG, [and] the overall cost is lower than to ship to PVG directly,” Ong Chin Kian, co-founder and director of Malaysia-based forwarder Transcargo Worldwide, told Air Cargo World . The return of PPE demand After the surge in 2020 driven by the need to move PPE to support health care workers around the world, those shipments settled to a small portion of airfreight demand as the need for other commodities rose. The end of 2021 into early 2022 also saw an uptick in demand for PPE from the Asia-Pacific region, according to the latest traffic report from the International Air Transport Association (IATA). This round is dominated by testing kits, according to forwarders. “We are shipping huge volumes of COVID-19 self-test kits from China by air,” Ong Chin said. He further noted that while Transcargo has only transported test kits to Malaysia, the demand from the U.S., Europe and Australia is also high. Paired with the recent commitment from U.S. President Joe Biden, who promised to make testing available to every American household, the surge in demand for test kits en route to the United States has created additional tightness on the trans-Pacific trade lane, Kerry Logistics’ Krautheim shared. However, while forwarder CEVA Logistics is also transporting PPE, Penseel noted that they are not transporting the same volumes as in 2020. Though it is unclear when the increased demand for PPE will start to slow, forwarders are doing their best to keep other cargo moving, including, increasingly, cryptocurrency mining hardware. “From Malaysia, we are shipping huge volumes of Antminer (Bitmain) to the U.S. by air … and we see the demand will be consistent throughout this year,” Transcargo’s Ong Chin said. “Besides Antminer, we see the market shipping big tonnages of [printed circuit boards] PCB to the U.S. for the automotive industry.” May the Lunar New Year light the way Freight forwarders have become more tactical with their problem solving with two years of navigating COVID-19’s ongoing challenges under their belts. While 2022’s issues may be similar to 2020 and 2021’s challenging landscape, planning must be nuanced and strategic with room for flexibility, especially when it comes to securing capacity on one of the world’s hottest and most congested trade lanes. Indeed, demand continues to be strong across many routes, CEVA’s Penseel said. In addition to large gateways in China and Hong Kong, demand is strong from Vietnam, South Korea and Thailand into the U.S. and Europe, he added. Many freight forwarders have launched own-controlled networks or partnered with carriers to guarantee capacity to customers looking to transport goods to and from the Asia-Pacific region. In January alone, Danish forwarder DSV and France-based logistics company Geodis added more Asia-Pacific capacity to their own-controlled networks to help mitigate the challenges caused by the recent changes in COVID-19 regulations. Kerry Logistics also plans to ramp up its Kerry Freight Controlled Network (KCN) over the next few months, Krautheim said. Meanwhile, passenger freighters or cargo-only passenger flights still prove useful for the trans-Pacific market, despite regulations making it more difficult to load cargo-only passenger aircraft in mainland China, Krautheim said. Airlines have also been adding additional commercial flights to help meet the demand, Penseel noted. Regardless of the challenges, passenger freighters will remain a big part of airfreight activity in the Asia-Pacific region, and forwarders expect that these operations will stay put for quite a while. While the year of the Tiger may prove to be just as turbulent as the past two years, the airfreight industry is nothing if not resilient in the face of adversity. As communities welcome in the new year, may the light from the holiday lanterns help guide ground handlers, carriers and freight forwarders through another busy year of transporting life-saving PPE, automotive shipments among other in-demand commodities needed to fuel the global economy.

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