Air freight rates head back to earth as coronavirus-driven boom cools

Hong Kong’s Cathay Pacific, one of the world’s biggest freight carriers, said last week that demand for medical supplies had softened in the latter half of May. (Courtesy Cathay Pacific Facebook)
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Updated 19 June 2020

Air freight rates head back to earth as coronavirus-driven boom cools

  • Declining prices may deal a blow to carriers scrambling to move cargo to offset weak passenger revenues
  • Cathay Pacific says demand for medical supplies had softened in the latter half of May

SYDNEY/LOS ANGELES: An air cargo boom driven by demand for protective gear against the coronavirus has peaked and rates, while still 50 percent above normal levels, are falling in a worrying trend for airlines relying on freight revenue in the absence of passengers.
Declining prices may deal a blow to carriers that are scrambling to move cargo to offset weak passenger revenues as they rebuild networks by flying reopened routes with half-empty cabins.
“The early-mover advantage has disappeared and I can see why some of the rates are coming down,” said Phil Seymour, president of aviation consulting firm IBA. “The market is becoming flooded with belly freight capacity.”
About half of the air cargo carried worldwide normally flies in the belly of passenger jets rather than in dedicated freighters.
But flight cuts due to weak travel demand squeezed freight capacity at a time when demand for masks, gloves and other protective gear was surging, leading many airlines to fly empty passenger jets as freighters.
Global air cargo capacity was down 27 percent in the week starting May 31 compared with a year ago, according to Accenture data, but capacity is rising as passenger flights return.
Air freight rates from China to the United States surged to more than $7 a kilogram in April and May and China-Europe rates were at more than $6 a kilo, Frederic Horst of Cargo Facts Consulting said. Rates have since softened, although they remain 40 percent-50 percent above normal levels closer to $3 a kilo, he added.
“I wouldn’t say they have come back to earth, but they are heading toward it,” Brian Bourke, chief growth officer of US-based SEKO Logistics said of rates.
The International Air Transport Association estimates cargo will contribute 26 percent of airline industry revenue in 2020, up from 12 percent in 2019, due mostly to a sharp fall in passenger revenue that will lead to forecast losses of more than $84 billion.
Air freight demand had been depressed before the pandemic due to subdued global economic growth and a US-China trade war and recessionary conditions will make for a slow recovery, said Oliver Plogmann, Singapore-based aviation lead at Accenture.
“We estimate around 100 passenger freighters are flying globally and we think the number is going to reduce over the next weeks and months when more capacity comes back into the market because it is simply not viable,” he said.
Hong Kong’s Cathay Pacific Airways Ltd, one of the world’s biggest freight carriers, said last week that demand for medical supplies had softened in the latter half of May. It flew nearly 900 cargo flights with passenger planes in May but that could be reduced as demand falls.
Taiwan’s China Airlines Ltd. said it was concerned about the outlook for cargo given there was no obvious global economic recovery trend.
“PPE (personal protective equipment) via air freight has drastically slowed down in the last couple of couple weeks, and it’s probably because the second round can afford to go ocean freight,” said David Goldberg, chief executive of DHL Global Forwarding USA.
“We’ve seen more rationalization of the air freight rates. They’re still at high levels.”
Logistics group C.H. Robinson said it helped the state of Minnesota save $500,000 in shipping costs for surgical gowns by selecting fast boat services over air freight.


Iranian oil in perfect storm of storage shortage, low demand, sanctions

Updated 3 min 31 sec ago

Iranian oil in perfect storm of storage shortage, low demand, sanctions

  • Coronavirus, US economic action sees inventories reach bursting point

LONDON: Iranian oil production has reached its lowest point in almost four decades, according to industry experts, with the country’s storage facilities fast approaching full capacity.

The news comes amid a dip in Iran’s oil exports due to a crash in global demand, and in a period when its refineries have been hampered as a result of the coronavirus outbreak.

With over 11,000 confirmed fatalities, Iran has suffered the worst coronavirus outbreak in the Middle East, affecting all areas of industry. 

This has created a perfect storm for the country’s vital oil sector, with what little selling ability it has further disrupted by sanctions imposed by the US in 2018 following Washington’s withdrawal from the Iran nuclear deal.

Iran’s total liquid production dropped from 3.1 million barrels per day (bpd) in March this year to 3 million bpd in June, according to FGE Energy, which predicts that the figure will drop by an additional 100,000 bpd in July.

Crude production was as low as 1.9 million bpd in June, the lowest since the beginning of the Iran-Iraq war in 1981.

Exports also fell, with estimates varying depending on source — 100,000 bpd in May according to market intelligence firm Kpler, and around 210,000 bpd according to FGE — well under 10 percent of the 2.5 million bpd Iran exported in April 2018.

Iran’s onshore crude stocks, meanwhile, hit 63 million barrels in June, having been just 15 million barrels in January, according to FGE.

Kpler said Iran averaged 66 million barrels in storage throughout June, meaning that around 85 percent of the country’s total onshore storage capacity was full.

“However, it will technically not be possible to fill tanks to 100 percent, given technical constraints at storage tanks and potential infrastructure bottlenecks,” Homayoun Falakshahi, a senior analyst at Kpler, told Reuters.

Offshore the story is much the same, with options running out fast. Iran has 54 crude oil tankers, according to valuations specialist VesselsValue, and is thought to be using around 30 ships, mainly supertankers with a maximum capacity of 2 million barrels of oil each, to store over 50 million barrels of crude and condensate.

“The exact number of Iranian vessels on floating storage is a bit of a black box as they have all turned off their AIS (tracking transponder) signals,” said a spokesman for shipping group NORDEN.

“Storage is expected to continue as we do not see these vessels being able to trade anytime soon.”

The Iranian-American Harvard analyst Dr. Majid Rafizadeh told Arab News: “Thanks to the re-imposition of sanctions against Tehran by the Trump administration, the regime seems to have suffered a significant loss of revenue.
“Iran’s oil revenues and exports have been steadily declining since President Trump pulled out of the Joint Comprehensive Plan of Action and adopted a policy of ‘maximum pressure.’

“Consequently, the flow of funds to the Iranian regime has been cut off, thwarting the Iranian leaders’ efforts to fund and sponsor Bashar Assad’s regime in Syria and various terror groups.”